<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1998
Registration No. 333-62849
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
HARLEY-DAVIDSON EAGLEMARK MOTORCYCLE TRUSTS
(Issuer with respect to the Securities)
EAGLEMARK, INC.
(Sponsor of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
Nevada 88-0292891
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4150 Technology Way
Carson City, Nevada 89706
(702) 886-3200
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Donna F. Zarcone
President and Chief Operating Officer
Eaglemark, Inc.
4150 Technology Way
Carson City, Nevada 89706
(702) 886-3200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
M. David Galainena, Esq. Jack M. Costello, Esq.
Winston & Strawn Brown & Wood LLP
35 West Wacker Drive One World Trade Center
Chicago, Illinois 60601 New York, New York 10048
(312) 558-5600 (212) 839-5300
_____________________________
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /_______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Title of Securities Amount to Be Proposed Maximum Offering Price Proposed Maximum Aggregate Amount of
to Be Registered Registered(1) Per Unit (2) Offering Price Registration Fee
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Harley-Davidson $1,200,000,000 100% $1,200,000,000 $354,000
Motorcycle Contract
Backed Notes and
Certificates
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</TABLE>
(1) The amount of Securities being registered represents the maximum
aggregate principal amount of Securities to be offered for sale.
$10,000,000 aggregate principal amount of the Securities registered by
the Registrant under Registration Statement No. 333-21793 referred to
below and not previously sold are consolidated in this Registration
Statement pursuant to Rule 429. All registration fees in the amount of
$181,818 in connection with such unsold amount of Securities have
previously been paid under Registration Statement No. 333-21793. The
total amount registered under this Registration Statement as so
consolidated as of the date of this filing is $1,210,000,000
(2) Estimated solely for purposes of calculating the registration fee.
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
and Prospectus Supplement filed as part of this Registration Statement also
relate to $10,000,000 principal amount of Securities previously registered by
the Registrant under its Registration Statement on Form S-3 (File No.
333-21793).
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
INTRODUCTORY NOTE
This Registration Statement contains a form of Prospectus relating to
the offering of series of Harley-Davidson Motorcycle Contract Backed Notes
and/or Harley-Davidson Motorcycle Contract Backed Certificates by various
Harley-Davidson Eaglemark Motorcycle Trusts created from time to time by
Eaglemark, Inc., as well as two forms of Prospectus Supplement relating to the
offering by a Harley-Davidson Eaglemark Motorcycle Trust of the particular
series of Harley-Davidson Motorcycle Contract Backed Certificates or of
Harley-Davidson Motorcycle Contract Backed Notes and/or Harley-Davidson
Motorcycle Contract Backed Certificates, as applicable, described therein. Each
form of Prospectus Supplement relates only to the securities described therein
and is a form that may be used, among others, by Eaglemark, Inc. to offer
Harley-Davidson Motorcycle Contract Backed Notes and/or Harley-Davidson
Motorcycle Contract Backed Certificates under this Registration Statement.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED
PROSPECTUS SUPPLEMENT
(To Prospectus dated )
$
HARLEY-DAVIDSON EAGLEMARK MOTORCYCLE TRUST 199__-[ ]
$ % HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$ % HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$ % HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES
EAGLEMARK, INC.
SELLER AND SERVICER
EAGLEMARK CUSTOMER FUNDING CORPORATION-[ ]
TRUST DEPOSITOR
__________________
The Harley-Davidson Eaglemark Motorcycle Trust 199__-[ ] Harley-Davidson
Contract Backed Securities described in this Prospectus Supplement will consist
of two Classes of notes (respectively, the "CLASS A-1 NOTES", and the "CLASS A-2
NOTES" and collectively, the "NOTES") and one Class of certificates (the
"CERTIFICATES" and, together with the Notes, the "SECURITIES"). Principal, in
the amounts set forth herein, and interest at the Interest Rates and
Pass-Through Rate specified above for each Class of Notes and the Certificates
will be distributed to the related Securityholders on the fifteenth day of each
month (or, if such day is not a Business Day, on the immediately succeeding
Business Day, each, a "DISTRIBUTION DATE"), beginning .
Distributions on the Certificates will be subordinated to payments due on the
Notes to the extent described herein. Each Class of Notes and Certificates will
be payable in full on the Final Distribution Dates (as herein defined) specified
herein for such Securities.
Distributions on the Certificates will be subordinated in priority to
payments due on the Notes. Payments of principal on the Class A-2 Notes
generally (with certain limited exceptions described herein) will not be made
before repayment of the entire principal amount due on the Class A-1 Notes. See
"Summary of Terms--Securities Offered--General" herein.
(COVER CONTINUED ON THE NEXT PAGE)
POTENTIAL INVESTORS SHOULD CAREFULLY CONSIDER THE POTENTIAL RISK FACTORS
SET FORTH UNDER "RISK FACTORS" ON PAGE S-[ ] HEREOF AND ON PAGE 13 OF THE
PROSPECTUS.
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.
__________________
The Underwriters have agreed to purchase the Notes and the Certificates
from the Trust as provided herein, and the Securities will be offered by the
Underwriters from time to time as provided herein in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The aggregate
net proceeds to the Seller from the sale of the Securities are expected to be
$ before deducting other offering expenses payable by the Seller of
approximately $ .
The Securities are offered subject to receipt and acceptance by the
Underwriters and to the Underwriters' right to reject any offer in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Securities will be made in book-entry form through the
facilities of The Depository Trust Company ("DTC"), and solely in the case of
the Notes, Cedel Bank, societe anonyme ""CEDEL") and the Euroclear System
("EUROCLEAR") on or about .
__________________
SALOMON SMITH BARNEY
The date of this Prospectus Supplement is .
<PAGE>
(cover page continued)
The Harley-Davidson Eaglemark Motorcycle Trust 199__-[ ] (the "TRUST") will be
formed pursuant to a Trust Agreement dated as of [ ], 199__ (the
"TRUST AGREEMENT") entered into by and between Eaglemark Customer Funding
Corporation-[ ] (the "TRUST DEPOSITOR") and Wilmington Trust Company, as Owner
Trustee (the "OWNER TRUSTEE"). The Trust Depositor is a wholly owned,
limited-purpose subsidiary of Eaglemark, Inc. ("EAGLEMARK"). The Certificates
will be issued pursuant to the Trust Agreement and will represent fractional
undivided equity interests in the Trust. The Notes will be issued and secured
pursuant to an Indenture dated as of [ ], 199__ (the "INDENTURE") to
be entered into by and between the Trust and Harris Trust and Savings Bank, as
Indenture Trustee (the "INDENTURE TRUSTEE" and together with the Owner Trustee,
the "TRUSTEES"), and will represent obligations of the Trust.
The Trust property will consist of an initial pool of fixed-rate, simple
interest motorcycle conditional sales contracts (the "INITIAL CONTRACTS" which,
together with any Subsequent Contracts (as defined below), are collectively the
"CONTRACTS") relating to Motorcycles manufactured by Harley-Davidson, Inc.
("HARLEY-DAVIDSON") or, in certain limited instances as described herein,
Motorcycles manufactured by an affiliate of Harley-Davidson, Buell Motorcycle
Company ("BUELL"), including all rights to receive payments collected on such
Initial Contracts on or after [ ], 199__ (the "INITIAL CUTOFF DATE").
The Trust property also will consist of security interests in the Motorcycles
financed through the Contracts; proceeds from certain insurance policies as
described in "CERTAIN INFORMATION REGARDING THE SECURITIES -- INDIVIDUAL
MOTORCYCLE INSURANCE" herein; amounts held for the Trust in the Collection
Account; and certain other property as more fully described herein
(collectively, the "TRUST PROPERTY"). The Trust will also pledge certain monies
on deposit in a trust account (the "PRE-FUNDING ACCOUNT") to be established with
the Indenture Trustee on behalf of the Noteholders which will be used by the
Trust to purchase from the Trust Depositor Subsequent Contracts (as defined
herein).
The Contracts were originated by Eaglemark indirectly through Harley-Davidson
motorcycle dealers. Contracts with an aggregate principal balance (as of the
Initial Cutoff Date) of $[ ] will be sold by Eaglemark (in such
capacity, the "SELLER") to the Trust Depositor on the date of issuance of the
Notes and Certificates pursuant to a Transfer and Sale Agreement dated as of [
], 199__ by and between the Seller and the Trust Depositor (the "TRANSFER
AND SALE AGREEMENT"), will be further transferred and assigned by the Trust
Depositor to the Trust on such date pursuant to the Sale and Servicing Agreement
dated as of [ ], 199__ (the "AGREEMENT") by and among the Trust, the
Trust Depositor, the Indenture Trustee and Eaglemark, as Servicer (in such
capacity, together with successors and assigns, the "SERVICER") and will be
pledged by the Trust to the Indenture Trustee pursuant to the Indenture.
Additional fixed-rate, simple interest Harley-Davidson (and, in limited
instances, Buell) motorcycle conditional sales contracts (the "SUBSEQUENT
CONTRACTS") will be sold from time to time by the Seller to the Trust Depositor
at or before the end of the Funding Period (as defined herein) and concurrently,
in accordance with the Agreement, transferred by the Trust Depositor to the
Trust and, in accordance with the Indenture, pledged by the Trust to the
Indenture Trustee, with the purchase price to be payable to the Trust Depositor
from funds on deposit in the Pre-Funding Account.
Principal, and interest with respect to the Class A-1 Notes of _____% per annum
(the "CLASS A-1 RATE"), the Class A-2 Notes of _____% per annum (the "CLASS A-2
RATE"), and the Certificates of _____% per annum (the "PASS-THROUGH RATE") will
be distributable with respect to the Class A-1 Notes, the Class A-2 Notes and
the Certificates on the Distribution Date. The final scheduled Distribution
Date of the Class A-1 Notes, Class A-2 Notes and the Certificates will be on the
Distribution Dates occurring in [ ], 200__, [ ],
200__ and [ ] 200__, respectively. See "CERTAIN INFORMATION REGARDING
THE SECURITIES." However, payment in full of the Notes and Certificates could
occur earlier than such date as described herein. In addition, the Class A-2
Notes and the Certificates will be subject to prepayment in whole, but not in
part, on any Distribution Date on which the Trust Depositor exercises its option
to repurchase the Contracts from the Trust. The Trust Depositor may repurchase
the Contracts from the Trust (and the Seller may concurrently repurchase such
Contracts from the Trust Depositor) when the Principal Balance of the Contracts
(the "Pool Balance") has declined to less than 10% of the Pool Balance as of the
Initial Cutoff Date (the "Initial Pool Balance") (such repurchase being referred
to herein as an "OPTIONAL PURCHASE"). Both the Class A-1 Notes and the Class
A-2 Notes will also be subject to partial mandatory prepayment, without premium,
in the event that funds remain in the Pre-Funding Account at the end of the
Funding Period (as defined herein).
S-2
<PAGE>
It is a condition of issuance that the Class A-1 Notes and the Class A-2 Notes
be rated AAA and Aaa by Standard & Poor's Ratings Services ("S&P") and Moody's
Investors Service, Inc. ("MOODY'S" and, together with S&P, the "RATING
AGENCIES"), respectively and that the Certificates be rated at least [ ] by
S&P and [ ] by Moody's.
THE NOTES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES WILL REPRESENT
BENEFICIAL EQUITY INTERESTS IN, THE TRUST AND WILL NOT REPRESENT OBLIGATIONS OF
OR INTERESTS IN EAGLEMARK FINANCIAL SERVICES, INC., EAGLEMARK, INC., EAGLEMARK
CUSTOMER FUNDING CORPORATION-[ ] OR ANY OF THEIR RESPECTIVE AFFILIATES. NONE
OF THE NOTES, THE CERTIFICATES OR THE CONTRACTS IS INSURED OR GUARANTEED BY ANY
GOVERNMENTAL ENTITY.
THE SECURITIES ARE BEING OFFERED FROM TIME TO TIME PURSUANT TO THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS ACCOMPANYING THIS PROSPECTUS SUPPLEMENT. THIS
PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING
OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS, AND
PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
IN FULL. SALES OF THE SECURITIES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER
HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT
THAT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT MODIFY STATEMENTS CONTAINED IN
THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
There currently is no secondary market for the Securities and there is no
assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Notes and the Certificates. There is no
assurance that any such market will develop, or if one does develop, that it
will continue or provide sufficient liquidity.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
AFFECT THE PRICE OF THE SECURITIES. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE
OF SECURITIES TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE
TRANSACTIONS, SEE "UNDERWRITING" HEREIN.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from an Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Seller or such
Underwriter will promptly deliver, or cause to be delivered, without charge, to
such investor a paper copy of the Prospectus Supplement and Prospectus.
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS EFFECTING
TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
REPORTS TO SECURITYHOLDERS
Unless and until the Securities are issued in definitive certificate form,
monthly and annual unaudited reports containing information concerning the
Contracts will be prepared by the Servicer, and sent on behalf of the Trust only
to Cede & Co., as nominee of DTC and registered holder of the Certificates. See
"CERTAIN INFORMATION REGARDING THE SECURITIES--BOOK-ENTRY REGISTRATION" and
"--REPORTS TO SECURITYHOLDERS" in the accompanying Prospectus. Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Servicer will file with the Securities and
Exchange Commission (the "COMMISSION") such periodic reports with respect to the
Trust as are required under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and the rules and regulations of the Commission thereunder.
S-3
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT ON THE PAGES INDICATED IN THE "INDEX OF DEFINED TERMS" OR, TO THE
EXTENT NOT DEFINED HEREIN, HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE
PROSPECTUS.
Trust. . . . . . . . . . . . . Harley-Davidson Eaglemark Motorcycle Trust
199__-[ ] (the "TRUST").
Trust Depositor. . . . . . . . Eaglemark Customer Funding Corporation-[ ], a
wholly owned, limited-purpose subsidiary
of Eaglemark, Inc. (the "TRUST
DEPOSITOR").
Seller and Servicer or
Seller/Servicer. . . . . . . Eaglemark, Inc. ("EAGLEMARK" or the "SELLER"
or, in its capacity as Servicer, the
"SERVICER"), a 100% owned subsidiary of
Eaglemark Financial Services, Inc.
("EAGLEMARK FINANCIAL").
Owner Trustee. . . . . . . . . Wilmington Trust Company, a Delaware banking
corporation (in such capacity, the
"OWNER TRUSTEE").
Indenture Trustee. . . . . . . Harris Trust and Savings Bank, an Illinois
banking corporation (in such capacity,
the "INDENTURE TRUSTEE"). The Indenture
Trustee will also act as Paying Agent
under the Indenture and the Trust
Agreement.
Closing Date . . . . . . . . . On or about [ ], 199__.
Securities Offered . . . . . . The securities offered are as follows:
A. General . . . . . . . The Harley-Davidson Eaglemark Motorcycle
Trust 199__-[ ] Harley-Davidson
Motorcycle Contract Backed Notes (the
"NOTES") will represent indebtedness of
the Trust secured by the assets of the
Trust (other than the Certificate
Distribution Account as defined herein).
The Harley-Davidson Eaglemark Motorcycle
Trust 199__-[ ] Harley-Davidson
Motorcycle Contract Backed Certificates
(the "CERTIFICATES" and, together with
the Notes, the "SECURITIES") will
represent fractional undivided equity
interests in the Trust.
S-4
<PAGE>
The Trust will issue two Classes of Notes
pursuant to an Indenture to be dated as
of [ ], 199__ (the
"INDENTURE"), between the Trust and the
Indenture Trustee, as follows: (i) $[
] aggregate principal amount
(the "INITIAL CLASS A-1 NOTE BALANCE")
of Class A-1 [ ]% Harley-Davidson
Motorcycle Contract Backed Notes (the
"CLASS A-1 NOTES") and (ii) $[
] aggregate principal amount (the
"INITIAL CLASS A-2 NOTE BALANCE") of
Class A-2 [ ]% Harley-Davidson
Motorcycle Contract Backed Notes (the
"CLASS A-2 NOTES"). Payments of
principal, made through the application
of available collections on the
Contracts in an amount reflecting
reductions in the principal balances of
the Contracts, and from certain other
available amounts as described herein,
will be made first on the Class A-1
Notes until the Class A-1 Notes have
been repaid in full (except to the
limited extent described in "TERMS OF
THE NOTES -- MANDATORY SPECIAL
REDEMPTION" below), and thereafter on
the Class A-2 Notes until the Class A-2
Notes have been repaid in full, and in
each case prior to any repayment of
principal on the Certificates. Payments
of interest on the Class A-1 Notes and
the Class A-2 Notes will be made from
available collections on the Contracts,
and from certain other available amounts
as described herein, without priority of
payment between such Classes, but in
each case prior to payment of interest
on the Certificates. See "CERTAIN
INFORMATION REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES."
Accordingly, the principal distinction
between an investment in the Class A-1
Notes and the Class A-2 Notes is that
holders of Class A-1 Notes will receive
a return of invested principal sooner
than holders of Class A-2 Notes.
The Trust will issue $[ ]
aggregate principal amount of [ ]%
Certificates pursuant to a Trust
Agreement to be dated as of [ ],
199__ (the "TRUST AGREEMENT") by and
between the Trust Depositor and the
Owner Trustee (the Owner Trustee,
together with the Indenture Trustee,
being sometimes collectively referred to
herein as the "TRUSTEES"). Payments in
respect of principal and interest on the
Certificates will be subordinated to
payments on the Notes to the extent
described herein.
Each Class of Notes and the Certificates will
be issued in minimum denominations of
$1,000 and will be available in
book-entry form only. Securityholders
will be able to receive Definitive
Securities (as defined herein) only in
the limited circumstances described
herein. See "CERTAIN INFORMATION
REGARDING THE SECURITIES -- FORM,
EXCHANGE, REGISTRATION AND TITLE"
herein.
B. Trust Property . . . . . . The Trust Property consists of, among other
things, the pool of Initial Contracts
together with any Subsequent Contracts
transferred to the Trust, and all
rights, benefits, obligations and
proceeds arising therefrom or in
connection therewith, including security
interests in the Harley-Davidson (and,
in certain limited instances, Buell)
motorcycles (the "MOTORCYCLES"; see "THE
CONTRACTS" and "HARLEY-DAVIDSON
MOTORCYCLES") securing such Contracts
and proceeds, if any, from certain
insurance policies with respect to
individual Motorcycles.
S-5
<PAGE>
C. Distribution Dates . . . . Distributions of interest and principal on
the Securities will be made on the
fifteenth day of each month (or, if such
day is not a Business Day, on the next
succeeding Business Day) (each, a
"DISTRIBUTION DATE"), commencing [ ],
199__. Payments on the Securities on
each Distribution Date will be paid to
the holders of the related Securities
who are of record on the last Business
Day immediately preceding the related
Distribution Date (each, a "RECORD
DATE").
A "BUSINESS DAY" will be any day other than a
Saturday, a Sunday or a day on which
banking institutions in Chicago,
Illinois or Wilmington, Delaware are
authorized or obligated by law,
executive order or government decree to
be closed.
To the extent not previously paid prior to
such dates, the outstanding principal
amount of (i) the Class A-1 Notes will
be payable on the Distribution Date
occurring in [ ] 200__ (the
"CLASS A-1 FINAL DISTRIBUTION DATE") and
(ii) the Class A-2 Notes will be payable
on the Distribution Date occurring in [
] 200__ (the "CLASS A-2 FINAL
DISTRIBUTION DATE" and, together with
the Class A-1 Final Distribution Date,
the "NOTE FINAL DISTRIBUTION DATES").
To the extent not previously paid in
full prior to such date, the unpaid
principal balance of the Certificates
will be payable on the Distribution Date
occurring in [ ] 200__ (the
"CERTIFICATE FINAL DISTRIBUTION DATE"
and, together with the Note Final
Distribution Dates, the "FINAL
DISTRIBUTION DATES").
Terms of the Notes . . . . . . The principal terms of the Notes will be as
described below:
A. Interest Rates . . . . . . The Class A-1 Notes will bear interest at the
rate of [ ]% per annum (the "CLASS
A-1 RATE") and the Class A-2 Notes will
bear interest at the rate of [ ]%
per annum (the "CLASS A-2 RATE" and,
together with the Class A-1 Rate, the
"INTEREST RATES").
B. Interest . . . . . . . . . Interest on the outstanding principal amount
of the Class A-1 Notes and Class A-2
Notes will accrue at the related
Interest Rate from and including the
fifteenth day of the month of the most
recent Distribution Date based on a
360-day year consisting of 12 months of
30 days each (or from and including the
Closing Date with respect to the first
Distribution Date) to but excluding the
fifteenth day of the month of the
current Distribution Date (each, an
"INTEREST PERIOD"). Interest on the
Notes for any Distribution Date due but
not paid on such Distribution Date will
be due on the next Distribution Date,
together with, to the extent permitted
by applicable law, interest on such
shortfall at the related Interest Rate.
See "DESCRIPTION OF THE NOTES --
PAYMENTS OF INTEREST" and "CERTAIN
INFORMATION REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES."
S-6
<PAGE>
C. Principal. . . . . . . . . Principal of the Notes will be payable on
each Distribution Date in an amount
generally equal to the Note Principal
Distributable Amount (as defined herein)
for such Distribution Date, calculated
as described under "CERTAIN INFORMATION
REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES --
DEPOSITS TO THE DISTRIBUTION ACCOUNTS;
PRIORITY OF PAYMENTS." On each
Distribution Date, the Note Principal
Distributable Amount will be applied in
the following priority: first to reduce
the principal amount of the Class A-1
Notes to zero, and thereafter, to reduce
the principal amount of the Class A-2
Notes to zero. Notwithstanding the
foregoing, if the principal amount of
either the Class A-1 Notes or Class A-2
Notes has not been paid in full prior to
its related Note Final Distribution
Date, the Note Principal Distributable
Amount for such Note Final Distribution
Date will be the unpaid principal amount
of such Class of Notes as of such Note
Final Distribution Date. See
"DESCRIPTION OF THE NOTES -- PAYMENTS OF
PRINCIPAL."
D. Optional
Redemption. . . . . . . . In the event of an Optional Purchase, the
Class A-2 Notes will be redeemed in
whole, but not in part, at a redemption
price equal to the unpaid principal
amount of the Class A-2 Notes plus
accrued interest thereon at the related
Interest Rate. See "DESCRIPTION OF THE
NOTES -- OPTIONAL REDEMPTION."
E. Mandatory
Redemption. . . . . . . . Under certain conditions, the Notes may be
accelerated upon the occurrence of an
Event of Default under the Indenture.
See "DESCRIPTION OF THE NOTES -- EVENTS
OF DEFAULT."
F. Mandatory Special
Redemption . . . . . The holders of Class A-1 Notes ("CLASS A-1
NOTEHOLDERS") and Class A-2 Notes
("CLASS A-2 NOTEHOLDERS") will be
prepaid in part, without premium, on the
Distribution Date on or immediately
following the last day of the Funding
Period in the event that any amount
remains on deposit in the Pre-Funding
Account after giving effect to the
purchase of all Subsequent Contracts,
including any such purchase on such date
(a "MANDATORY SPECIAL REDEMPTION"). The
aggregate principal amount of Class A-1
Notes and Class A-2 Notes to be prepaid
will be an amount equal to the amount
then on deposit in the Pre-Funding
Account allocated pro rata; PROVIDED,
HOWEVER, in the event the Mandatory
Special Redemption Amount is less than
$150,000 such amount shall be allocated,
pro rata, solely to the Class A-1
Noteholders.
S-7
<PAGE>
Terms of the Certificates. . . The principal terms of the Certificates will
be as described below:
A. Interest. . . . . . . On each Distribution Date, the Owner Trustee
or any paying agent or paying agents as
the Owner Trustee may designate from
time to time (each, a "PAYING AGENT",
which initially will be the Indenture
Trustee) will distribute pro rata to
Certificateholders of record as of the
related Record Date accrued interest at
the rate of [ ]% per annum (the
"PASS-THROUGH RATE") on the Certificate
Balance (as defined herein) as of the
immediately preceding Distribution Date
(after giving effect to distributions of
principal to be made on such immediately
preceding Distribution Date) or, in the
case of the first Distribution Date, the
Initial Certificate Balance. Interest
in respect of a Distribution Date will
accrue from and including the Closing
Date (in the case of the first
Distribution Date) or from and including
the fifteenth day of the month of the
most recent Distribution Date to but
excluding the fifteenth day of the month
of the current Distribution Date based
on a 360-day year consisting of 12
months of 30 days each. Interest on the
Certificates for any Distribution Date
due but not paid on such Distribution
Date will be due on the next
Distribution Date, together with, to the
extent permitted by applicable law,
interest on such shortfall at the
Pass-Through Rate. See "DESCRIPTION OF
THE CERTIFICATES -- DISTRIBUTIONS OF
INTEREST" and "CERTAIN INFORMATION
REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES."
The "CERTIFICATE BALANCE" will equal
$[ ] (the "INITIAL CERTIFICATE
BALANCE") on the Closing Date and on any
date thereafter will equal the Initial
Certificate Balance reduced by all
distributions of principal previously
made in respect of the Certificates.
Distributions on the Certificates will
be subordinated to payments of interest
and principal on the Notes to the extent
described under "DESCRIPTION OF THE
CERTIFICATES" and "CERTAIN INFORMATION
REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES."
B. Principal . . . . . . No principal will be paid on the Certificates
until the Distribution Date on which the
principal amounts of the Class A-1 Notes
and Class A-2 Notes have been reduced to
zero. On such Distribution Date and
each Distribution Date thereafter,
principal of the Certificates will be
payable in an amount equal to the
Certificate Principal Distributable
Amount (as defined herein) for such
Distribution Date, calculated as
described under "CERTAIN INFORMATION
REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES --
DEPOSITS TO THE DISTRIBUTION ACCOUNTS;
PRIORITY OF PAYMENTS." If not paid in
full prior to the Certificate Final
Distribution Date, the remaining
Certificate Balance, if any, will be
payable on that date. See "DESCRIPTION
OF THE CERTIFICATES -- DISTRIBUTIONS OF
PRINCIPAL."
C. Optional
Prepayment. . . . . . . . In the event of an Optional Purchase, the
Certificates will be repaid in whole,
but not in part, at a repayment price
equal to the Certificate Balance plus
accrued interest thereon at the
Pass-Through Rate. See "DESCRIPTION OF
THE CERTIFICATES -- OPTIONAL
PREPAYMENT."
S-8
<PAGE>
Security for the Securities. . The principal security for the Securities
will be as described below:
A. The Contracts . . . . The Contracts will be fixed-rate, simple-
interest conditional sales contracts
for Motorcycles, including any and all
rights to receive payments collected
thereunder on or after the related
Cutoff Date and security interests in
the Motorcycles financed thereby.
On the Closing Date, the Trust Depositor will
sell, transfer and assign to the Trust
pursuant to the Agreement, and the Trust
will pledge to the Indenture Trustee,
pursuant to the Indenture, Initial
Contracts with an aggregate principal
balance of $[ ] as
of [ ], 199__ (the "INITIAL
CUTOFF DATE"). Following the Closing
Date, pursuant to the Agreement, the
Trust Depositor will be obligated,
subject only to the availability
thereof, to sell, and the Trust will be
obligated to purchase and pledge subject
to the satisfaction of certain
conditions set forth therein, Subsequent
Contracts from time to time during the
Funding Period (as defined below) having
an aggregate principal balance equal to
$[ ], such amount being
equal to the amount on deposit in the
Pre-Funding Account established under
the Indenture on the Closing Date. With
respect to each transfer of Subsequent
Contracts to the Trust and the
simultaneous pledge of Subsequent
Contracts to the Indenture Trustee, the
Trust Depositor will designate as a
cutoff date (each a "SUBSEQUENT CUTOFF
DATE") the date as of which such
Subsequent Contracts are deemed sold to
the Trust and pledged to the Indenture
Trustee. Each date on which Subsequent
Contracts are conveyed and pledged is
referred to herein as a "SUBSEQUENT
TRANSFER DATE."
The Initial Contracts and the Subsequent
Contracts will be selected from retail
Motorcycle installment sales contracts
in the Trust Depositor's portfolio based
on the criteria specified in the
Transfer and Sale Agreement. The
Contracts arise and will arise from
loans to Obligors located in the 50
states of the United States, the
District of Columbia and the U.S.
Territories. As of the Initial Cutoff
Date, the annual percentage rate of
interest on the Initial Contracts ranges
from [ ]% to [ ]% with a
weighted average of approximately
[ ]%. The Initial Contracts had a
weighted average term to scheduled
maturity, as of origination, of
approximately [ ] months, and a
weighted average term to scheduled
maturity, as of the Initial Cutoff Date,
of approximately [ ] months. The
final scheduled Distribution Date on the
Initial Contract with the latest
maturity is no later than [ ]
200__. No Contract (including any
Subsequent Contract) will have a
scheduled maturity later than [ ]
200__. The Contracts generally are or
will be prepayable at any time without
penalty to the Obligor. Following the
transfer of Subsequent Contracts to the
Trust, the aggregate characteristics of
the entire pool of Contracts may vary
from those of the Initial Contracts as
to the criteria identified and described
in "THE CONTRACTS" herein.
S-9
<PAGE>
B. The Reserve Fund. . . The Securityholders will be afforded certain
limited protection, to the extent
described herein, against losses in
respect of the Contracts by the
establishment of an account in the name
of the Indenture Trustee for the benefit
of the Securityholders (the "RESERVE
FUND").
The Reserve Fund will be created with an
initial deposit by the Trust Depositor
of $[ ] (the "RESERVE FUND
INITIAL DEPOSIT") on the Closing Date.
The funds in the Reserve Fund (including
the Initial Certificate Reserve Amount)
will thereafter be supplemented on each
Distribution Date by the deposit of
certain Excess Amounts, Subsequent
Reserve Fund Amounts and Subsequent
Certificate Reserve Amounts (as defined
herein) (such Excess Amounts, Subsequent
Reserve Fund Amounts and Subsequent
Certificate Reserve Amounts, together
with the Reserve Fund Initial Deposit
and the Initial Certificate Reserve
Amount (as defined herein), the "RESERVE
FUND DEPOSITS"), until the amount in the
Reserve Fund reaches the Specified
Reserve Fund Balance (as defined
herein). "EXCESS AMOUNTS" in respect of
a Distribution Date will be calculated
as described under "CERTAIN INFORMATION
REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES --
DEPOSITS TO THE DISTRIBUTION ACCOUNTS;
PRIORITY OF PAYMENTS" and will equal the
funds on deposit in the Collection
Account in respect of such Distribution
Date, after giving effect to all
distributions required to be made on
such Distribution Date from Available
Monies (as defined herein). The
"SUBSEQUENT RESERVE FUND AMOUNT" will
equal the amount on each Subsequent
Transfer Date equal to [ ]% of the
aggregate balance of the Subsequent
Contracts conveyed to the Trust. On
each Distribution Date, funds will be
withdrawn from the Reserve Fund, up to
the Available Amount (as hereinafter
defined), for distribution to
Securityholders to cover any shortfalls
in interest and principal required to be
paid on the Securities.
S-10
<PAGE>
In addition to the Reserve Fund Initial
Deposit, the Trust Depositor will
deposit $[ ], (the "INITIAL
CERTIFICATE RESERVE AMOUNT"), into the
Reserve Fund on the Closing Date. On
each Subsequent Transfer Date, the Trust
Depositor will deposit into the Reserve
Fund an amount equal to [ ]% of the
aggregate balance of the Subsequent
Contracts conveyed to the Trust on such
date (the "SUBSEQUENT CERTIFICATE
RESERVE AMOUNT", and together with the
Initial Certificate Reserve Amount the
"CERTIFICATE RESERVE AMOUNT"). If funds
in the Reserve Fund (other than the
Certificate Reserve Amount) are applied
in accordance with the last sentence of
the preceding paragraph and are
insufficient to distribute the interest
or principal due on the Certificates,
funds available from the Certificate
Reserve Amount will be withdrawn from
the Reserve Fund and applied solely to
cover any shortfalls of interest on the
Certificates on each Distribution Date
and of interest and principal on the
Certificates on the Certificate Final
Distribution Date. The Certificate
Reserve Amount will not be available to
pay interest or principal on the Notes.
The "AVAILABLE AMOUNT" will equal the
amount of all funds on deposit in the
Reserve Fund less the undistributed
balance of the Certificate Reserve
Amount, if any.
The "SPECIFIED RESERVE FUND BALANCE" with
respect to any Distribution Date will be
an amount equal to the sum of (i)[ ]%
of the Principal Balance of the
Contracts in the Trust as of the first
day of the immediately preceding Due
Period and (ii) $[ ];
PROVIDED, HOWEVER, in the event a
Reserve Fund Trigger Event (as
hereinafter defined) occurs with respect
to a Distribution Date and has not
terminated for three consecutive
Distribution Dates (inclusive of the
respective Distribution Date), the
Specified Reserve Fund Balance shall be
equal to the sum of (i) [ ]% of the
Principal Balance of the Contracts in
the Trust as of the first day of the
immediately preceding Due Period and
(ii) $[ ]. Notwithstanding
the foregoing, in no event shall the
Specified Reserve Fund Balance be less
than the sum of (i)[ ]% of the
aggregate of the Initial Class A-1 Note
Balance, Initial Class A-2 Note Balance
and Initial Certificate Balance and (ii)
$[ ]. As of any Distribution
Date, the amount of funds actually on
deposit in the Reserve Fund may, in
certain circumstances, be less than the
Specified Reserve Fund Balance. See
"CERTAIN INFORMATION REGARDING THE
SECURITIES -- PAYMENT PRIORITIES OF THE
NOTES AND CERTIFICATES."
On each Distribution Date, after giving
effect to all distributions made on such
Distribution Date, any amounts in the
Reserve Fund that are in excess of the
Specified Reserve Fund Balance will be
allocated and distributed to the Trust
Depositor. See "CERTAIN INFORMATION
REGARDING THE SECURITIES -- PAYMENT
PRIORITIES OF THE NOTES AND THE
CERTIFICATES; THE RESERVE FUND."
S-11
<PAGE>
C. Pre-Funding
Account . . . . . . . . . During the period (the "FUNDING PERIOD") from
and including the Closing Date until the
earliest of (a) the Distribution Date on
which the amount on deposit in the
Pre-Funding Account is less than $[ ],
(b) the date on which an Event of
Termination occurs with respect to the
Servicer under the Agreement, (c) the
date on which certain events of
insolvency occur with respect to the
Trust Depositor or (d) the close of
business on the date which is 90 days
from and including the Closing Date, the
Pre-Funding Account will be maintained
as an account in the name of the
Indenture Trustee on behalf of the
Noteholders to secure the Trust
Depositor's obligations under the
Agreement, as applicable, to purchase
and transfer Subsequent Contracts to the
Trust and the Trust's obligations under
the Indenture to pledge Subsequent
Contracts to the Indenture Trustee. The
Pre-Funded Amount will initially equal
$[ ] and, during the Funding
Period, will be reduced by the amount
thereof that the Trust uses to purchase
Subsequent Contracts from the Trust
Depositor and contemporaneously
therewith from the Seller by the Trust
Depositor. The Trust Depositor expects
that the Pre-Funded Amount will be
reduced to less than $[ ] by
the Distribution Date occurring in
[ ] 199__. Any Pre-Funded Amount
remaining at the end of the Funding
Period will be payable to the
Noteholders as described above in "TERMS
OF THE NOTES -- MANDATORY SPECIAL
REDEMPTION."
D. Interest Reserve
Account. . . . . . . . . The Trust Depositor will establish, and fund
with an initial deposit on the Closing
Date, a separate collateral account in
the name of the Indenture Trustee on
behalf of the Securityholders under the
Agreement (the "INTEREST RESERVE
ACCOUNT"), for the purpose of providing
additional funds for payment of Carrying
Charges (as described below) to pay
certain distributions on Distribution
Dates occurring during (and on the first
Distribution Date following the end of)
the Funding Period. In addition to the
initial deposit, all investment earnings
with respect to the Pre-Funding Account
are to be deposited into the Interest
Reserve Account and, pursuant to the
Agreement, on each Distribution Date
described above, amounts in respect of
Carrying Charges from such account will
be transferred into the Collection
Account. "CARRYING CHARGES" means (i)
the product of (x) the weighted average
of the Class A-1 Rate, the Class A-2
Rate and the Pass-Through Rate and (y)
the undisbursed funds (excluding
investment earnings) in the Pre-Funding
Account (as of the last day of the
related Due Period, as defined herein)
over (ii) the amount of any investment
earnings on funds in the Pre-Funding
Account which was transferred to the
Interest Reserve Account, as well as
interest earnings on amounts in the
Interest Reserve Account.
S-12
<PAGE>
The Interest Reserve Account will be
established to account for the fact that
a portion of the proceeds obtained from
the sale of the Notes will be initially
deposited in the Pre-Funding Account (as
the initial Pre-Funded Amount) rather
than invested in Contracts, and the
monthly investment earnings on such
Pre-Funded Amount (until the Pre-Funded
Amount is used to purchase Subsequent
Contracts) are expected to be less than
the weighted average of the Class A-1
Rate, the Class A-2 Rate and the
Pass-Through Rate with respect to the
corresponding portion of the Class A-1
Principal Balance, Class A-2 Principal
Balance and the Certificate Balance, as
well as the amount necessary to pay the
Trustees' Fees. The Interest Reserve
Account is not designed to provide any
protection against losses on the
Contracts in the Trust. After the
Funding Period, money remaining in the
Interest Reserve Account will be
released to the Trust Depositor.
Optional Purchase. . . . . . . The Seller, through the Trust Depositor may,
but will not be obligated to, purchase
all of the Contracts in the Trust, and
thereby cause early retirement of all
outstanding Securities, on any
Distribution Date as of which the Pool
Balance has declined to less than 10% of
the Initial Pool Balance (an "OPTIONAL
PURCHASE"). See "YIELD AND PREPAYMENT
CONSIDERATIONS."
Ratings. . . . . . . . . . . . It is a condition of issuance that the Class
A-1 Notes and Class A-2 Notes be rated
AAA by Standard & Poor's Ratings
Services, A Division of The McGraw-Hill
Companies ("S&P") and Aaa by Moody's
Investors Service, Inc. ("MOODY'S" and,
together with S&P, the "RATING
AGENCIES") and the Certificates be rated
at least [ ] by S&P and [ ] by
Moody's. See "RATINGS OF THE
SECURITIES."
Advances . . . . . . . . . . . The Servicer is obligated to advance each
month an amount equal to accrued and
unpaid interest on the Contracts which
was delinquent with respect to the
related Due Period (as defined herein)
(each an "ADVANCE"), but only to the
extent that the Servicer believes that
the amount of such Advance will be
recoverable from collections on the
Contracts. The Servicer will be
entitled to reimbursement of outstanding
Advances on any Distribution Date by
means of a first priority withdrawal of
Available Monies (as defined herein)
then held in the Collection Account.
See "CERTAIN INFORMATION REGARDING THE
SECURITIES--ADVANCES."
S-13
<PAGE>
Mandatory Repurchase by the
Trust Depositor. . . . . . . . Under the Agreement, the Trust Depositor has
agreed, in the event of a breach of
certain representations and warranties
made by the Trust Depositor and
contained therein which materially and
adversely affects the Trust's interest
in any Contract and which has not been
cured, to repurchase such Contract
within two business days prior to the
first Determination Date after the Trust
Depositor becomes aware of such breach.
"DETERMINATION DATE" means the fourth
business day following the conclusion of
a Due Period. The Seller is obligated
under the Transfer and Sale Agreement
(which right against the Seller the
Trust Depositor has assigned in such
circumstances to the Trust) to
repurchase the Contracts from the Trust
Depositor contemporaneously with the
Trust Depositor's purchase of the
Contracts from the Trust. See "CERTAIN
INFORMATION REGARDING THE
SECURITIES--CONVEYANCE OF CONTRACTS."
S-14
<PAGE>
Security Interests and Other
Aspects of the Contracts . . . In connection with the establishment of the
Trust as well as the assignment,
conveyance and transfer of Contracts
(including Subsequent Contracts) to the
Trust and pledge to the Indenture
Trustee, security interests in the
Motorcycles securing the Contracts have
been (or will be) (i) conveyed and
assigned by the Seller to the Trust
Depositor pursuant to the Transfer and
Sale Agreement (and, in the case of
Subsequent Contracts, the related
Subsequent Purchase Agreement as defined
therein and executed thereunder), (ii)
conveyed and assigned by the Trust
Depositor to the Trust pursuant to the
Agreement (and, in the case of
Subsequent Contracts, the related
Subsequent Transfer Agreement as defined
herein and executed thereunder) and
(iii) pledged by the Trust to the
Indenture Trustee pursuant to the
Indenture. The Agreement will designate
the Servicer as custodian to maintain
possession, as the Indenture Trustee's
agent, of the Contracts and any other
documents relating to the Motorcycles.
Uniform Commercial Code financing
statements will be filed in both Nevada
and Illinois, reflecting the conveyance
and assignment of the Contracts to the
Trust Depositor from the Seller, from
the Trust Depositor to the Trust and the
pledge from the Trust to the Indenture
Trustee, and the Seller's and the Trust
Depositor's accounting records and
computer systems will also reflect such
conveyance and assignment and pledge.
To facilitate servicing and save
administrative costs, such documents
will not be segregated from other
similar documents that are in the
Servicer's possession. However, the
Contracts will be stamped to reflect
their conveyance and assignment and
pledge. If, however, through fraud,
negligence or otherwise, a subsequent
purchaser were able to take physical
possession of the Contracts without
notice of such conveyance and assignment
and pledge, the Trust's and Indenture
Trustee's interest in the Contracts
could be defeated.
In addition, due to administrative
burden and expense, the certificates of
title to the Motorcycles will not be
amended or reissued to reflect the
conveyance and assignment of the
Seller's security interest in the
Motorcycles related to the Contracts to
the Trust Depositor and the Trust or the
pledge to the Indenture Trustee. In the
absence of amendments to the
certificates of title, the Trust and
Indenture Trustee will not have a
perfected security interest in the
Motorcycles in some states. Further,
federal and state consumer protection
laws impose requirements upon creditors
in connection with extensions of credit
and collections on conditional sales
contracts, and certain of these laws
make an assignee of such a contract
liable to the obligor thereon for any
violation of such laws by the lender.
The Trust Depositor has agreed to
repurchase any Contract as to which it
has failed to perfect a security
interest in the Motorcycle securing such
Contract, or as to which a breach of
federal or state laws exists if such
breach materially and adversely affects
the Trust's interest in such Contract
and if such failure or breach has not
been cured within 90 days. The Seller
has entered into a corresponding
obligation to repurchase such Contracts
from the Trust Depositor under the
Transfer and Sale Agreement and
Subsequent Purchase Agreements. See
"SECURITY INTERESTS AND OTHER ASPECTS OF
THE CONTRACTS; REPURCHASE OBLIGATIONS."
S-15
<PAGE>
Monthly Servicing Fee. . . . . The Servicer will be entitled to receive for
each Due Period a monthly servicing fee
(the "MONTHLY SERVICING FEE") equal to
1/12th of [ ]% of the Principal
Balance of the Contracts as of the
beginning of such Due Period. The
Servicer will also be entitled to
receive any extension fees or late
payment penalty fees paid by Obligors
(collectively with the Monthly Servicing
Fee, the "SERVICING FEE"). The
Servicing Fee is payable prior to any
payments to the Noteholders or the
Certificateholders. See "CERTAIN
INFORMATION REGARDING THE
SECURITIES--SERVICING COMPENSATION AND
PAYMENT OF EXPENSES."
Tax Status . . . . . . . . . . In the opinion of Winston & Strawn, federal
tax counsel to the Trust Depositor, for
federal income tax purposes, the Notes
will be characterized as debt, and the
Trust will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a
Note, will agree to treat the Notes as
indebtedness, and each
Certificateholder, by the acceptance of
a Certificate, will agree to treat the
Trust as a partnership in which the
Certificateholders are partners for
federal income tax purposes. See
"FEDERAL INCOME TAX CONSEQUENCES."
ERISA Considerations . . . . . Subject to the considerations discussed under
"ERISA CONSIDERATIONS" herein, the Notes
will be eligible for purchase by
employee benefit plans. Any benefit
plan fiduciary considering purchase of
the Notes should, however, consult with
its counsel regarding the consequences
of such purchase under ERISA and the
Code. See "ERISA CONSIDERATIONS."
The Certificates are not eligible for
purchase by (i) employee benefit plans
subject to ERISA, or (ii) individual
retirement accounts and other retirement
plans subject to Section 4975 of the
Code.
S-16
<PAGE>
RISK FACTORS
THE CONTRACTS AND REINVESTMENT RISK ASSOCIATED WITH THE PRE-FUNDING
ACCOUNT. On the Closing Date, the Trust Depositor will transfer $[ ] of
Initial Contracts to the Trust, which Initial Contracts the Trust Depositor
purchased from the Seller using part of the proceeds of the Notes and
Certificates sold to investors. The Trust Depositor will transfer $[ ]
(representing the Pre-Funded Amount), pursuant to the Agreement, into the
Pre-Funding Account established and maintained in the name of the Indenture
Trustee on behalf of the Securityholders. Such pledge will secure the Trust's
obligation to purchase from the Trust Depositor and transfer to the Trust the
Subsequent Contracts in a principal amount equal to the initial Pre-Funded
Amount at or before the end of the Funding Period. If the Seller fails to
originate a principal amount of eligible Contracts during the Funding Period
which is at least equal to the Pre-Funded Amount, the Trust Depositor will be
unable to acquire sufficient Subsequent Contracts to transfer to the Trust on
one or more Subsequent Transfer Dates, thereby resulting in a Mandatory Special
Redemption and prepayment of principal to the Noteholders as described in the
following paragraph. In addition, any conveyance of Subsequent Contracts is
subject to the satisfaction, on or before the related Subsequent Transfer Date,
of the following conditions, among others: (i) each such Subsequent Contract
satisfies the eligibility criteria specified in the Transfer and Sale Agreement
and the related Subsequent Purchase Agreement executed thereunder; (ii) as of
the applicable Subsequent Cutoff Date, no Contract in the Trust, including the
Subsequent Contracts that the Trust Depositor will be conveying as of such
Subsequent Cutoff Date, will have a scheduled maturity date later than
[ ] 200__; (iii) the Trust Depositor shall have executed and delivered in
favor of the Trust a written assignment (a "SUBSEQUENT TRANSFER AGREEMENT")
conveying such Subsequent Contracts to the Trust (including a schedule
identifying such Subsequent Contracts); (iv) the Trust Depositor shall have
delivered certain opinions of counsel to the Trustees, the Initial Purchaser and
the Rating Agencies with respect to the validity and other aspects of the
conveyance of all such Subsequent Contracts and (v) the Rating Agencies shall
have each notified the Trust Depositor and the Trustees in writing that,
following the addition of such Subsequent Contracts, the Class A-1 Notes and the
Class A-2 Notes will be rated AAA by S&P and Aaa by Moody's, and the
Certificates will be rated at least BBB by S&P and Baa2 by Moody's. Such
confirmation of the ratings of the Class A-1 Notes and the Class A-2 Notes and
the Certificates may depend on factors other than the characteristics of the
Subsequent Contracts, including the delinquency, repossession and net loss
experience on the Contracts in the Trust. Also, there can be no assurance that
the Seller will continue to generate Motorcycle conditional sales contracts that
satisfy the criteria set forth in the Transfer and Sale Agreement.
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Contracts by the Trust
Depositor during the Funding Period, the Class A-1 Noteholders and Class A-2
Noteholders will receive, on the Distribution Date on or immediately following
the last day of the Funding Period, a prepayment of principal in an amount equal
to the amount remaining in the Pre-Funding Account pro rata; PROVIDED, HOWEVER,
in the event the Mandatory Special Redemption Amount is less than $150,000 such
amount shall be allocated solely to the Class A-1 Noteholders. See also "RISK
FACTORS -- REINVESTMENT RISK ASSOCIATED WITH PRE-FUNDING ACCOUNTS AND COLLATERAL
REINVESTMENT ACCOUNTS" in the Prospectus. It is anticipated that even if the
Seller originates sufficient Subsequent Contracts to exhaust most of the
Pre-Funded Amount, the principal amount of Subsequent Contracts conveyed to the
Trust by the end of the Funding Period will not be exactly equal to the amount
on deposit in the Pre-Funding Account and that therefore there will be at least
a nominal amount of principal prepaid to the Class A-1 Noteholders at the end of
the Funding Period in any event.
Following the transfer of Subsequent Contracts to the Trust, the
aggregate characteristics of the entire pool of Contracts may vary from those of
the Initial Contracts as of the Initial Cutoff Date, as to the criteria
described in "THE CONTRACTS" below.
TRUST'S RELATIONSHIP TO THE TRUST DEPOSITOR AND SELLER. Neither the
Seller nor the Trust Depositor is generally obligated to make any payments in
respect of the Notes, Certificates or Contracts. However, in connection with
each conveyance of Contracts by the Seller to the Trust Depositor and by the
Trust Depositor to the Trust, the Seller and the Trust Depositor will make
representations and warranties with respect to the characteristics of such
Contracts. In certain circumstances, the Seller through the Trust Depositor is
obligated to repurchase Contracts with respect to which such representations or
warranties are not true as of the date made. Neither the Seller nor the Trust
Depositor is otherwise obligated with respect to the Notes or Certificates
(other than in respect of the transfer of Subsequent Contracts as
S-17
<PAGE>
described herein). See also "RISK FACTORS -- TRUST'S RELATIONSHIP TO EAGLEMARK,
THE TRUST DEPOSITORS, AND THEIR AFFILIATES" and "-- RISKS ASSOCIATED WITH
NON-RECOURSE NATURE OF THE SECURITIES" in the Prospectus.
SUBORDINATION; LIMITED ASSETS. See "CERTAIN INFORMATION REGARDING THE
SECURITIES -- PAYMENT PRIORITIES OF THE NOTES AND CERTIFICATES; RESERVE FUND."
Principal and interest payments on the Certificates will be subordinated to
payments on the Notes as described herein. Accordingly, the yield on the
Certificates will be sensitive to the loss experience on the Contracts and the
timing of such losses. If the actual rate and amount of losses experienced on
the Contracts exceed the rate and amount of losses assumed by an investor, the
yield to maturity of the Certificates may be lower than anticipated.
The Trust will not have, nor is it expected to have, any significant
assets or sources of funds other than the Contracts and its rights under the
Agreement, including the Pre-Funding Account, the Interest Reserve Account and
the Reserve Fund. Holders of the Securities must rely for repayment upon
payments on the Contracts and, if and to the extent available, amounts on
deposit in the Pre-Funding Account, the Interest Reserve Account and the Reserve
Fund. The Pre-Funding Account and the Interest Reserve Account will be
available during the Funding Period. The Pre-Funding Account will be used
solely to purchase Subsequent Contracts and is not available to cover losses on
the Contracts. The Interest Reserve Account is designed to cover obligations of
the Trust relating to that portion of the initial Note net proceeds not invested
in Contracts, and is not designed to provide any protection against losses on
the Contracts.
LIMITED DELINQUENCY AND LOAN LOSS EXPERIENCE WITH MOTORCYCLE CONTRACTS.
Eaglemark was organized in January 1993 and began purchasing and servicing
conditional sales contracts for Motorcycles in February 1993. Accordingly, and
for other reasons, Eaglemark's delinquency experience and loan loss and
repossession experience set forth under "THE CONTRACTS" may not be indicative of
the performance of the Contracts sold to the Trust Depositor and held by the
Trust and pledged to the Indenture Trustee. The Trust Depositor is a special
purpose corporation established for the limited purpose of purchasing the
Contracts (and other similar retail motorcycle conditional sales contracts) and
related assets from the Seller, and selling the same into the Trust (and other
similar trusts); the Trust Depositor was organized in October 1996.
SECURITY INTERESTS AND OTHER ASPECTS OF THE CONTRACTS. See generally
"RISK FACTORS -- RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED
MOTORCYCLES," "ADDITIONAL LEGAL LIMITS ON THE APPLICABLE TRUSTEE'S ABILITY TO
REALIZE ON ITS SECURITY INTEREST - BANKRUPTCY LAWS" and "-- ADDITIONAL LEGAL
LIMITS ON THE APPLICABLE TRUSTEE'S ABILITY TO REALIZE ON ITS SECURITY INTEREST -
CONSUMER PROTECTION LAWS" in the Prospectus.
LIMITED LIQUIDITY. There is currently no secondary market for the
Securities offered hereby. The Underwriter currently intends to make a market
in the Securities, but it is under no obligation to do so. There can be no
assurance that a secondary market will develop or, if a secondary market does
develop, that it will provide the Securityholders with liquidity of investment
or that it will continue for the life of the Securities.
COMPANY BANKRUPTCY CONSIDERATIONS. See generally "RISK FACTORS --
COMPANY BANKRUPTCY CONSIDERATIONS" in the Prospectus.
YIELD AND PREPAYMENT CONSIDERATIONS. See generally "RISK FACTORS --
PREPAYMENTS ON CONTRACTS AFFECT YIELD OF SECURITIES" in the Prospectus.
TAX STATUS. In the opinion of Winston & Strawn as federal income tax
counsel to the Trust Depositor, for federal income tax purposes, the Notes will
be characterized as debt and the Trust will not be characterized as an
association (or publicly traded partnership) taxable as a corporation. As no
cases, regulations or administrative rulings have addressed transactions similar
to those described herein, however, there can be no assurance the IRS or a court
will not take contrary positions. See "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."
RISK OF COMMINGLING. The Seller has initiated a direct debit program
with certain Obligors pursuant to which payments to be made by such Obligors
will be transferred from their checking or savings accounts to an account in the
Seller's name (the "ACH ACCOUNT") and remitted on a daily basis to a lockbox
account and transferred from such lockbox
S-18
<PAGE>
account pursuant to the Servicer's instructions to the related Collection
Account as specified in this Prospectus Supplement. Pending transfer of such
funds from the Seller's account to the Servicer such funds will not be
segregated from other funds of the Seller held in the ACH Account. See
generally "RISK FACTORS--RISK OF COMMINGLING" and "CERTAIN INFORMATION REGARDING
THE SECURITIES -- THE ACCOUNTS AND ELIGIBLE INVESTMENTS" in the Prospectus.
YEAR 2000. See generally "RISK FACTORS--RISKS RELATED TO YEAR 2000
ISSUES" in the Prospectus.
FORMATION OF THE TRUST
GENERAL
The Trust will be a business trust formed under the laws of the State of
Delaware pursuant to the Trust Agreement for the transactions described herein.
After its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Contracts and the other assets of the Trust
and proceeds therefrom; (ii) issuing the Notes and the Certificates; (iii)
making payments on the Notes and the Certificates; and (iv) engaging in other
activities that are necessary, suitable or convenient to accomplish the
foregoing purposes or are incidental thereto or connected therewith.
On the Closing Date, the Trust Depositor will sell and assign the Trust
Property to the Trust. Eaglemark will act as Servicer of the Contracts and will
receive compensation and fees for such services. See "CERTAIN INFORMATION
REGARDING THE SECURITIES -- SERVICING COMPENSATION AND PAYMENT OF EXPENSES."
The Trust's principal offices will be in Wilmington, Delaware, in care
of Wilmington Trust Company, as Owner Trustee, at the address listed below under
"THE OWNER TRUSTEE."
CAPITALIZATION
The Trust will initially be capitalized with equity equal to the Initial
Certificate Balance. The Trust Depositor will purchase Certificates with an
Initial Certificate Balance of approximately 1% of the Initial Certificate
Balance and the remaining equity interests will be sold to third party investors
that are expected to be unaffiliated with the Seller, the Trust Depositor, the
Servicer or the Trust.
The following table illustrates the capitalization of the Trust as of
the Cut-Off Date, as if the issuance and sale of the Securities had taken place,
on such date:
Class A-1 Notes . . . . $
Class A-2 Notes . . . . $
Certificates. . . . . . $
-------------
Total . . . . . . $
-------------
-------------
THE OWNER TRUSTEE
Wilmington Trust Company will be the Owner Trustee under the Trust
Agreement. Wilmington Trust Company is a Delaware corporation and its Corporate
Trust Office is located at 1100 North Market Street, Wilmington, Delaware
19890.
The Owner Trustee will have the rights and duties set forth herein under
"CERTAIN INFORMATION REGARDING THE SECURITIES -- THE TRUSTEES" and "-- DUTIES OF
THE TRUSTEES."
S-19
<PAGE>
POOL FACTORS AND TRADING INFORMATION
The "NOTE POOL FACTOR" for each Class of Notes will be a six-digit
decimal which the Servicer will compute prior to each Distribution Date with
respect to the Notes indicating the unpaid principal amount of such Class of
Notes, after giving effect to payments to be made on such Distribution Date, as
a fraction of the initial outstanding principal amount of such Class of Notes.
The "CERTIFICATE POOL FACTOR" for the Certificates will be a six-digit decimal
which the Servicer will compute prior to each Distribution Date indicating the
remaining Certificate Balance after giving effect to distributions to be made on
such Distribution Date, as a fraction of the Initial Certificate Balance. Each
Note Pool Factor and the Certificate Pool Factor will be 1.000000 as of the
Closing Date, and thereafter will decline to reflect reductions in the
outstanding principal amount of the applicable Class of Notes, or the reduction
of the Certificate Balance, as the case may be. A Noteholder's portion of the
aggregate outstanding principal amount of the related Class of Notes will be the
product of (i) the original denomination of such Noteholder's Notes and (ii) the
applicable Note Pool Factor at the time of determination. A Certificateholder's
portion of the aggregate outstanding Certificate Balance will be the product of
(i) the original denomination of such Certificateholder's Certificate and (ii)
the Certificate Pool Factor at the time of determination.
The Noteholders will receive reports on or about each Distribution Date
concerning payments received on the Contracts, the Pool Balance, each Note Pool
Factor and various other items of information, and the Certificateholders will
receive reports on or about each Distribution Date concerning payments received
on the Contracts, the Pool Balance, the Certificate 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. See "CERTAIN INFORMATION REGARDING THE
SECURITIES -- STATEMENTS TO SECURITYHOLDERS."
USE OF PROCEEDS
The Trust Depositor will use the net proceeds received from the sale of
the Notes and Certificates (i) for the purchase of the Initial Contracts and
related assets from the Seller, and (ii) the remainder for the funding of the
Pre-Funding Account. The Seller will use the net proceeds from the Trust
Depositor's purchase of the Initial Contracts, as well as Subsequent Contracts,
for the repayment of a substantial portion of the outstanding principal of the
warehouse lines through which it finances its motorcycle conditional sales
contracts. Following each such repayment, it is expected that the warehouse
lines will be used to build a new portfolio of Motorcycle conditional sales
contracts.
THE CONTRACTS
Each Contract is (or will be, in the case of Subsequent Contracts)
secured by a Motorcycle (as described below) and is (or will be) a conditional
sales contract originated by a Harley-Davidson dealer and purchased by the Trust
Depositor. No Contract may be substituted by the Seller or the Trust Depositor
with another Motorcycle contract after such Contract has been sold by the Trust
Depositor to the Trust.
Each Contract (a) is (or will be) secured by a Motorcycle, (b) has (or
will have) a fixed annual percentage rate and provide for, if timely made,
payments of principal and interest which fully amortize the loan on a simple
interest basis over its term, (c) with respect to the Initial Contracts, has its
last scheduled payment due no later than [ ] 200__, and with respect
to the Contracts as a whole (including any Subsequent Contracts conveyed to the
Trust after the Closing Date), will have a last scheduled payment due no later
than [ ] 200__, and (d) with respect to the Initial Contracts,
has its first scheduled payment due no later than [ ] 199__.
The Contracts were (or will be) acquired by the Trust Depositor in the ordinary
course of the Trust Depositor's business. A detailed listing of the Initial
Contracts is appended to the Agreement. See "DESCRIPTION OF THE CERTIFICATES"
below. (For general composition of the Initial Contracts see Table 1 below).
Approximately [ ]% of the Principal Balance of the Initial Contracts as of
the Initial Cutoff Date is attributable to loans to purchase Motorcycles which
were new and approximately [ ]% is attributable to loans to purchase
Motorcycles which were used at the time the related Contract was originated.
All Initial Contracts have a contractual rate of interest of at least [ ]%
per annum and not more than [ ]% per annum and the weighted
S-20
<PAGE>
average contractual rate of interest of the Initial Contracts as of the Initial
Cutoff Date is approximately [ ]% per annum (see Table 2 below). The
Initial Contracts have remaining maturities as of the Initial Cutoff Date of at
least [ ] months but not more than [ ] months and original maturities of at
least [ ] months but not more than [ ] months. The Initial Contracts had a
weighted average term to scheduled maturity, as of origination, of approximately
[ ] months, and a weighted average term to scheduled maturity as of the
Initial Cutoff Date of approximately [ ] months (see Tables 3 and 4 below).
The average principal balance per Initial Contract as of the Initial Cutoff Date
was approximately $[ ] and the principal balances on the Initial Contracts as
of the Initial Cutoff Date ranged from $[ ] to $[ ] (see
Table 5 below). The Contracts arise (or will arise) from loans to Obligors
located in 50 states, the District of Columbia and the U.S. Territories and with
respect to the Initial Contracts, constitute the following approximate amounts
expressed as a percentage of the aggregate principal balances on the Initial
Contracts as of the Initial Cutoff Date:[ ]% in the state of [ ], [ ]%
in [ ], [ ]% in [ ] and [ ]% in [ ] (see Table 6
below). No other state represented more than [ ]% of the Initial Contracts.
Except for the criteria described in the preceding paragraph and under
"RISK FACTORS -- THE CONTRACTS AND THE PRE-FUNDING ACCOUNT," there will be no
required characteristics of the Subsequent Contracts. Therefore, following the
transfer of the Subsequent Contracts to the Trust, the aggregate characteristics
of the entire pool of the Contracts, including the composition of the Contracts,
the distribution by weighted average annual percentage rate of the Contracts,
the distribution by calculated remaining term of the Contracts, the distribution
by original term to maturity of the Contracts, the distribution by current
balance of the Contracts, and the geographic distribution of the Contracts,
described in the following tables, may vary from those of the Initial Contracts
as of the Initial Cutoff Date.
The motorcycle dealer agreements between each of the originating dealers
and the Seller require the originating dealer to repurchase certain motorcycles
repossessed by the Seller in the event of a default by the Obligor ("DEALER
RECOURSE"); the Dealer Recourse will be assigned by the Seller to the Trust
Depositor pursuant to the Transfer and Sale Agreement, assigned from the Trust
Depositor to the Trust pursuant to the Agreement and pledged from the Trust to
the Indenture Trustee pursuant to the Indenture. There can be no assurance that
an originating dealer will perform its Dealer Recourse obligations under such
motorcycle dealer agreements if and when required to do so.
TABLE 1
COMPOSITION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<S> <C>
Aggregate Principal Balance. . . . . . . . . . . . . $[ ]
Number of Contracts. . . . . . . . . . . . . . . . . [ ]
Average Principal Balance. . . . . . . . . . . . . . $[ ]
Weighted Average Annual Percentage
Rate ("APR"). . . . . . . . . . . . . . . . . . [ ]%
(Range) . . . . . . . . . . . . . . . . . . . . [ ]%-[ ]%
Weighted Average Original Term (in months) . . . . . [ ]
(Range) . . . . . . . . . . . . . . . . . . . . [ ] to [ ]
Weighted Average Calculated Remaining Term (in months) [ ]
(Range) . . . . . . . . . . . . . . . . . . . . [ ] to [ ]
</TABLE>
S-21
<PAGE>
TABLE 2
DISTRIBUTION BY APR OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
RATE CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
---- -------- ------------ ----------------- ----------
<S> <C> <C> <C> <C>
8.500- 9.000% % $ %
9.001-10.000
10.001-11.000
11.001-12.000
12.001-13.000
13.001-14.000
14.001-15.000
15.001-16.000
16.001-17.000
17.001-18.000
18.001-19.000
19.001-20.000
20.001-21.000
21.001-22.000
22.001-22.990
Totals: 100.00% 100.00 %
</TABLE>
(1) Percentages may not add to 100.00% because of rounding.
TABLE 3
DISTRIBUTION BY CALCULATED REMAINING TERM
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENT OF
CALCULATED REMAINING NUMBER OF TOTAL OUTSTANDING PERCENT OF
TERM (MONTHS) NUMBER OF CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE POOL BALANCE (1)
------------ ------------------- ------------ ----------------- ----------------
<S> <C> <C> <C> <C>
0 - 12 % $ %
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
TOTALS: 100.00% 100.00%
</TABLE>
(1) Percentages may not add to 100.00% because of rounding.
S-22
<PAGE>
TABLE 4
DISTRIBUTION BY ORIGINAL TERM TO MATURITY
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
TOTAL
PERCENT OF OUTSTANDING
ORIGINAL NUMBER OF NUMBER OF PRINCIPAL PERCENT OF POOL
TERM (MONTHS) CONTRACTS CONTRACTS (1) BALANCE BALANCE (1)
- ------------ --------- ------------- ------- -----------
<S> <C> <C> <C> <C>
0 - 12 % $ %
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
TOTALS: 100.00% 100.00%
</TABLE>
(1) Percentages may not add to 100.00% because of rounding.
S-23
<PAGE>
TABLE 5
DISTRIBUTION BY CURRENT BALANCE OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
CURRENT BALANCE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE(1)
--------------- --------- ------------ ----------------- ----------
<S> <C> <C> <C> <C>
$ 0.01 - 1,000.00 % $ %
$ 1,000.01 - 2,000.00
$ 2,000.01 - 3,000.00
$ 3,000.01 - 4,000.00
$ 4,000.01 - 5,000.00
$ 5,000.01 - 6,000.00
$ 6,000.01 - 7,000.00
$ 7,000.01 - 8,000.00
$ 8,000.01 - 9,000.00
$ 9,000.01 - 10,000.00
$ 10,000.01 - 11,000.00
$ 11,000.01 - 12,000.00
$ 12,000.01 - 13,000.00
$ 13,000.01 - 14,000.00
$ 14,000.01 - 15,000.00
$ 15,000.01 - 16,000.00
$ 16,000.01 - 17,000.00
$ 17,000.01 - 18,000.00
$ 18,000.01 - 19,000.00
$ 19,000.01 - 20,000.00
$ 20,000.01 - 21,000.00
$ 21,000.01 - 22,000.00
$ 22,000.01 - 23,000.00
$ 23,000.01 - 24,000.00
$ 24,000.01 - 25,000.00
$ 25,000.01 - 26,000.00
$ 26,000.01 - 27,000.00
$ 27,000.01 - 28,000.00
$ 28,000.01 - 29,000.00
$ 30,000.01 - 31,000.00
$ 33,000.01 - 34,000.00
$ 35,000.01 - 36,000.00
TOTALS: 100.00% 100.00%
</TABLE>
(1) Percentages may not add to 100.00% because of rounding.
S-24
<PAGE>
TABLE 6
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING POOL
STATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- --------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
ALABAMA % $ %
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
DISTRICT OF COLUMBIA
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
</TABLE>
S-25
<PAGE>
TABLE 6
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING POOL
STATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- --------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
NEW YORK % $ %
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
OTHER
TOTALS: 100.00% 100.00%
</TABLE>
(1) Percentages may not add to 100.00% because of rounding.
S-26
<PAGE>
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
The Seller was organized in January 1993 and is a one hundred percent
owned subsidiary of Eaglemark Financial. The Seller began purchasing and
servicing conditional sales contracts for Motorcycles in February 1993.
Accordingly, the Seller has not accumulated a significant amount of delinquency
and loss data on Motorcycle conditional sales contracts similar to the
Contracts. See "RISK FACTORS -- LIMITED EXPERIENCE WITH MOTORCYCLE CONTRACTS."
The following tables set forth the delinquency experience and loan loss
and repossession experience of the Seller's portfolio of conditional sales
contracts for Motorcycles. These figures include data in respect of contracts
which the Seller has previously sold with respect to prior securitizations and
for which the Seller acts as servicer.
S-27
<PAGE>
DELINQUENCY EXPERIENCE(1)/
(DOLLARS IN THOUSANDS)
AT
___________________________________________________________________________
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, [ ], [ ],
------------ ------------ ------------ ----- -----
1995 1996 1997 199 199
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NUMBER OF
CONTRACTS AND
ASSOCIATED
OUTSTANDING
PRINCIPAL DOLLAR
BALANCES. . . . . . .
PERIOD OF
DELINQUENCY AND
ASSOCIATED
OUTSTANDING
PRINCIPAL
BALANCES(2)/
30-59 DAYS
60-89 DAYS
90 DAYS OR MORE . . .
TOTAL NUMBER OF
DELINQUENT
CONTRACTS . . . . . .
DELINQUENT
CONTRACTS AS A %
OF TOTAL NUMBER
OF CONTRACTS . . . .
AGGREGATE
PRINCIPAL
BALANCE OF
DELINQUENT
CONTRACTS. . . . . .
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, [ ], [ ],
------------ ------------ ------------ ----- -----
1995 1996 1997 199 199
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AGGREGATE
PRINCIPAL
BALANCE OF
DELINQUENT
CONTRACTS AS A
PERCENTAGE OF
THE AGGREGATE
OUTSTANDING
PRINCIPAL
BALANCE OF
CONTRACTS. . . . . .
</TABLE>
(1) Excludes Contracts already in repossession, which Contracts the Servicer
does not consider outstanding.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a
Contract due on the first day of a month is not 30 days delinquent until
the first day of the next month.
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<PAGE>
LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE TWELVE TWELVE
MONTHS MONTHS MONTHS [ ] [ ]
ENDED ENDED ENDED MONTHS MONTHS
DECEMBER DECEMBER DECEMBER ENDED ENDED
31, 31, 31, [ ], [ ],
1995 1996 1997 199 199
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRINCIPAL BALANCE
OF ALL CONTRACTS
SERVICED(1)/. . . .
CONTRACT
LIQUIDATIONS(2)/. .
NET LOSSES:
DOLLARS(3)/ . . . .
PERCENTAGE(4)/. . .
</TABLE>
(1) As of period end. Includes Contracts already in repossession.
(2) As a percentage of the total number of Contracts being serviced as of
period end, calculated on an annualized basis.
(3) The calculation of net loss includes actual charge-offs, deficiency
balances remaining after liquidation of repossessed vehicles and
expenses of repossession and liquidation, net of recoveries.
(4) As a percentage of the principal amount of Contracts being serviced as
of period end, calculated on an annualized basis.
THE DATA PRESENTED IN THE FOREGOING TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY
AND THERE IS NO ASSURANCE THAT THE DELINQUENCY, LOAN LOSS OR REPOSSESSION
EXPERIENCE OF THE CONTRACTS WILL BE SIMILAR TO THAT SET FORTH ABOVE.
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<PAGE>
HARLEY-DAVIDSON MOTORCYCLES
All of the motorcycles securing Contracts were manufactured by
Harley-Davidson, Inc., except not more than 2.5% of the Contracts (including all
Subsequent Contracts) relate to, and are secured by, motorcycles manufactured by
Buell. Buell produces "PERFORMANCE" motorcycles using engines and certain other
parts manufactured by Harley-Davidson. Buell is a wholly-owned subsidiary of
Harley-Davidson.
Harley-Davidson produces and sells premium heavyweight motorcycles.
Within the heavyweight class, Harley-Davidson sells touring motorcycles
(equipped for long-distance touring), as well as custom motorcycles which
emphasize the distinctive styling associated with certain classic
Harley-Davidson motorcycles. Harley-Davidson motorcycles are based on
variations of five basic chassis designs and are powered by one of four air
cooled, twin cylinder engines of "V" configuration which have displacements of
883cc, 1200cc, 1340cc and 1450cc. Harley-Davidson manufactures its own engines
and frames and is the only major manufacturer of motorcycles in the United
States.
Buell produces "PERFORMANCE" motorcycles using Harley-Davidson 1200cc
engines that are further modified in the manufacturing process, as well as
certain other Harley parts. The "PERFORMANCE" aspect of the motorcycles refers
to overall handling characteristics of the motorcycle, including cornering,
acceleration and braking. Buell motorcycles and related products are currently
distributed exclusively through Harley-Davidson dealers. Buell's overall share
of the "PERFORMANCE" market is negligible, but increasing.
YIELD AND PREPAYMENT CONSIDERATIONS
By their terms, the Contracts may be prepaid, in whole or in part, at
any time and each Contract contains a provision which permits the Seller to
require full prepayment in the event of a sale of the Motorcycle securing a
Contract. In addition, repurchases of the Contracts from the Trust by the Trust
Depositor, and concurrently from the Trust Depositor by the Seller, could occur
in the event of a breach of certain representation and warranties with respect
to the Contracts and upon exercise of the Trust Depositor's limited option to
repurchase the Contracts from the Trust when the Pool Balance has declined to
less than 10% of the Initial Pool Balance. Any prepayments and repurchases of
Contracts will reduce the average life of the Notes and Certificates and the
interest received by the Securityholders over the life of the Notes and
Certificates (for this purpose the term "PREPAYMENT" includes liquidations due
to default, as well as receipt of proceeds from credit life, credit disability
and casualty insurance policies). In addition, the occurrence of a Mandatory
Special Redemption at or before the end of the Funding Period would have the
effect of reducing the interest received by Noteholders over the life of the
Notes.
Payments on the Certificates will be subordinated to payments on the
Notes. Accordingly, the yield on the Certificates will be sensitive to the loss
experience on the Contracts and the timing of such losses. If the actual rate
and amount of losses experienced on the Contracts exceed the rate and amount of
losses assumed by an investor, the yield to maturity of the Certificates may be
lower than anticipated.
The final scheduled Distribution Date on the Initial Contract with the
latest maturity is no later than [ ] 200__. The final scheduled
Distribution Date on the Contract with the latest maturity among the Contracts
as a whole, including any Subsequent Contracts, will be not later than [
] 200__.
EAGLEMARK FINANCIAL SERVICES, INC.;
EAGLEMARK, INC.
EAGLEMARK FINANCIAL SERVICES, INC.
Eaglemark Financial was formed in June 1992 with a capital infusion of
$10,000,000 from Harley-Davidson and an additional $15,000,000 capital
contribution from a major institutional investor in January 1993. In November
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<PAGE>
1995, Harley-Davidson purchased the equity owned by the major institutional
investor and as a result Eaglemark Financial is a 97.8% owned subsidiary of
Harley-Davidson. The business of Eaglemark Financial, through its 100%
ownership of Eaglemark, has been to provide wholesale and retail financing,
credit card and insurance services to dealers and customers of Harley-Davidson.
EAGLEMARK, INC.
Eaglemark is a Nevada corporation and is a wholly-owned subsidiary of
Eaglemark Financial. Eaglemark began operations in January 1993 when it
purchased the $85 million wholesale financing portfolio of certain
Harley-Davidson dealers from ITT Commercial Finance; subsequently, Eaglemark
entered the retail consumer finance business. Eaglemark provides financing to
Harley-Davidson customers for new and used motorcycles, as well as certain other
recreational products such as single-engine aircraft and marine products.
Harley-Davidson motorcyles are financed through the Canadian Harley-Davidson
dealers under the trade name "Deeley Credit." Eaglemark also finances extended
service contracts on Motorcycles. Eaglemark's financing, credit card and
insurance programs are designed to work together as a package that appeals to
the needs of Harley-Davidson's customers. The intent of such a package is to
increase dealer and customer loyalty to Eaglemark while improving revenue and
profits over time. Eaglemark's principal executive offices are located at 4150
Technology Way, Carson City, Nevada 89706 (telephone 702/886-3200). As of
December 31, 1997, Eaglemark had total assets of $551.8 million, and
stockholder's equity of $68.1 million.
EAGLEMARK CUSTOMER FUNDING CORPORATION-[ ]
The Trust Depositor is a special purpose corporation incorporated in the
State of Nevada in [ ] 199__. All of the common stock of the Trust
Depositor is owned by the Seller. All of the officers and directors of the
Trust Depositor are employed by the Seller, except that at least two directors
of the Trust Depositor are required to be independent of the Trust Depositor.
The Trust Depositor's business is limited to purchasing the Contracts and
related assets (and other similar retail motorcycle installment conditional
sales contracts) from the Seller, acting as the general partner of the Trust and
other similar trusts and performing the obligations described in the Agreement
and the Transfer and Sale Agreement (as well as similar agreements entered into
in connection with the formation of similar trusts).
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture.
PAYMENTS OF INTEREST
Interest on the outstanding principal amount of each Class of Notes will
accrue at the applicable Interest Rate from and including the fifteenth day of
the month of the most recent Distribution Date based on a 360-day year
consisting of 30 days each (or from and including the Closing Date with respect
to the first Distribution Date) to but excluding the fifteenth day of the month
of the current Distribution Date. Interest payments on the Notes will be made
from Available Monies after all accrued and unpaid Servicing Fees, trustees'
fees and other administrative fees of the Trust (collectively, "TRUST FEES AND
EXPENSES") have been paid. See "CERTAIN INFORMATION REGARDING THE SECURITIES --
DISTRIBUTIONS ON THE SECURITIES -- DEPOSITS TO THE DISTRIBUTION ACCOUNT;
PRIORITY OF PAYMENTS."
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders, to the extent
described below, on each Distribution Date in an amount equal to the Note
Principal Distributable Amount, in each case calculated as described under
"CERTAIN INFORMATION REGARDING THE SECURITIES -- DISTRIBUTIONS ON THE SECURITIES
- -- DEPOSITS TO THE DISTRIBUTION ACCOUNT; PRIORITY OF PAYMENTS." Principal
payments on the Notes will be made from Available Monies after all Trust Fees
and Expenses
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have been paid, and after distribution of the Note Interest Distributable
Amount. See "CERTAIN INFORMATION REGARDING THE SECURITIES -- DISTRIBUTIONS ON
THE SECURITIES -- DEPOSITS TO THE DISTRIBUTION ACCOUNT; PRIORITY OF PAYMENTS."
Principal payments on the Notes will be applied on each Distribution
Date from the Note Distribution Account as follows: first, to the holders of the
Class A-1 Notes until the principal amount of the Class A-1 Notes has been
reduced to zero, but in no event later than the Class A-1 Final Distribution
Date and second, to the holders of the Class A-2 Notes until the principal
amount of the Class A-2 Notes has been reduced to zero, but in no event later
than the Class A-2 Final Distribution Date.
To the extent that the Note Principal Distributable Amount is greater
than the principal balance of the Class A-1 Notes on any Distribution Date, the
Principal Distributable Amount will first be allocated to reduce the principal
amount of the Class A-1 Notes to zero and will thereafter be allocated to the
Class A-2 Notes.
The principal amount of each class of Notes, to the extent not
previously paid, will be due on the related Note Final Distribution Date for
that class of Notes. The actual date on which the aggregate outstanding
principal amount of any class of Notes is paid may be earlier than its Note
Final Distribution Date based on a variety of factors, including the factors
described under "YIELD AND PREPAYMENT CONSIDERATIONS."
OPTIONAL REDEMPTION
The Class A-2 Notes will be subject to redemption in whole, but not in
part, on any Distribution Date relating to an Optional Purchase. The redemption
price will equal the unpaid principal amount of the Class A-2 Notes plus accrued
interest thereon at the applicable Interest Rate.
MANDATORY SPECIAL REDEMPTION
The Class A-1 Noteholders and Class A-2 Noteholders will be prepaid in
part pursuant to a Mandatory Special Redemption, without premium, on the
Distribution Date on or immediately following the last day of the Funding Period
in the event that any amount remains on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Contracts, including any such
purchase on such date. The aggregate principal amount of Class A-1 Notes and
Class A-2 Notes to be prepaid will be an amount equal to the amount then on
deposit in the Pre-Funding Account allocated pro rata; PROVIDED, HOWEVER, in the
event the Mandatory Special Redemption Amount is less than $150,000 such amount
shall be allocated solely to the Class A-1 Noteholders.
THE INDENTURE TRUSTEE
Harris Trust and Savings Bank will be the Indenture Trustee. The
Indenture Trustee is an Illinois banking corporation and its Corporate Trust
Office is located at 311 West Monroe Street, Chicago, Illinois 60603.
The Indenture Trustee will have the rights and duties set forth under
"CERTAIN INFORMATION REGARDING THE SECURITIES -- THE TRUSTEES" AND "-- DUTIES OF
THE TRUSTEES."
EVENTS OF DEFAULT
"EVENTS OF DEFAULT" under the Indenture will consist of: (i) a default
by the Trust for five days or more in the payment of any interest on the Notes
of any class when the same becomes due and payable; (ii) a default by the Trust
in the payment of the principal of or any installment of the principal of the
Notes of any class when the same becomes due and payable; (iii) a default in the
observance or performance of any covenant or agreement of the Trust made in the
Indenture or any representation or warranty made by the Trust in the Indenture
or in any certificate delivered pursuant thereto or in connection therewith
having been incorrect in a material respect as of the time made, and the
continuation of any such default for a period of 30 days after notice thereof is
given to the Trust by the Indenture Trustee or to the Trust and the Indenture
Trustee by the holders of Notes evidencing at least 25% of the voting interest
thereof, voting
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together as a single class and (iv) certain events of bankruptcy, insolvency,
receivership or liquidation relating to the Trust (each, a "TRUST INSOLVENCY").
Upon the occurrence and continuation of an Event of Default, the Notes
shall become immediately due and payable at par, together with accrued interest
therein unless holders of Notes evidencing not less than 662/3% of the voting
interests thereof, voting together as a single class, waive such an Event of
Default.
No sale or liquidation of the property of the Trust may be made if the
proceeds thereof are not sufficient to pay all outstanding principal of and
accrued interest on the Notes, unless (a) holders of Notes evidencing 100% of
the voting interests thereof, voting together as a single class, consent to such
sale or liquidation, or (b)(1) the Indenture Trustee determines that the
property of the Trust will not continue to provide sufficient funds for the
payment of principal of and interest on the Notes, (2) the Indenture Trustee
provides prior written notice of such sale or liquidation to each Rating Agency
and (3) holders of Notes evidencing not less than 662/3% of the voting interests
thereof, voting together as a single class, consent to such sale or liquidation.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Trust Agreement. Copies
of the Trust Agreement (without exhibits) may be obtained by holders of
Certificates upon request in writing to the Owner Trustee at its Corporate Trust
Office. The Certificates may not be purchased by pension trusts. See "ERISA
CONSIDERATIONS" below.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance will accrue at the Pass-Through Rate
from and including the fifteenth day of the month of the most recent
Distribution Date based on a 360-day year consisting of 30 days each (or from
and including the Closing Date with respect to the first Distribution Date) to
but excluding the fifteenth day of the month of the current Distribution Date.
Interest accrued but not paid on any Distribution Date will be due on the
immediately succeeding Distribution Date, together with, to the extent permitted
by applicable law, interest on such amount at the Pass-Through Rate. Interest
distributions with respect to the Certificates will be made from Available
Interest after all Trust Fees and Expenses have been paid and after the Note
Distributable Amount has been distributed. See "CERTAIN INFORMATION REGARDING
THE SECURITIES -- DISTRIBUTION ON THE SECURITIES -- DEPOSITS TO THE DISTRIBUTION
ACCOUNT; PRIORITY OF PAYMENTS."
DISTRIBUTIONS OF PRINCIPAL
No principal will be paid on the Certificates until the Distribution
Date on which the principal balance of the Class A-1 and Class A-2 Notes has
been reduced to zero. On such Distribution Date and thereafter, the
Certificateholders will be entitled to distributions in an amount equal to
Available Principal calculated as described under "CERTAIN INFORMATION
REGARDING THE SECURITIES -- DISTRIBUTIONS ON THE SECURITIES -- DEPOSITS TO THE
DISTRIBUTION ACCOUNT; PRIORITY OF PAYMENTS" but not in excess of the
outstanding principal balance on the Certificates. Distributions with respect
to principal payments will be made from Available Principal after all Trust Fees
and Expenses have been paid and after the Note Distributable Amount and the
Certificate Interest Distributable Amount has been distributed. See "CERTAIN
INFORMATION REGARDING THE SECURITIES -- DISTRIBUTIONS ON THE SECURITIES --
DEPOSITS TO THE DISTRIBUTION ACCOUNT; PRIORITY OF PAYMENTS."
OPTIONAL PREPAYMENT
The Certificates will be subject to prepayment in whole, but not in
part, on any Distribution Date relating to an Optional Purchase.
Certificateholders will receive an amount in respect of the Certificates equal
to the Certificate Balance, together with accrued interest at the Pass-Through
Rate. Any such distribution will effect early retirement of the Certificates.
See "CERTAIN INFORMATION REGARDING THE SECURITIES -- TERMINATION."
MANDATORY PREPAYMENT
As more fully described under "THE NOTES -- EVENTS OF DEFAULT," upon the
occurrence of an Event of Default, under certain circumstances the Noteholders
have the right to cause the property of the Trust to be sold or liquidated in
whole or in part. In the event of such liquidation or sale, the Certificates
may suffer a loss if proceeds are insufficient to pay both the Notes and the
principal and interest on the Certificates.
PAYING AGENTS
Distributions of principal of and interest on the Certificates will be
made by the Owner Trustee or any Paying Agent or Paying Agents as the Owner
Trustee may designate from time to time. The Indenture Trustee will be
designated as the initial Paying Agent with respect to the Certificates.
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CERTAIN INFORMATION REGARDING THE SECURITIES
FORM, EXCHANGE, REGISTRATION AND TITLE
The Notes and Certificates will initially be registered in the name of
Cede & Co. ("CEDE"), the nominee of The Depository Trust Company ("DTC").
Securityholders may hold their Securities in the United States through DTC, or,
solely in the case of the Notes, in Europe, through CEDEL Bank, societe anonyme
("CEDEL") or the Euroclear System ("EUROCLEAR"), 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 Notes and Certificates.
CEDEL and Euroclear will hold omnibus positions on behalf of the CEDEL
Participants (as defined below) and Euroclear Participants (as defined below),
respectively, through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositaries (collectively, the
"DEPOSITARIES") which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "CLEARING
CORPORATION" within the meaning of the New York Uniform Commercial Code, and a
"CLEARING AGENCY" registered pursuant to the provisions of Section 17A of the
1934 Act. DTC accepts securities for deposit from its participating
organizations ("PARTICIPANTS") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of securities. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Transfers between 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 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 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.
Securityholders who are not Participants but desire to purchase, sell or
otherwise transfer, ownership of the Securities may do so only through
Participants (unless and until Definitive Securities are issued). In addition,
Securityholders will receive all distributions of principal of and interest on
the Securities from the Indenture Trustee or Owner Trustee (collectively, the
"TRUSTEES"), as applicable, through DTC and Participants. Securityholders will
not
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receive or be entitled to receive physical securities representing their
respective interests in the Securities, except under the limited circumstances
described below.
Unless and until Definitive Securities are issued, it is anticipated
that the only Securityholders will be Cede, as nominee of DTC. Beneficial
owners of the Securities will not be Securityholders as that term is used in the
Agreement. Beneficial owners are only permitted to exercise the rights of
Securityholders indirectly through Participants and DTC.
While the Securities are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "RULES"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect to
the Securities and is required to receive and transmit distributions of
principal of, and interest on, the Securities. Unless and until Definitive
Securities are issued, beneficial owners who are not Participants may transfer
ownership of Securities only through Participants by instructing such
Participants to transfer the Securities only through Participants by instructing
such Participants to transfer the Securities by book-entry transfer through DTC
for the account of the purchasers of such Securities, which account is
maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of the
Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited.
Physical Notes or Certificates will be issued in registered form to
Securityholders, or their nominees, rather than to DTC (such Securities being
referred to herein as "DEFINITIVE SECURITIES"), only if (i) DTC or the Company
advises the applicable Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as nominee and depository with
respect to such Securities and the Company or such Trustee is unable to locate a
qualified successor; (ii) the Company, at its sole option and with the consent
of such Trustee, elects to terminate the book-entry system through DTC or (iii)
in the case of the Notes, after the occurrence of any Indenture Event of
Default, DTC, at the direction of Noteholders having a majority in interest of
the Notes, advises the Indenture Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) to the exclusion of any
physical securities being issued to Noteholders is no longer in the best
interest of Noteholders. Upon issuance of Definitive Securities to
Securityholders, such Securities will be transferable directly (and not
exclusively on a book-entry basis), and registered holders will deal directly
with the applicable Trustee with respect to transfers, notices and
distributions.
DTC has advised the Trust Depositor and the Trustee that, unless and
until Definitive Securities are issued, DTC will take any action permitted to be
taken by a Noteholder under the Indenture or a Certificateholder under the Trust
Agreement only at the direction of one or more Participants to whose DTC account
the Securities are credited. DTC has advised the Seller that DTC will take such
action with respect to any Percentage Interests of the Securities only at the
direction of and on behalf of such Participants with respect to such Percentage
Interests of the Securities. DTC may take actions, at the direction of the
related Participants, with respect to some Securities that conflict with actions
taken with respect to other Securities.
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. 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 depositary, CEDEL is subject to regulations by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporation and certain other
organizations and may include the underwriters of any class of Securities.
Indirect access to CEDEL is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a CEDEL Participant, either directly or indirectly.
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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 securities and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 32 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "EUROCLEAR OPERATOR" or "EUROCLEAR"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "EUROCLEAR
COOPERATIVE"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Euroclear Cooperative. The Euroclear
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,
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 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 securities
to specific securities clearance accounts. The Euroclear Operator acts under
the Terms and Conditions only on behalf of Euroclear Participants and has no
record of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through CEDEL or Euroclear will
be credited to the cash accounts of CEDEL Participants or Euroclear Participants
in accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES." CEDEL or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Noteholder under the Indenture on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Securities among participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
In the event that any of DTC, CEDEL or Euroclear should discontinue its
services, the Seller would seek an alternative depositary (if available) or
cause the issuance of Definitive Securities to Securityholders or their nominees
in the manner described above.
Issuance of the Securities in book-entry form rather than as physical
securities may adversely affect the liquidity of the Securities in the secondary
market and the ability of Securityholders to pledge them. In addition, since
distributions on the Securities will be made by the Trustees to DTC and DTC will
credit such distributions to the accounts of its Participants, which will
further credit them to the accounts of indirect participants of Securityholders,
Securityholders may experience delays in the receipt of such distributions.
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CONVEYANCE OF CONTRACTS
On the Closing Date, (i) the Seller will sell, transfer, assign, set
over and otherwise convey the Initial Contracts and related assets to the Trust
Depositor, (ii) the Trust Depositor will sell, transfer, assign, set over and
otherwise convey to the Trust all right, title and interest in the Initial
Contracts and related assets , and (iii) the Trust will pledge to the Indenture
Trustee all right, title and interest in the Initial Contracts and related
assets. The Initial Contracts will be described on a list delivered to each
Trustee and certified by a duly authorized officer of the Trust Depositor. Such
list will include the amount of monthly payments due on each Initial Contract as
of the Initial Cutoff Date, the contractual rate of interest on each Contract
and the maturity date of each Contract. Such list will be available for
inspection by any Securityholder at the principal office of the Servicer. Prior
to the conveyance of the Initial Contracts to the Trust, the Servicer's
compliance officer will have completed a review of all the related Contract
Files, including the certificates of title to, or other evidence of a perfected
security interest in, the Motorcycles, confirming the accuracy of the list of
Initial Contracts delivered to the Trustees. The Trust Depositor will deliver
to the Trustees a report of a nationally recognized independent public
accounting firm which states that such firm has performed specific procedures
for a sample of the Initial Contracts supplied by the Seller. Any Contract
discovered not to agree with such list in a manner that is materially adverse to
the interests of the Securityholders will be required to be repurchased by the
Seller, or, if the discrepancy relates to the unpaid Principal Balance of a
Contract, the Seller may deposit cash in the Collection Account in an amount
sufficient to offset such discrepancy.
In addition to the Initial Contracts, the Trust Property will include
the Trust's rights under the Agreement in respect of the Trust Depositor's
obligation to purchase from the Seller, and concurrently convey to the Trust,
Subsequent Contracts purchased as of the applicable Subsequent Cutoff Date (the
Initial Cutoff Date or any Subsequent Cutoff Date being individually referred to
herein as a "CUTOFF DATE"). Any conveyance of Subsequent Contracts on a
Subsequent Transfer Date will be subject to the satisfaction of the following
conditions, among others (computed, where applicable, based on the
characteristics of the Initial Contracts on the Initial Cutoff Date and any
Subsequent Contracts as of the related Subsequent Cutoff Date): (i) each such
Subsequent Contract satisfies the eligibility criteria specified in the Transfer
and Sale Agreement and the related Subsequent Purchase Agreement executed
thereunder; (ii) as of the applicable Subsequent Cutoff Date, no Contract in
the Trust, including the Subsequent Contracts that the Trust Depositor will be
conveying as of such Subsequent Cutoff Date, will have a scheduled maturity date
later than November 2004; (iii) the Trust Depositor shall have executed and
delivered in favor of the Trust a Subsequent Transfer Agreement conveying such
Subsequent Contracts to the Trust (including a schedule identifying such
Subsequent Contracts); (iv) the Trust Depositor shall have delivered certain
opinions of counsel to the Trustee, the Initial Purchaser and the Rating
Agencies with respect to the validity and other aspects of the conveyance of all
such Subsequent Contracts and (v) the Rating Agencies shall have each notified
the Trust Depositor and the Trustees in writing that, following the addition of
such Subsequent Contracts, the Class A-1 Notes and Class A-2 Notes will be rated
AAA by S&P and Aaa by Moody's and the Certificates will be rated at least [
] by S&P and [ ] by Moody's.
The Agreement will designate the Servicer as custodian to maintain
possession, as the Trustees' agent, of the Contracts and any other documents
relating to the Motorcycles. To facilitate servicing and save administrative
costs, the documents will not be segregated from other similar documents that
are in the Servicer's possession. Uniform Commercial Code financing statements
will be filed in Nevada and Illinois, reflecting the conveyance and assignment
of the Contracts to the Trust Depositor from the Seller, the conveyance and
assignment from the Trust Depositor to the Trust and the pledge from the Trust
to the Indenture Trustee, and the Seller's, Trust Depositor's and Indenture
Trustee's accounting records and computer systems will also reflect such
conveyance and assignment and pledge. In addition, each Contract will be
stamped to reflect their conveyance and assignment to the Trust and the pledge
to the Indenture Trustee. However, if, through fraud, negligence or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without notice of such conveyance and assignment, the Indenture Trustee's
interest in the Contracts could be defeated. In addition, certificates of title
with respect to the Motorcycles will not be amended to reflect the assignment of
the Seller's security interest in the Motorcycles to the Trust Depositor, the
assignment of the Trust Depositor's security interest in the Motorcycles to the
Trust and the pledge of the Trust's security interest to the Indenture Trustee.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have a perfected security interest in the Motorcycles. See "RISK
FACTORS -- RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED MOTORCYCLES" in
the Prospectus.
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The Seller will make certain representations and warranties in the
Transfer and Sale Agreement with respect to each Contract, including that
(references to the Closing Date below being deemed, in respect of Subsequent
Contracts, to refer to the related Subsequent Transfer Date): (a) as of the
related Cutoff Date the most recent scheduled payment was made or was not
delinquent more than 30 days and, to the best of the Seller's knowledge, all
payments on the Contract were made by the Obligor of the Contract; (b) as of the
Closing Date no provision of a Contract has been waived, altered or modified in
any respect, except by instruments or documents contained in the Contract File;
(c) each Contract is a genuine, legal, valid and binding obligation of the
Obligor and is enforceable in accordance with its terms (except as may be
limited by laws affecting creditors' rights generally); (d) as of the Closing
Date no Contract is subject to any right of rescission, set-off, counterclaim or
defense; (e) as of the Closing Date each Motorcycle securing a Contract is
covered by certain insurance policies described under "DESCRIPTION OF THE
CERTIFICATES -- INDIVIDUAL MOTORCYCLE INSURANCE"; (f) each Contract was
originated by a Harley-Davidson motorcycle dealer in the ordinary course of such
dealer's business which dealer had all necessary licenses and permits to
originate the Contracts in the state where such dealer was located, was fully
and properly executed by the parties thereto and was sold by such dealer to the
Seller without any fraud or misrepresentation on the part of such dealer; (g) no
Contract was originated in or is subject to the laws of any jurisdiction whose
laws would make the transfer, sale and assignment of the Contract pursuant to
the Transfer and Sale Agreement or the Agreement or pursuant to transfers of
Certificates unlawful, void or voidable; (h) each Contract and each sale of the
related Motorcycle complies with all requirements of any applicable federal,
state or local law and regulations thereunder, including, without limitation,
usury, truth in lending, motor vehicle installment loan and equal credit
opportunity laws, with such compliance not being affected by the Trust
Depositor's conveyance and assignment of the Contracts to the Trust, or the
Trust's pledge of the Contracts to the Indenture Trustee, and the Seller will
maintain in its possession, available for inspection by or delivery to the Trust
Depositor and the Trustees, evidence of compliance with all such requirements;
(i) as of the Closing Date no Contract has been satisfied, subordinated in whole
or in part or rescinded and the Motorcycle securing the Contract has not been
released from the lien of the Contract in whole or in part; (j) each Contract
creates a valid, subsisting and enforceable first priority security interest in
favor of the Seller in the Motorcycle covered thereby; such security interest
has been conveyed and assigned by the Seller to the Trust Depositor and by the
Trust Depositor to the Trust and pledged by the Trust to the Indenture Trustee;
the original certificate of title, certificate of lien or other notification
(the "LIEN CERTIFICATE") issued by the body responsible for the registration of,
and the issuance of certificates of title relating to, motor vehicles and liens
thereon (the "REGISTRAR OF TITLES") of the applicable state to a secured party
which indicates the lien of the secured party on the Motorcycle is recorded on
the original certificate of title; and the original certificate of title for
each Motorcycle shows, or if a new or replacement Lien Certificate is being
applied for with respect to such Motorcycle the Lien Certificate will be
received within 180 days of the Closing Date and will show, the Seller as
original secured party under each Contract and as the holder of a first priority
security interest in such Motorcycle (and with respect to each Contract for
which the Lien Certificate has not yet been returned from the Registrar of
Titles, the Seller has received written evidence from the related dealer that
such Lien Certificate showing the Seller as lienholder has been applied for) and
the Seller's security interest has been validly assigned by the Seller to the
Trust Depositor and by the Trust Depositor to the Trust and pledged by the Trust
to the Indenture Trustee in order that immediately after the sale, each Contract
will be secured by an enforceable and perfected first priority security interest
in the Motorcycle in favor of the Indenture Trustee as secured party, which
security interest is prior to all other liens upon and security interests in
such Motorcycle which now exist or may hereafter arise or be created (except, as
to priority, for any lien for taxes, labor, materials or any state law
enforcement agency affecting a Motorcycle which may arise after such sale); (k)
all parties to each Contract had capacity to execute such Contract; (l) no
Contract has been sold, conveyed and assigned or pledged to any other person
other than the Trust Depositor, as transferee of the Seller, the Trust as
transferee of the Trust Depositor or the Indenture Trustee as pledgee of the
Trust, and prior to the transfer of the Contract to the Trust Depositor, the
Seller has good and marketable title to each Contract free and clear of any
encumbrance, equity, loan, pledge, charge, claim or security interest, and as of
the Closing Date the Indenture Trustee will have a first priority perfected
security interest therein; (m) as of the related Cutoff Date there was no
default, breach, violation or event permitting acceleration under any Contract
(except for payment delinquencies permitted by clause (a) above), no event which
with notice and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such Contract,
and the Seller has not waived any of the foregoing; (n) as of the Closing Date
there are, to the best of the Seller's knowledge, no liens or claims which have
been filed for work, labor or materials affecting a motorcycle securing a
Contract, which are or may be liens prior or equal to the lien of the Contract;
(o) each Contract has a fixed rate of interest and provides for monthly payments
of principal and interest which, if timely made, would fully amortize the loan
on a
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simple interest basis over its term; (p) each Contract contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for realization against the collateral of the benefits of the
security; (q) the description of each Contract set forth in the list delivered
to the Trustees is true and correct and (r) there is only one original of each
Contract. The Seller will also make certain representations and warranties with
respect to the Contracts in the aggregate, including that (i) the aggregate
principal amount payable by the Obligors as of the Initial Cutoff Date (plus the
Pre-Funded Amount as of the Closing Date) equals the sum of the initial
principal amount of the Notes and the Initial Certificate Balance, and each
Initial Contract has a contractual rate of interest of at least [ ]%, (ii)
all motorcycles securing the Contracts are Harley-Davidson or Buell motorcycles,
(iii) approximately [ ]% of the aggregate Principal Balance of the Initial
Contracts is attributable to loans to purchase new Motorcycles and approximately
[ ]% of the aggregate Principal Balance of the Initial Contracts is
attributable to loans to purchase used Motorcycles, (iv) no Initial Contract has
a remaining maturity of more than [ ] months, (v) the first payment under each
Initial Contract is due on or before [ ] 199__ and (vi) no adverse
selection procedures were or will be employed in selecting the Contracts from
the Seller's portfolio.
Under the Transfer and Sale Agreement and Subsequent Purchase Agreement,
the Seller will agree that in the event of a breach of any such representations
and warranties made by the Seller that materially and adversely affects the
Trustees' interest in any Contract the Seller will repurchase such Contract
within 90 days at the Repurchase Price unless such breach is cured. Under the
Agreement, the Trust Depositor will assign all of its right, title and interest
in such representations and warranties (including the Seller's repurchase
obligations) to the Trustee. Under the Indenture, the Trust will pledge its
right, title and interest in such representations and warranties to the
Indenture Trustee. The Trust Depositor will make no representations and
warranties with respect to the Contracts. The Seller is selling the Contracts
without recourse and, accordingly, will have no obligation with respect to the
Contracts other than pursuant to such representations, warranties and repurchase
obligations. The repurchase obligations of the Seller described above will
constitute the sole remedy against the Seller by the Trust and the
Securityholders for a breach of any such representations and warranties made by
the Seller.
Pursuant to the Agreement, the Servicer will service and administer the
Contracts conveyed and assigned to the Trust and pledged to the Indenture
Trustee as more fully set forth below.
THE ACCOUNTS AND ELIGIBLE INVESTMENTS
THE COLLECTION ACCOUNT. The Servicer will cause all collections made on
or in respect of the Contracts during a Due Period to be deposited in or
credited to an account (the "COLLECTION ACCOUNT") to be established by the
Indenture Trustee under the Agreement. The Servicer is required to deposit,
without deposit into any intervening account, into the Collection Account as
promptly as possible, but in any case not later than the second Business Day
following the receipt thereof, all amounts received on or in respect of the
Contracts. The Servicer is required to use its best efforts to cause an Obligor
to make all payments on the Contracts directly to one or more Lockbox Banks,
acting as agent for the Trust pursuant to a Lockbox Agreement. Funds in the
Collection Account will be invested in Eligible Investments as described below.
"ELIGIBLE INVESTMENTS" will be specified in the Agreement and will be
limited to investments which meet the criteria of each Rating Agency that rated
any Class of Notes or the Certificates at the request of the Trust Depositor
from time to time as being consistent with their then-current ratings of the
related Securities. All income or other gain from such investments will be
promptly deposited in, and any loss resulting from such investments shall be
charged to, the Collection Account.
THE PRE-FUNDING ACCOUNT. During the Funding Period until the earliest
of (a) the Distribution Date on which the amount on deposit in the Pre-Funding
Account is less than $[ ], (b) the date on which an Event of
Termination occurs with respect to the Servicer under the Agreement, (c) the
date on which certain events of insolvency occur with respect to the Trust
Depositor or (d) the close of business on the date which is 90 days from and
including the Closing Date, the Pre-Funding Account will be maintained as an
account in the name of the Indenture Trustee on behalf of the Securityholders to
secure the Trust Depositor's obligations under the Agreement to purchase and
transfer Subsequent Contracts to the Trust and the Trust's obligations under the
Indenture to pledge Subsequent Contracts to the Indenture
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Trustee. The Pre-Funded Amount will initially equal $[ ] and,
during the Funding Period, will be reduced by the amount thereof that the Trust
Depositor uses to purchase Subsequent Contracts from the Seller and
contemporaneously transfer to the Trust. The Trust Depositor expects that the
Pre-Funded Amount will be reduced to less than $[ ] by the
Distribution Date occurring in [ ] 199__. Any Pre-Funded Amount
remaining at the end of the Funding Period will be payable to the Noteholders
(see "DESCRIPTION OF THE NOTES -- MANDATORY SPECIAL REDEMPTION").
THE RESERVE FUND. The Securityholders will be afforded certain limited
protection, to the extent described herein, against losses in respect of the
Contracts by the establishment of an account in the name of the Indenture
Trustee for the benefit of the Securityholders (the "RESERVE FUND").
The Reserve Fund will be created with the Reserve Fund Initial Deposit
by the Trust Depositor of $[ ] on the Closing Date. The funds in the
Reserve Fund will thereafter be supplemented on each Distribution Date by the
deposit of certain Excess Amounts, Subsequent Reserve Fund Amounts and
Subsequent Certificate Reserve Amounts, until the amount in the Reserve Fund
reaches the Specified Reserve Fund Balance. The Specified Reserve Fund Balance
for any Distribution Date will be calculated as described under "CERTAIN
INFORMATION REGARDING THE SECURITIES -- PAYMENT PRIORITIES OF THE NOTES AND THE
CERTIFICATES; THE RESERVE FUND." On each Distribution Date, funds will be
withdrawn from the Reserve Fund, up to the Available Amount, for distribution
to Securityholders to cover any shortfalls in interest and principal required to
be paid on the Securities.
In addition to the Reserve Fund Initial Deposit, the Trust Depositor
will deposit $[ ], representing the Initial Certificate Reserve
Amount, into the Reserve Fund on the Closing Date. On each Subsequent Transfer
Date, the Trust Depositor will deposit into the Reserve Fund a Subsequent
Certificate Reserve Amount equal to [ ]% of the aggregate balance of the
Subsequent Contracts conveyed to the Trust on such date. If funds in the
Reserve Fund (other than the Certificate Reserve Amount) are applied in
accordance with the preceding paragraph and are insufficient to distribute the
interest or principal due on the Certificates, funds available from the
Certificate Reserve Amount will be withdrawn from the Reserve Fund and applied
solely to cover any shortfalls of interest on the Certificates on each
Distribution Date and of interest and principal on the Certificates on the
Certificate Final Distribution Date. The Certificate Reserve Amount will not be
available to pay interest or principal on the Notes. The Available Amount will
equal the amount of all funds on deposit in the Reserve Fund less the
undistributed balance of the Certificate Reserve Amount, if any.
On each Distribution Date, after giving effect to all distributions
made on such Distribution Date, any amounts in the Reserve Fund that are in
excess of the Specified Reserve Fund Balance will be allocated and distributed
to the Trust Depositor. See "CERTAIN INFORMATION REGARDING THE SECURITIES --
PAYMENT PRIORITIES OF THE NOTES AND THE CERTIFICATES; THE RESERVE FUND."
INTEREST RESERVE ACCOUNT. The Trust Depositor will establish, and fund
with an initial deposit on the Closing Date, the Interest Reserve Account, for
the purpose of providing additional funds for payment to the Trust of Carrying
Charges to pay certain distributions on Distribution Dates occurring during (and
on the first Distribution Date following the end of) the Funding Period. In
addition to the initial deposit, all investment earnings with respect to the
Pre-Funded Account are to be deposited into the Interest Reserve Account and,
pursuant to the Agreement, the Trust Depositor is obligated to pay to the Trust,
on each Distribution Date described above, amounts in respect of Carrying
Charges from such account.
The Interest Reserve Account will be established to account for the fact
that a portion of the proceeds obtained from the sale of the Notes will be
initially deposited in the Pre-Funding Account (as the initial Pre-Funded
Amount) rather than invested in Contracts, and the monthly investment earnings
on such Pre-Funded Amount (until the Pre-Funded Amount is used to purchase
Subsequent Contracts) are expected to be less than the weighted average of the
Class A-1 Rate, the Class A-2 Rate and the Pass-Through Rate with respect to the
corresponding portion of the Class A-1 Principal Balance, Class A-2 Principal
Balance and the Certificate Balance, as well as the amount necessary to pay the
Trustees' Fees. The Interest Reserve Account is not designed to provide any
protection against losses on the Contracts in the Trust. After the Funding
Period, money in the Interest Reserve Account will be released to the Trust
Depositor.
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THE DISTRIBUTION ACCOUNTS. The Indenture Trustee will establish and
maintain with itself an account, in the name of the Indenture Trustee on behalf
of the Noteholders, in which amounts released from the Collection Account for
distribution to Noteholders will be deposited and from which all distributions
to Noteholders will be made (the "NOTE DISTRIBUTION ACCOUNT"). The Owner
Trustee will establish the Certificate Distribution Account, in the name of the
Owner Trustee on behalf of the Certificateholders, in which amounts released
from the Collection Account for distribution to Certificateholders will be
deposited and from which all distributions to Certificateholders will be made
(the "CERTIFICATE DISTRIBUTION ACCOUNT" and, together with the Note Distribution
Account, the "DISTRIBUTION ACCOUNTS").
DISTRIBUTIONS ON THE SECURITIES
GENERAL. On the fourth Business Day of each month (each such date, a
"DETERMINATION DATE"), the Servicer will determine the following: (i) the amount
of Available Monies with respect to the Distribution Date occurring in such
month; (ii) the Note Interest Distributable Amount; (iii) the Note Principal
Distributable Amount; (iv) the Certificate Interest Distributable Amount; (v)
the Certificate Principal Distributable Amount; (vi) the Servicing Fee; and
(vii) the Trustees' Fees.
DEPOSITS TO THE DISTRIBUTION ACCOUNT; PRIORITY OF PAYMENTS. On each
Distribution Date, the Servicer will allocate amounts on deposit in the
Collection Account as described below and will instruct the Indenture Trustee to
make the following deposits and distributions in the following amounts and order
of priority:
(i) to the Mandatory Special Redemption Subaccount in the
Note Distribution Account to the Class A-1 Noteholders and Class A-2
Noteholders, the amount of any Mandatory Special Redemption, pro rata,
calculated on the then current principal balance of the Class A-1 and
Class A-2 Notes with the amounts derived from draws on the Pre-Funding
Account (which amounts are available for payment of such Mandatory
Special Redemptions and not for any other purpose); PROVIDED, HOWEVER,
in the event the Mandatory Special Redemption Amount is less than
$150,000 such amount shall be allocated solely to the Class A-1
Noteholders;
(ii) to the Servicer from Available Monies, reimbursement to
the Servicer for Advances previously made;
(iii) to the Servicer from Available Monies, the Servicing
Fee, including any unpaid Servicing Fee with respect to one or more
prior Due Periods;
(iv) to the Indenture Trustee and the Owner Trustee from
Available Monies, any accrued and unpaid Indenture Trustee's Fees and
Owner Trustee's Fees, respectively, with respect to one or more period
Due Periods;
(v) to the Note Distribution Account from Available Monies,
the Note Interest Distributable Amount to the holders of the Notes at
their respective Interest Rates;
(vi) to the Note Distribution Account from Available Monies,
the Note Principal Distributable Amount to the holders of the Class A-1
Notes until the principal amount of the Class A-1 Notes has been reduced
to zero, and second to the holders of the Class A-2 Notes until the
principal amount of the Class A-2 Notes has been reduced to zero;
(vii) to the Certificate Distribution Account from Available
Interest, the Certificate Interest Distributable Amount to the holders
of the Certificates; provided, however, in the event Available Interest
is insufficient to make such payment, from such other monies as may be
available to the Trust;
(viii) to the Certificate Distribution Account from Available
Principal, the Certificate Principal Distributable Amount to the holders
of the Certificates; provided, however, in the event Available Principal
is insufficient to make such payment, from such monies as may be
available to the Trust; and
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(ix) in the event that the distributions described in clauses
(i) through (viii) above have been funded exclusively from Available
Monies, any remaining Available Monies ("EXCESS AMOUNTS") will be
deposited into the Reserve Fund, until the amount on deposit therein
equals the Specified Reserve Fund Balance, with any excess being
distributed to the Trust Depositor.
If the Notes are accelerated following an Event of Default, amounts
collected following the sale or liquidation of the property of the Trust will be
distributed in the priority described above. See "THE NOTES -- EVENTS OF
DEFAULT."
For the purposes hereof, the following terms will have the following
meanings:
"AGGREGATE PRINCIPAL BALANCE" will equal the sum of the Principal
Balances of each outstanding Contract and the Pre-Funded Amount. At the time of
initial issuance of the Securities, the initial aggregate principal amount of
the Securities will equal the Aggregate Principal Balance plus the initial
Pre-Funded Amount.
"AGGREGATE PRINCIPAL BALANCE DECLINE" means, with respect to any
Distribution Date, the amount by which the Aggregate Principal Balance as of the
Distribution Date immediately preceding such Distribution Date (or as of the
Cutoff Date in the case of the first Distribution Date) exceeds the Aggregate
Principal Balance as of such Distribution Date.
"AVAILABLE INTEREST" means, with respect to any Distribution Date, the
total (without duplication) of the following amounts received by the Servicer on
or in respect of the Contracts during the related Due Period: (i) all amounts
received in respect of interest on the Contracts (as well as Late Payment
Penalty Fees and Extension Fees), (ii) the interest component of all Net
Liquidation Proceeds, (iii) the interest component of the aggregate of the
Repurchase Prices for Contracts repurchased by the Seller pursuant to a breach
of representation or warranty, (iv) all Advances made by the Servicer, (v) the
interest component of all amounts paid by the Trust Depositor in connection with
an Optional Purchase, (vi) all amounts received in respect of Carrying Charges
transferred from the Interest Reserve Account and (vii) all amounts received in
respect of interest, dividends, gains, income and earnings on investment of
funds in the Trust Accounts (which does not include the Interest Reserve
Account).
"AVAILABLE MONIES" means, Available Interest and Available Principal.
"AVAILABLE PRINCIPAL" means, with respect to any Distribution Date, the
total (without duplication) of the following amounts received by the Servicer on
or in respect of the Contracts during the related Due Period: (i) all amounts
received in respect of principal on the Contracts, (ii) the principal component
of all Net Liquidation Proceeds, (iii) the principal component of the aggregate
of the Repurchase Prices for Contracts repurchased by the Seller pursuant to a
breach of a representation or warranty, and (iv) the principal component of all
amounts paid by the Trust Depositor in connection with an Optional Purchase of
the Contracts.
"CERTIFICATE DISTRIBUTABLE AMOUNT" will mean, with respect to any
Distribution Date, the sum of the Certificate Principal Distributable Amount and
the Certificate Interest Distributable Amount for such Distribution Date.
"CERTIFICATE INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Certificate Monthly Interest Distributable
Amount for such Distribution Date and the Certificate Interest Carryover
Shortfall for such Distribution Date.
"CERTIFICATE INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date, the excess of the sum of the Certificate Monthly Interest
Distributable Amount for the immediately preceding Distribution Date and any
outstanding Certificate Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest on the Certificates
that was actually deposited in the Certificate Distribution Account on such
preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Pass-Through Rate for the related Interest Period
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"CERTIFICATE MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, 30 days of interest (or in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) at the Pass-Through Rate on the outstanding
principal amount of the Certificates on the immediately preceding Distribution
Date, after giving effect to all payments of principal to the Certificateholders
on such preceding Distribution Date (or, in the case of the first Distribution
Date, on the original principal amount of the Certificates).
"CERTIFICATE MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, the Certificate Percentage of the Principal
Distributable Amount for such Distribution Date.
"CERTIFICATE PERCENTAGE" means (i) for each Distribution Date to but
excluding the Distribution Date on which the principal amount of the Class A-2
Notes is reduced to zero, 0%; (ii) on the Distribution Date on which the
principal amount of the Class A-2 Notes is reduced to zero, such percentage that
equals 100% minus the Note Percentage; and (iii) 100% thereafter.
"CERTIFICATE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of
any Distribution Date, the excess of the sum of the Certificate Monthly
Principal Distributable Amount and any outstanding Certificate Principal
Carryover Shortfall from the immediately preceding Distribution Date, over the
amount in respect of principal that was actually deposited in the Certificate
Distribution Account on such Distribution Date.
"CERTIFICATE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Certificate Monthly Principal Distributable
Amount and (ii) any outstanding Certificate Principal Carryover Shortfall as of
the close of the immediately preceding Distribution Date; PROVIDED, HOWEVER,
that the Certificate Principal Distributable Amount shall not exceed the
Certificate Balance. In addition, on the Certificate Final Distribution Date,
the principal required to be deposited into the Certificate Distribution Account
will include the amount necessary to reduce the Certificate Balance to zero.
"DUE PERIOD" means, a calendar month during the term of the Agreement,
and the Due Period related to a Determination Date or Distribution Date shall be
the calendar month immediately preceding such date; PROVIDED, HOWEVER, that with
respect to the initial Determination Date or initial Distribution Date, the Due
Period shall be the period from the Initial Cutoff Date to and including [
], 199__.
"INTEREST PERIOD" means, with respect to any Distribution Date, the
period from and including the fifteenth day of the month of the Distribution
Date immediately preceding such Distribution Date (or, in the case of the first
Distribution Date, the Closing Date) to but excluding the fifteenth day of the
month of such Distribution Date.
"NOTE DISTRIBUTABLE AMOUNT" means, with respect to any Distribution
Date, the sum of the Note Principal Distributable Amount and the Note Interest
Distributable Amount for such Distribution Date.
"NOTE INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date and a Class of Notes, the excess, if any, of the sum of the
Note Interest Distributable Amount for such Class for the immediately preceding
Distribution Date plus any outstanding Note Interest Carryover Shortfall for
such Class on such preceding Distribution Date, over the amount in respect of
interest that was actually deposited in the Note Distribution Account with
respect to such Class on such preceding Distribution Date, plus, to the extent
permitted by applicable law, interest on the amount of interest due but not paid
to the Noteholders of such Class on such preceding Distribution Date at the
related Interest Rate for the related Interest Period.
"NOTE INTEREST DISTRIBUTABLE AMOUNT" will mean, with respect to any
Distribution Date and a Class of Notes, the sum of the Note Monthly Interest
Distributable Amount and the Note Interest Carryover Shortfall for such Class of
Notes for such Distribution Date.
"NOTE MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, interest accrued from and including the fifteenth day of the
month of the preceding calendar month to, but excluding, the fifteenth day
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of the calendar month in which such Distribution Date occurs (or in the case of
the first Distribution Date, interest accrued from and including the Closing
Date to but excluding such Distribution Date) at the related Interest Rate for
each Class of Notes on the outstanding principal amount of the Notes of such
Class on the immediately preceding Distribution Date, after giving effect to all
payments of principal to Noteholders of such Class on or prior to such
Distribution Date (or, in the case of the first Distribution Date, on the
original principal amount of such Class of Notes).
"NOTE MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the Note Percentage of the Principal Distributable Amount for
such Distribution Date.
"NOTE PERCENTAGE" means (i) for each Distribution Date to but excluding
the Distribution Date on which the principal amount of the Class A-2 Notes is
reduced to zero, 100%; (ii) on the Distribution Date on which the principal
amount of the Class A-2 Notes is reduced to zero, such percentage which
represents the fraction of the Principal Distributable Amount necessary to
reduce the principal amount of the Class A-2 Notes to zero; and (iii) 0.0%
thereafter.
"NOTE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of any
Distribution Date, the excess of the sum of the Note Monthly Principal
Distributable Amount and any outstanding Note Principal Carryover Shortfall from
the immediately preceding Distribution Date over the amount in respect of
principal that was actually deposited in the Note Distribution Account on such
Distribution Date.
"NOTE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Note Monthly Principal Distributable Amount
for such Distribution Date and any outstanding Note Principal Carryover
Shortfall for the immediately preceding Distribution Date; PROVIDED, HOWEVER,
that the Note Principal Distributable Amount for a Class of Notes shall not
exceed the outstanding principal amount of such Class of Notes.
Notwithstanding the foregoing, the Note Principal Distributable Amount (i) on
the Class A-1 Final Distribution Date shall not be less than the amount that is
necessary (after giving effect to other amounts to be deposited in the Note
Distribution Account on such Distribution Date and allocable to principal) to
reduce the outstanding principal amount of the Class A-1 Notes to zero, and (ii)
on the Class A-2 Final Distribution Date shall not be less than the amount that
is necessary (after giving effect to other amounts to be deposited in the Note
Distribution Account on such Distribution Date and allocable to principal) to
reduce the outstanding principal amount of the Class A-2 Notes to zero.
"PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any Distribution
Date, the Aggregate Principal Balance Decline for such Distribution date.
"PRINCIPAL BALANCE" means, (a) with respect to any Contract as of any
date, an amount equal to the unpaid principal balance of such Contract as of the
opening of business on the Initial Cutoff Date or related Subsequent Cutoff
Date, as applicable, reduced by the sum of (x) all payments received by the
Servicer as of such date allocable to principal and (y) any Cram Down Loss in
respect of such Contract; PROVIDED, HOWEVER, that (i) if (x) a Contract is
repurchased by the Seller because of a breach of representation or warranty, or
if (y) the Trust Depositor gives notice of its intent to purchase the Contracts
in connection with an optional termination of the Trust, in each case the
Principal Balance of such Contract or Contracts shall be deemed as of the
related Determination Date to be zero for the Due Period in which such event
occurs and for each Due Period thereafter, (ii) from and after the third Due
Period succeeding the final Due Period in which the Obligor is required to make
the final scheduled payment on a Contract, the Principal Balance, if any, of
such Contract shall be deemed to be zero, and (iii) from and after the Due
Period in which a Contract becomes a Liquidated Contract, the Principal Balance
of such Contract shall be deemed to be zero; and (b) where the context requires,
the aggregate of the Principal Balances described in clause (a) for all such
Contracts.
PAYMENT PRIORITIES OF THE NOTES AND THE CERTIFICATES; THE RESERVE FUND
GENERAL. The rights of the Securityholders to receive distributions
with respect to the Contracts will be subordinated to the rights of the Servicer
(to the extent that the Servicer has not been reimbursed for any outstanding
Advances and has not been paid all Servicing Fees) and the Trustees and certain
other entities (to the extent the Trustees and such other entities have not
received all Trust Fees and Expenses payable to them). In addition, the rights
of the Securityholders to receive distributions with respect to the Contracts
will be subject to the priorities set forth under "--
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DISTRIBUTIONS ON THE SECURITIES -- DEPOSITS TO THE DISTRIBUTION ACCOUNT;
PRIORITY OF PAYMENTS." Such priorities and subordination are intended to
enhance the likelihood of timely receipt by the Noteholders of the full amount
of interest and principal required to be paid to them, and to afford such
Noteholders limited protection against losses in respect of the Contracts.
In the event of delinquencies or losses on the Contracts, the foregoing
protection will be effected both by the preferential right of the Noteholders to
receive, to the extent described herein, current distributions with respect to
the Contracts and by the establishment of the Reserve Fund. The Reserve Fund
will be an account in the name of the Indenture Trustee on behalf of the
Securityholders. The Reserve Fund will be created with an initial deposit by
the Trust on behalf of the Trust Depositor on the Closing Date of an amount
equal to the sum of the Reserve Fund Initial Deposit and the Initial Certificate
Reserve Amount. The Reserve Fund will thereafter be funded by the deposit
therein of all Excess Amounts and Subsequent Reserve Fund Amounts, if any, in
respect of each Distribution Date until the amount on deposit in the Reserve
Fund is equal to the Specified Reserve Fund Balance.
If the amount on deposit in the Reserve Fund on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Fund Balance, the
Indenture Trustee will distribute any excess to the Trust Depositor. Upon any
such distributions to the Trust Depositor, the Securityholders will have no
further rights in, or claims to, such amounts.
CALCULATION OF SPECIFIED RESERVE FUND BALANCE. The Reserve Fund will
be created with an initial deposit by the Trust on behalf of the Trust Depositor
of the sum of (i) an amount equal to $[ ] and (ii) the Initial
Certificate Reserve Amount of $[ ], in the Trust and will
thereafter be funded on each Distribution Date by the deposit therein of certain
monies pursuant to the Agreement, until the monies in the Reserve Fund reach an
amount equal to the Specified Reserve Fund Balance (as hereinafter defined).
Thereafter, on each Distribution Date on which amounts held in the Reserve Fund
(after giving effect to any required withdrawals therefrom on such date) exceed
the Specified Reserve Fund Balance such amounts shall be released to the Trust
Depositor.
The "SPECIFIED RESERVE FUND BALANCE" with respect to any Distribution
Date will be an amount equal to the sum of (i)[ ]% of the Principal
Balance of the Contracts in the Trust as of the first day of the immediately
preceding Due Period and (ii) $[ ]; PROVIDED, HOWEVER, in the
event a Reserve Fund Trigger Event (as hereinafter defined) occurs with respect
to a Distribution Date and has not terminated for three consecutive Distribution
Dates (inclusive of the respective Distribution Date), the Specified Reserve
Fund Balance shall be equal to the sum of (i) [ ]% of the Principal Balance
of the Contracts in the Trust as of the first day of the immediately preceding
Due Period and (ii) $[ ]. Notwithstanding the foregoing, in
no event shall the Specified Reserve Fund Balance be less than the sum of (i)[
]% of the aggregate of the Initial Class A-1 Note Balance, Initial Class
A-2 Note Balance and Initial Certificate Balance and (ii) $[ ].
As of any Distribution Date, the amount of funds actually on deposit in the
Reserve Fund may, in certain circumstances, be less than the Specified Reserve
Fund Balance.
A "RESERVE FUND TRIGGER EVENT" will have been deemed to occur with
respect to any Distribution Date if (i) the Average Delinquency Ratio (as
hereinafter defined) for such Distribution Date is equal to or greater than (a)[
]% with respect to any Distribution Date which occurs within the period
from the Closing Date to, and inclusive of, the first anniversary of the Closing
Date, (b)[ ]% with respect to any Distribution Date which occurs within
the period from the day after the first anniversary of the Closing Date to, and
inclusive of, the second anniversary of the Closing Date, or (c)[ ]%
for any Distribution Date which occurs within the period from the day after the
second anniversary of the Closing Date to, and inclusive of, the third
anniversary of the Closing Date or (d) [ ]% for any Distribution Date
following the third anniversary of the Closing Date; (ii) the Average Loss Ratio
(as hereinafter defined) for such Distribution Date is equal to or greater than
(a) [ ]% with respect to any Distribution Date which occurs within the
period from the Closing Date to, and inclusive of, the eighteen months following
the Closing Date or (b) [ ]% with respect to any Distribution Date
which occurs following the eighteen month period following the Closing Date; or
(iii) the Cumulative Loss Ratio (as hereinafter defined) for such Distribution
Date is equal to or greater than (a) [ ]% with respect to any
Distribution Date which occurs within the period from the Closing Date to, and
inclusive of, the first anniversary of the Closing Date, (b)[ ]% with
respect to any Distribution Date which occurs within the period from the day
after the first anniversary of the Closing Date to, and inclusive of, the second
anniversary of the Closing Date,
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(c) [ ]% for any Distribution Date which occurs within the period from
the day after the second anniversary of the Closing Date to, and inclusive of,
the third anniversary of the Closing Date, or (d) [ ]% following the
third anniversary of the Closing Date.
The "AVERAGE DELINQUENCY RATIO" for any Distribution Date is equal to
the arithmetic average of the Delinquency Ratios for the Distribution Date and
the two immediately preceding Distribution Dates and the "DELINQUENCY RATIO" for
any Distribution Date is equal to the fraction (expressed as a percentage)
derived by dividing (a) the Delinquency Amount during the immediately preceding
Due Period by (b) the Principal Balance of the Contracts as of the beginning of
the related Due Period. The "DELINQUENCY AMOUNT" as of any Distribution Date
means the Principal Balance of all Contracts that were delinquent 60 days or
more as of the end of the related Due Period (including Contracts in respect of
which the related Motorcycles have been repossessed and are still inventory).
The "AVERAGE LOSS RATIO" for any Distribution Date is equal to the arithmetic
average of the Loss Ratios for such Distribution Date and the two immediately
preceding Distribution Dates and the "LOSS RATIO" for any Distribution Date is
equal to the fraction (expressed as a percentage) derived by dividing (x) the
Net Liquidation Losses for all Contracts that became Liquidated Contracts during
the immediately preceding Due Period multiplied by 12 by (y) the outstanding
Principal Balances of all Contracts as of the beginning of the related Due
Period. "NET LIQUIDATION LOSSES" means, with respect to a Liquidated Contract,
the amount, if any, by which (a) the outstanding Principal Balance of such
Liquidated Contract plus accrued and unpaid interest thereon at the Contract
Rate to the date on which such Liquidated Contract became a Liquidated Contract
exceeds (b) the Net Liquidation Proceeds for such Liquidated Contract. "NET
LIQUIDATION PROCEEDS" means, as to any Liquidated Contract, the proceeds
realized on the sale or other disposition of the related Motorcycle, including
proceeds realized on the repurchase of such Motorcycle by the originating dealer
for breach of warranties, and the proceeds of any insurance relating to such
Motorcycle, after payment of all expenses incurred thereby, together, in all
instances, with the expected or actual proceeds of any recourse rights relating
to such Contract as well as any post disposition proceeds received by the
Servicer. "LIQUIDATED CONTRACT" means any defaulted Contract as to which the
Servicer has determined that all amounts which it expects to recover from or on
account of such Contract have been recovered; provided that any defaulted
Contract in respect of which the related Motorcycle has been realized upon and
disposed of and the proceeds of such disposition have been realized shall be
deemed to be a Liquidated Contract; and PROVIDED FURTHER, a Contract which has
been repossessed and has not been sold by the Servicer for a period in excess of
90 days from such date of repossession or a Contract which has been delinquent
more than 150 days shall be deemed to be a Liquidated Contract with a zero
balance. The "CUMULATIVE LOSS RATIO" for any Distribution Date means the
fraction (expressed as a percentage) computed by the Servicer by dividing (a)
the aggregate Net Liquidation Losses for all Contracts since the Cutoff Date
through the end of the related Due Period by (b) the sum of (i) the Principal
Balance of the Contracts as of the Cutoff Date plus (B) the Principal Balance of
any Subsequent Contracts as of the related Subsequent Cutoff Date. A Trigger
Event will be deemed to have terminated with respect to a Distribution Date if
no Trigger Event shall exist with respect to three consecutive Distribution
Dates (inclusive of the respective Distribution Date).
Amounts held from time to time in the Reserve Fund will continue to be
held for the benefit of the Securityholders. Funds on deposit in the Reserve
Fund may be invested in Eligible Investments. Investment income on monies on
deposit in the Reserve Fund will not be available for distribution to
Securityholders after the Specified Reserve Fund Balance has been met and
released to the Trust Depositor. Any loss on such investments will be charged
to the Reserve Fund.
"AVAILABLE AMOUNT" means, with respect to any Distribution Date, the
amount of funds on deposit in the Reserve Fund on such Distribution Date less
the Certificate Reserve Amount with respect to such Distribution Date, in each
case, before giving effect to any reduction thereto on such Distribution Date.
"CERTIFICATE RESERVE AMOUNT" means the sum of the Initial Certificate
Reserve Amount and each Subsequent Certificate Reserve Amount, as such amount
may be reduced or restored from time to time pursuant to the Agreement.
If, on any Distribution Date, the Certificate Principal Balance equals
zero and amounts on deposit in the Reserve Fund have been depleted as a result
of losses in respect of the Contracts, the protection afforded to the
Noteholders by
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the subordination of the Certificates and by the Reserve Fund will be exhausted
and the Noteholders will bear directly the risks associated with ownership of
the Contracts.
None of the Securityholders, the Indenture Trustee, the Owner Trustee,
the Seller nor the Trust Depositor will be required to refund any amounts
properly distributed or paid to them, whether or not there are sufficient funds
on any subsequent Distribution Date to make full distributions to the
Securityholders.
The Servicer may, from time to time after the date of this Prospectus
Supplement, request each Rating Agency that rated any of the Securities to, at
the request of the Trust Depositor, approve a formula for determining the
Specified Reserve Fund Balance that is different from the formula described
above and would result in a decrease in the amount of the Specified Reserve Fund
Balance or the Certificate Reserve Amount or the manner by which the Reserve
Fund is funded. If each Rating Agency delivers a letter to the Indenture
Trustee and the Owner Trustee to the effect that the use of any such new
formulation will not in and of itself result in a qualification, reduction or
withdrawal of its then-current rating of any Class of Securities then the
Specified Reserve Fund Balance will be determined in accordance with such new
formula. The Agreement will accordingly be amended to reflect such new
calculation without the consent of any Securityholder.
WITHDRAWALS FROM THE RESERVE FUND
Amounts held from time to time in the Reserve Fund will continue to be
held for the benefit of the Securityholders. On each Distribution Date, funds
will be withdrawn from the Reserve Fund to the extent that the amount on deposit
in the Note Distribution Account with respect to any Distribution Date up to the
Available Amount is less than the Note Distributable Amount and will be
deposited in the Note Distribution Account. In addition, after giving effect to
such withdrawal, funds will be withdrawn from the Reserve Fund, first from the
Available Amount and then from the Certificate Reserve Amount, to the extent
that the amount on deposit in the Certificate Distribution Account is less than
the Certificate Distributable Amount and will be deposited in the Certificate
Distribution Account. See "PAYMENTS FROM THE RESERVE FUND."
PAYMENTS FROM THE RESERVE FUND
On each Distribution Date on which the Note Distributable Amount exceeds
the amount then on deposit in the Note Distribution Account, the Noteholders
will be entitled to receive such deficiency (including amounts necessary to
reduce the outstanding principal balance of a given Class of Notes to zero on
the related Note Final Distribution Date), from amounts on deposit in the
Reserve Fund. Subject to the Noteholders' priority on each Distribution Date on
which the Certificate Distributable Amount exceeds the amount then on deposit in
the Certificate Distribution Account, the Certificateholders will be entitled to
receive such deficiency (including amounts necessary to reduce the balance of
the Certificates to zero on the Certificate Final Distribution Date) from
amounts on deposit in the Reserve Fund.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Indenture Trustee a statement to be delivered to each Noteholder
and to the Owner Trustee a statement to be delivered to each Certificateholder
on such Distribution Date (the "DISTRIBUTION DATE STATEMENT"), setting forth
with respect to the related Distribution Date or Due Period, as applicable,
among other things, the following information:
(i) the amount of the Certificateholder's distribution
allocable to principal and the amount of the Noteholder's principal
distribution;
(ii) the amount of the Certificateholder's distribution
allocable to interest and the amount of the Noteholder's interest
distribution;
(iii) the amount of fees payable out of the Trust, separately
identifying the Servicing Fee, and the Trustees' Fees;
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(iv) the amount of any Note Interest Carryover Shortfall,
Note Principal Carryover Shortfall, Certificate Interest Carryover
Shortfall and Certificate Principal Carryover Shortfall on such
Distribution Date and the change in such amounts from those with respect
to the immediately preceding Distribution Date;
(v) the Note Pool Factor for each Class of Notes and the
Certificate Pool Factor, in each case as of such Distribution Date;
(vi) the amount of the distributions described in (i) or (ii)
above payable pursuant to a claim on the Reserve Fund or from any other
source not constituting Available Monies and the amount remaining in the
Reserve Fund after giving effect to all deposits and withdrawals from
the Reserve Fund on such date;
(vii) the amount of any Mandatory Special Redemption to be
made on such Distribution Date;
(viii) for each Distribution Date during the Funding Period,
the remaining Pre-Funded Amount;
(ix) for each Distribution Date during the Funding Period to
and including the Distribution Date immediately following the end of the
Funding Period, the Principal Balance and number of Subsequent Contracts
conveyed to the Trust during the related Due Period;
(x) the remaining Principal Balance after giving effect to
the distribution of principal (and Mandatory Special Redemption, if any)
to each class of Notes and the Certificates to be made on such
Distribution Date;
(xi) the number and aggregate principal balance of Contracts
delinquent, 31-59 days, 60-89 days and 90 or more days, computed as of
the end of the related Due Period;
(xii) the number and aggregate Principal Balance of Contracts
that became Liquidated Contracts during the immediately preceding Due
Period, the amount of liquidation proceeds for such Due Period, the
amount of liquidation expenses being deducted from liquidation proceeds
for such Due Period, the Net Liquidation Proceeds and the Net
Liquidation Losses for such Due Period;
(xiii) the Loss Ratio, the Average Loss Ratio, the Cumulative
Loss Ratio, the Delinquency Ratio and the Average Delinquency Ratio as
of such Distribution Date;
(xiv) the number of Contracts and the aggregate Principal
Balance of such Contracts, as of the first day of the Due Period
relating to such Distribution Date (after giving effect to payments
received during such Due Period and to any transfers of Subsequent
Contract to the Trust occurring on or prior to such Distribution Date);
(xv) the aggregate Principal Balance and number of Contracts
that were repurchased by the Seller pursuant to the Agreement with
respect to the related Due Period, identifying such Contracts and the
Repurchase Price for such Contracts; and
(xvi) such other customary factual information as is available
to the Servicer as the Servicer deems necessary and can reasonably
obtain from its existing data base to enable Noteholders and
Certificateholders to prepare their tax returns.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (iv)
above will be expressed in the aggregate and as a dollar amount per $1,000 of
original principal amount of a Note or the Initial Certificate Balance of a
Certificate, as the case may be. In addition, within the prescribed period of
time for tax reporting purposes after the end of each calendar year during the
term of the Agreement, the Indenture Trustee and the Owner Trustee will mail to
each person who at any time during such calendar year shall have been a
Noteholder or a Certificateholder, as the case may be, a
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statement containing the sum of the amounts described in clauses (i), (ii),
(iii) and (iv) above for the purposes of such holder's preparation of federal
income tax returns. See "FEDERAL INCOME TAX CONSEQUENCES."
VOTING INTERESTS
The "VOTING INTERESTS" of the (i) Notes of a Class or Classes will be
allocated among the Noteholders or related Note Owners, as the case may be, in
accordance with the unpaid principal amount of the Notes of such Class or
Classes represented thereby and (ii) Certificates will be allocated among the
Certificateholders or related Certificate Owners, as the case may be, in
accordance with the Certificate Balance represented thereby; except that in
certain circumstances any Securities held by the Trust Depositor or the Seller,
or any of their respective affiliates shall be excluded from such determination.
AMENDMENT
AMENDMENT OF THE AGREEMENT. The Agreement may be amended, without the
consent of the Securityholders, to cure any ambiguity, correct or supplement any
provision therein which may be inconsistent with any other provision therein, to
add any other provisions with respect to matters or questions arising under such
agreement which are not inconsistent with the provisions thereof, to add or
provide for any credit enhancement for any Class of Securities or to permit
certain changes with respect to the amount required to be maintained on deposit
in the Reserve Fund; provided, that any such action will not, in the opinion of
counsel satisfactory to the related Trustee, materially and adversely affect the
interests of any such Securityholder, and provided further, that in the case of
a change with respect to the amount required to be maintained on deposit in or
pursuant to the Reserve Fund, the Trustee receives a letter from each Rating
Agency that rated any of the Securities to the effect that its then-current
rating on each Class of Securities will not be qualified, reduced or withdrawn
due to such amendment and the Servicer shall provide the Rating Agencies notice
of such amendment.
The Agreement may also be amended from time to time with the consent or
the holders of Notes and Certificates evidencing not less than 66 2/3% of the
respective voting interests thereof, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of such agreement
or of modifying in any manner the rights of the related Securityholders of each
Class; provided, that no such amendment may (i) except as described above,
increase or reduce in any manner the amount of or accelerate or delay the timing
of collections of payments on or in respect of the Contracts, required
distributions on the Securities, or the Specified Reserve Fund Balance or the
manner in which the Reserve Fund is funded, or (ii) reduce the aforesaid
percentage of the voting interests of which the holders of any Class of
Securities are required to consent to any such amendment, without the consent of
the holders of all of the relevant Class of Securities.
AMENDMENT OF THE TRUST AGREEMENT. The Trust Agreement may be amended
without the consent of the Securityholders, to cure any ambiguity, correct or
supplement any provision therein which may be inconsistent with any other
provision therein, or to add any other provisions with respect to matters or
questions arising under such agreement which are not inconsistent with the
provisions thereof; provided, that any such action will not, in the opinion of
counsel satisfactory to the related Trustee, materially and adversely affect the
interests of any such Noteholder or Certificateholder.
The Trust Agreement may also be amended from time to time with the
consent of the Securityholders evidencing not less than 66 2/3% of the
respective voting interests thereof, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of such agreement
or of modifying in any manner the rights of the Securityholders, provided, that
no such amendment may increase or reduce in any manner the amount of or
accelerate or delay the timing of (i) collections of payments on or in respect
of the Contracts or required distributions on the Securities or any Interest
Rate or the Pass-Through Rate or (ii) reduce the aforesaid percentage of the
voting interests of which the holders of any Class of Securities are required to
consent to any such amendment, without the consent of the holders of all of the
relevant Class of Securities.
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AMENDMENT OF THE INDENTURE. The Trust and the Indenture Trustee (on
behalf of such Trust) may, without consent of the Noteholders, enter into one
or more supplemental indentures for any of the following purposes: (i) to
correct or amplify the description of the property subject to the lien of the
Indenture or to subject additional property to the lien of the Indenture; (ii)
to provide for the assumption of the Notes and the Indenture obligations by a
permitted successor to the Trust; (iii) to add additional covenants for the
benefit of the related Noteholders, or to surrender any rights or powers
conferred upon the Trust; (iv) to convey, transfer, assign, mortgage or pledge
any property to the Indenture Trustee; (v) to cure any ambiguity or correct or
supplement any provision in the Indenture or in any supplemental indenture which
may be inconsistent with any other provision in the Indenture, any supplemental
indenture, the Agreement or certain other agreements; provided, that any action
specified in clause (v) shall not adversely affect the interests of any
Noteholder; (vi) to provide for the acceptance of the appointment of a successor
Indenture Trustee or to add to or change any of the provisions of the Indenture
as shall be necessary and permitted to facilitate the administration by more
than one Indenture Trustee; (vii) to modify, eliminate or add to the provisions
of the Indenture in order to comply with the Trust Indenture Act of 1939, as
amended; and (viii) to add any provisions to, change in any manner, or eliminate
any of the provisions of, the Indenture or modify in any manner the rights of
Noteholders under such Indenture; provided that any action specified in clause
(viii) shall not, as evidenced by an opinion of counsel, adversely affect in any
material respect the interests of any Noteholder unless such Noteholder's
consent is otherwise obtained as described below.
Without the consent of the holder of each outstanding Note affected
thereby, no supplemental indenture may: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the Interest Rate thereon (or the method by which such interest
or principal is calculated) or the redemption price with respect thereto or
change any place of payment where or the coin or currency in which any such Note
or any interest thereon is payable; (ii) impair the right to institute suit for
the enforcement of the provisions of the Indenture regarding payment; (iii)
reduce the percentage of the voting interests of the Notes, the consent of the
holders of which is required for any such supplemental indenture or the consent
of the holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust, any
other obligor on such Notes, the Trust Depositor, or any of their respective
affiliates; (v) reduce the percentage of the voting interests of the Notes, the
consent of the holders of which is required to direct the Indenture Trustee to
sell or liquidate the property of the Trust if the proceeds of such sale or
liquidation would be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding Notes; (vi) decrease the percentage of the
aggregate of such Notes required to amend the provisions of the Indenture which
specify the applicable percentage of voting interests of the Notes necessary to
amend such Indenture or certain other related agreements; or (vii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Indenture, terminate the lien of such
Indenture on any such collateral or deprive the holder of any such Note of the
security afforded by the lien of such Indenture.
LIST OF SECURITYHOLDERS
Upon the written request of the Servicer, the Owner Trustee will provide
to the Servicer within 15 days after receipt of such request, a list of the
names and addresses of all Certificateholders. In addition, three or more
holders of Certificates or holders of Certificates evidencing not less than 25%
of the voting interests of the Certificates, upon compliance by such
Certificateholders with certain provisions of the Trust Agreement, may request
that the Owner Trustee afford such Certificateholders access during business
hours to the current list of Certificateholders of purposes of communicating
with other Certificateholders with respect to their rights under the Trust
Agreement.
Three or more holders of Notes may, by written request to the Indenture
Trustee, obtain access to the list of all Noteholders maintained by such
Indenture Trustee for the purpose of communicating with the other Noteholders
with respect to their rights under the Indenture or under the Notes. The
Indenture Trustee may elect not to afford the requesting Noteholders access to
the list of Noteholders if it agrees to mail the desired communication or proxy,
on behalf of and at the expense of the requesting Noteholders, to all
Noteholders.
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Neither the Trust Agreement nor the Indenture will provide for the
holding of any annual or other meetings of Securityholders.
TERMINATION
The obligations of the Servicer, the Trust Depositor, the Owner Trustee
and Indenture Trustee with respect to the related Securityholders pursuant to
the Trust Agreement, Agreement or Indenture will terminate upon the earliest to
occur of (i) the maturity or other liquidation of the last Contract and the
disposition of any amounts received upon liquidation of any property remaining
in the Trust, or (ii) the payment to Securityholders of all amounts required to
be paid to them pursuant to the Indenture and the Trust Agreement; PROVIDED,
HOWEVER, in no event shall the Trust continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late Ambassador of the United States to the Court of St. James, living on the
Closing Date. The Seller's representations, warranties and indemnities will
survive any termination of the Agreement. Upon termination, amounts in the
Collection Account, if any, will be paid to the Trust Depositor.
The Owner Trustee and Indenture Trustee will give written notice of
termination to each Securityholder of record. The final distribution to each
Securityholder will be made only upon surrender and cancellation of such
holder's Securities at the office or agency of the related Trustee specified in
the notice of termination. Any funds remaining in the Trust, after such Trustee
has taken certain measures to locate a Securityholder and such measures have
failed, will be distributed to a charity designated by the Servicer.
PAYMENT IN FULL OF NOTES
Upon the payment in full of all outstanding Notes and the satisfaction
and discharge of the Indenture, the Owner Trustee will succeed to all the rights
of the Indenture Trustee, and the Certificateholders will succeed to all the
rights of the Noteholders, under the Agreement, except as otherwise provided
therein.
THE TRUSTEES
A Trustee may resign at any time, in which event the Administrator, or
its successor, will be obligated to appoint a successor trustee. The
Administrator (as defined herein) may also remove the Owner Trustee or the
Indenture Trustee, in each case if such Trustee becomes insolvent or ceases to
be eligible to continue as trustee under the Trust Agreement or Indenture, as
the case may be. In such event, the Administrator will be obligated to appoint
a successor Owner Trustee or Indenture Trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
Each Trustee and any of its affiliates may hold Securities in their own
names or as pledgees. For the purpose of meeting the legal requirements of
certain jurisdictions, the Administrator and the Owner Trustee or Indenture
Trustee acting jointly (or in some instances, the Owner Trustee and Indenture
Trustee acting without the Administrator) will have the power to appoint
co-trustees or separate trustees of all or any part of the Trust. In the event
of such an appointment, all rights, powers, duties and obligations conferred or
imposed upon such Trustee by the Indenture, the Agreement or Trust Agreement
will be conferred or imposed upon such Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which such Trustee will be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who will exercise and perform such rights, powers, duties
and obligations solely at the direction of such Trustee.
The Trust Agreement will further provide that the Owner Trustee will be
entitled to indemnification by the Trust Depositor for, and will be held
harmless against, any loss, liability or expense incurred by such Trustee not
resulting from its own willful misconduct, bad faith or negligence (other than
by reason of a breach of any of its representations or warranties set forth in
such agreement). The Indenture will further provide that the Indenture Trustee
will be entitled to indemnification by the Trust or the Administrator for any
loss, liability or expense incurred by such Trustee not resulting from its own
willful misconduct, negligence or bad faith.
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DUTIES OF THE TRUSTEES
The Trustees will not make any representations as to the validity or
sufficiency of the Trust Agreement or the Indenture, the Securities issued
pursuant thereto (other than the execution and authentication thereof) or of any
Contracts or related documents. The Trustees will not be accountable for the
use or application by the Trust Depositor or the Servicer of any funds paid to
the Trust Depositor or the Servicer in respect of such Securities or the related
Contracts or the investment of any monies by the Servicer before such monies are
deposited into the Collection Account. The Trustees will not independently
verify the existence or characteristics of the Contracts. If no Event of
Default or Termination Event has occurred and is continuing, the Trustees will
be required to perform only those duties specifically required of it under the
Indenture, the Trust Agreement or the Agreement, as the case may be. Generally
those duties will be limited to the receipt of the various certificates and
reports or other instruments required to be furnished to such Trustee under such
agreements, in which case it will only be required to examine them to determine
whether they conform to the requirements of such agreements. The Trustees will
not be charged with knowledge of a failure by the Servicer to perform its duties
under the relevant agreements which failure constitutes an Event of Default or a
Termination Event unless the Owner Trustee or Indenture Trustee obtains actual
knowledge of such failure as specified in such agreements.
Neither the Indenture Trustee nor the Owner Trustee will be under any
obligation to exercise any of the rights or powers vested in it by the
Indenture, the Trust Agreement or the Agreement, as the case may be, or to make
any investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Securityholders, unless such Securityholders have
offered to such Trustee reasonable security or indemnity against the costs,
expenses and liabilities that may be incurred therein or thereby. No
Securityholder will have any right under any such agreement to institute any
proceeding with respect to such agreement, unless such holder previously has
given to such Trustee written notice of default and (i) the default arises from
the Servicer's failure to remit payments when due or (ii) the holders of
Securities evidencing not less than 25% of the voting interests of all of the
related Securities, voting together as a single class, have made written request
upon such Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to such Trustee reasonable indemnity and such
Trustee for 60 days has neglected or refused to institute any such proceedings.
TRUST DEPOSITOR LIABILITY
The Trust Agreement will require the Trust Depositor to agree to be
liable directly to an injured party for the entire amount of any losses, claims,
damages or liabilities (other than those incurred by a Securityholder in the
capacity of an investor with respect to the Trust) arising out of or based on
the arrangement created by the Trust Agreement as though such arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership Act
in which Trust Depositor was a general partner.
ADMINISTRATION AGREEMENT
Eaglemark, in its capacity as administrator (in such capacity, the
"ADMINISTRATOR"), will enter into an agreement (the "ADMINISTRATION AGREEMENT")
with the Trust, the Trust Depositor and the Indenture Trustee pursuant to which
the Administrator will agree, to the extent provided in the Administration
Agreement, to provide the notices and to perform other administrative
obligations required to be provided or performed by the Trust or the Owner
Trustee under the Indenture. The Administrator in the Administration Agreement
agrees to perform certain accounting functions of the Trust which the Owner
Trustee is required to perform pursuant to the Trust Agreement, including but
not limited to maintaining the books of the trust, filing tax returns for the
trust, and delivering tax related reports to each Securityholder (except the
Owner Trustee shall retain responsibility for distributing the Schedule K-1s).
As compensation for the performance of the Administrator's obligations under the
Administration Agreement and as reimbursement for its expenses related thereto,
the Administrator will be entitled to a monthly administration fee (the
"ADMINISTRATION FEE"), which fee will be paid by the Servicer.
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COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will manage, administer, service and make collections on
the Contracts exercising the degree of skill and care consistent with the
highest degree of skill and care that the Servicer exercises with respect to
similar contracts serviced by the Servicer and in any event with no less degree
of skill and care than would be exercised by a prudent servicer of motorcycle
conditional sales contracts.
The Servicer may, consistent with its customary servicing procedures,
grant to the Obligor on any Contract an extension of payments due under such
Contract, provided that (i) the extension period is limited to 45 days, (ii) the
Obligor has not received an extension during the previous twelve-month period,
(iii) the evidence supports the Obligor's willingness and capability to resume
monthly payments, (iv) such extension is consistent with the Servicer's
customary servicing procedures and with the Agreement, (v) such extension does
not extend the maturity date of the Contract beyond the last maturity date of
any of the Contracts as of the Initial Cutoff Date (or as of the last Subsequent
Cutoff Date, if any) and (vi) the aggregate Principal Balances of Contracts
which have had extensions granted does not exceed more than 3% of the aggregate
of the principal amount of the Notes and the Certificate Balance.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to receive a Monthly Servicing Fee for
each Due Period (to be paid on the related Distribution Date) equal to 1/12th of
[ ]% of the Principal Balance of the Contracts as of the beginning of such
Due Period. Along with the Monthly Servicing Fee, and included as part of the
"SERVICING FEE" as defined in the Agreement, the Servicer will be entitled to
receive late payment penalty fees and extension fee paid by Obligors during the
related Due Period as additional compensation. Such Servicing Fee is payable
prior to the payment of principal and interest on the Securities. See "CERTAIN
INFORMATION REGARDING THE SECURITIES -- DISTRIBUTIONS ON THE SECURITIES" above.
The Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the Trust, for
additional administrative services performed by the Servicer on behalf of the
Trust and for expenses paid by the Servicer on behalf of the Trust.
Customary servicing activities include collecting and recording
payments, communicating with Obligors, investigating payment delinquencies,
providing billing and tax records to Obligors and maintaining internal records
with respect to each Contract. Administrative services performed by the
Servicer on behalf of the Trust include selecting and packaging the Contracts,
calculating distributions to Noteholders and Certificateholders and providing
related data processing and reporting services for Noteholders and
Certificateholders and on behalf of the Trustees. Expenses incurred in
connection with servicing of the Contracts and paid by the Servicer from its
servicing fees include payment of fees and expenses of accountants, payments of
all fees and expenses incurred in connection with the enforcement of Contracts,
and payment of expenses incurred in connection with distributions and reports to
Securityholders.
INDIVIDUAL MOTORCYCLE INSURANCE
The terms of each Contract require that for the life of the Contract,
each Motorcycle is covered by a collision and comprehensive or equivalent
insurance policy which covers physical damage risks, provides limited insurance
coverage for damage to the Motorcycle and names the Seller as a loss payee. The
amount of insurance coverage is limited to the value of the Motorcycle. In the
Transfer and Sale Agreement, the Seller has warranted that all premium payments
on such insurance have been paid in full for one year from the date of the
Contracts' origination. Pursuant to Contract terms, the Servicer may "FORCE
PLACE" collision and comprehensive insurance with respect to the related
Motorcycle in those situations in which the Obligor has not maintained the
required insurance. As conveyee and assignee of the Contracts, the Trust will
be entitled to the benefits of such insurance. See "CERTAIN INFORMATION
REGARDING THE SECURITIES -- CONVEYANCE OF CONTRACTS." Following repossession of
a Motorcycle by the Servicer, the Servicer does not maintain such insurance. In
the event the Servicer repossesses a Motorcycle on behalf of the Trust, the
Servicer will act as self-insurer for any damage to such motorcycle until it is
resold.
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EVIDENCE AS TO COMPLIANCE
Pursuant to the Agreement, on or before March 31 of each year, beginning
on March 31, [ ], the Servicer will deliver to the Trustees and the
Rating Agencies a report of a nationally recognized accounting firm, with
respect to the twelve months ended the immediately preceding December 31, a
statement (the "ACCOUNTANT'S REPORT") addressed to the Board of Directors of the
Servicer, and to the Trustees to the effect that such firm has audited the
consolidated financial statements of Eaglemark Financial and issued its report
thereon and that such audit (1) was made in accordance with generally accepted
auditing standards, and accordingly included such tests of the accounting
records and such other auditing procedures as such firm considered necessary in
the circumstances; (2) included an examination of documents and records relating
to the servicing of substantially similar motorcycle conditional sales contracts
under substantially similar pooling and servicing agreements (such
substantially similar statement to have attached thereto a schedule setting
forth the pooling and servicing agreements covered thereby, including the
Agreement); (3) included an examination of the delinquency and loss statistics
relating to the portfolio of motorcycle conditional sales contracts of Eaglemark
Financial and its subsidiaries; and (4) except as described in the statement,
disclosed no exceptions or errors in the records relating to motorcycle loans
serviced for others that, in the firm's opinion, generally accepted auditing
standards requires such firm to report. The Accountant's Report will further
state that (1) a review in accordance with agreed upon procedures was made of
one randomly selected Monthly Report and (2) except as disclosed in the
Accountant's Report, no exceptions or errors in the Monthly Report so examined
were found.
The Agreement provides that the Servicer shall furnish to the Trustees
and the Rating Agencies such underlying data as each may reasonably request.
EVENTS OF TERMINATION
An Event of Termination under the Agreement will occur if (a) either the
Servicer or the Seller fails to make any payment or deposit required under the
Securities, the Agreement or the Transfer and Sale Agreement and such failure
continues for four Business Days after the date on which such payment or deposit
was due; (b) either the Servicer or the Seller fails to observe or perform in
any material respect any covenant or agreement in the Notes, Certificates, the
Agreement or the Transfer and Sale Agreement which continues unremedied for
thirty days after the date on which such failure commences; (c) either the
Servicer or the Seller assigns its duties or rights under the Agreement or the
Transfer and Sale Agreement, except as specifically permitted under the
Agreement or the Transfer and Sale Agreement, or attempts to make such an
assignment; (d) a court having jurisdiction in the premises enters a decree or
order for relief in respect of the Servicer or Trust Depositor in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Servicer, or Trust
Depositor, or for any substantial liquidation of their respective affairs; (e)
the Servicer or Trust Depositor commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an order for
relief in an involuntary case under any such law, or consents to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian
or sequestrator (or other similar official) of the Servicer or Trust Depositor
or for any substantial part of its property or shall have made any general
assignment for the benefit of creditors, or fails to, or admits in writing its
inability to, pay debts as they become due, or takes any corporate action in
furtherance of the foregoing; (f) the failure of the Servicer to deliver the
Monthly Report pursuant to the terms of the Agreement and such failure remains
uncured for five business days after the date on which such failure commences;
or (g) any representation, warranty or statement of the Servicer made in the
Agreement or any certificate, report or other writing delivered pursuant thereto
shall prove to be incorrect in any material respect as of the time when the same
shall have been made and the incorrectness of such representation, warranty or
statement has a material adverse effect on the Trust and, within 30 days after
written notice thereof shall have been given to the Servicer or the Trust
Depositor by the Trustee, the circumstances or condition in respect of which
such representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured. The Servicer will be required under the
Agreement to give the Trustees, the Rating Agencies, the Noteholders and the
Certificateholders notice of an Event of Termination promptly upon the
occurrence of such Event.
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RIGHTS UPON AN EVENT OF TERMINATION
If an Event of Termination has occurred and is continuing, the
Noteholders evidencing more than 50% of the voting interests of the Notes or, if
all the Notes have been paid in full and the Indenture has been discharged in
accordance with its terms, the holders of Certificates evidencing more than 50%
of the voting interests of the Certificates, may terminate all of the Servicer's
management, administrative, servicing, custodian and collection functions under
the Agreement. Upon such termination, the Indenture Trustee will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Agreement
and will be entitled to similar compensation arrangements; PROVIDED, HOWEVER,
that the Indenture Trustee will not assume any obligation of the Seller to
repurchase Contracts for breach of representations and warranties, and the
Indenture Trustee will not be liable for any acts or omissions of the Servicer
occurring prior to a transfer of the Servicer's servicing and related functions
or for any breach by the Servicer of any of its representations and warranties
contained in the Agreement or any related document or agreement.
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. No such termination will affect in any manner the
Seller's obligation to repurchase certain Contracts for breaches of
representations and warranties under the Agreement. In the event that the
Indenture Trustee in so acting would be in violation of legal requirements with
a resulting material adverse effect upon it, it may resign such role and if a
successor has not been appointed within 60 days, it may petition a court of
competent jurisdiction for its removal.
Following an Event of Termination, the Indenture Trustee shall terminate
the Lockbox Agreement and direct all Obligors under the Contracts to make all
payments under the Contracts to the Indenture Trustee, or to a lockbox
established by the Indenture Trustee.
ADVANCES
The Servicer is obligated to advance each month an amount equal to
accrued and unpaid interest on the Contracts which was delinquent with respect
to the related Due Period, but only to the extent that the Servicer believes
that the amount of such Advance will be recoverable from collections on the
Contracts. The Servicer will deposit any Advances in the Collection Account no
later than the Determination Date. The Servicer will be entitled to recoup
Advances on a Contract by means of a first priority withdrawal from Available
Monies on any Distribution Date.
SECURITY INTERESTS AND OTHER ASPECTS OF THE CONTRACTS;
REPURCHASE OBLIGATIONS
GENERAL
As a result of the Seller's conveyance and assignment of the Contracts
to the Trust Depositor pursuant to the Transfer and Sale Agreement, the Trust
Depositor's conveyance and assignment of the Contracts to the Trust pursuant to
the Agreement, the Trust's pledge to the Indenture Trustee pursuant to the
Indenture, the Noteholders and the Certificateholders, through the Indenture
Trustee, will succeed collectively to all of the rights under such Contracts
(including the right to receive payment on the Contracts) on or after the
related Cutoff Date. Each Contract evidences both (a) the obligation of the
Obligor to repay the loan evidenced thereby and (b) the grant of a security
interest in the Motorcycle to secure repayment of such loan. Certain aspects of
both features of the Contracts are more fully described below.
The Contracts are "CHATTEL PAPER" as defined in the Uniform Commercial
Code (the "UCC") in effect in the states in which the Motorcycles were initially
registered. Pursuant to the UCC, the sale of chattel paper is treated in a
manner similar to perfection of a security interest in chattel paper. The
Seller and the Depositor will make an appropriate filing of UCC-1 financing
statements in Nevada and Illinois to give notice of the Indenture Trustee's
security interest in the Contracts, and the Contracts held by the Servicer as
custodian will be stamped to reflect their conveyance and assignment from the
Seller to the Trust Depositor and the Trust Depositor to the Trust and their
pledge from the Trust to the Indenture Trustee. However, if a subsequent
purchaser were able to take physical possession of any
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Contracts without notice of such conveyance and assignment, the Trust's interest
in those Contracts could be defeated. See "DESCRIPTION OF THE
CERTIFICATES--CONVEYANCE OF CONTRACTS" above.
SECURITY INTERESTS IN THE MOTORCYCLES
The Motorcycles securing the Contracts are located in 50 states, the
District of Columbia and the U.S. Territories. Security interests in
motorcycles may be perfected either by notation of the secured party's lien on
the certificate of title or by delivery of the required documents and payment of
a fee to the state motor vehicle authority, depending on state law. The
Seller's practice is to effect such notation or delivery of the required
documents and fees, and to obtain possession of the certificate of title, as
appropriate under the laws of the state in which any Motorcycle securing a
Motorcycle conditional sales contract is registered. In the event either the
Trust Depositor fails, due to clerical error, to effect such notation or
delivery, or files the security interest under the wrong law, the Seller may not
have a first priority security interest in the Motorcycle securing a Contract.
In such event, the only recourse of the Trust would be against the Seller
pursuant to its repurchase obligation. See "SECURITY INTEREST AND OTHER ASPECTS
OF THE CONTRACTS; REPURCHASE OBLIGATIONS--REPURCHASE OBLIGATIONS" below.
However, the Seller believes that it has obtained a perfected first priority
security interest by proper notation or delivery of the required documents and
fees with respect to all of the Motorcycles securing Contracts.
The Seller will convey and assign its security interest in the
Motorcycles to the Trust Depositor pursuant to the Transfer and Sale Agreement,
the Trust Depositor will convey and assign its security interest in the
Motorcycles to the Trust pursuant to the Agreement and the Trust will pledge its
security interest in the Motorcycles to the Indenture Trustee pursuant to the
Indenture. However, because of the administrative burden and expense, neither
the Seller, the Trust Depositor, the Owner Trustee nor the Indenture Trustee
will amend the certificates of title to identify the Indenture Trustee as the
new secured party and, accordingly, the Seller will continue to be named as the
secured party on the certificates of title relating to the Motorcycles. See
generally "RISK FACTORS -- RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED
MOTORCYCLES" in the Prospectus. The Seller, as Servicer, will continue to hold
any certificates of title relating to the Motorcycles in its possession as
custodian and agent for the Trust pursuant to the Agreement.
In the event that the owner of a Motorcycle moves to a state other than
the state in which such Motorcycle initially is registered, under the laws of
most states the perfected security interest in the Motorcycle would continue for
four months after such relocation and thereafter until the owner re-registers
the motorcycle in such state. A majority of states generally require surrender
of a certificate of title to re-register a motorcycle; accordingly, the Servicer
must surrender possession if it holds the certificate of title to such
Motorcycle or, in the case of Motorcycles registered in states which provide for
notation of lien, the Seller would receive notice of surrender if the security
interest in the Motorcycle is noted on the certificate of title. Accordingly,
the Servicer would have the opportunity to re-perfect its security interest in
the Motorcycle in the state of relocation. In states which do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing its portfolio of
Motorcycle conditional sales contracts, the Servicer takes steps to effect such
re-perfection upon receipt of notice of re-registration or information from the
obligor or the obligor's insurance carrier as to relocation. Similarly, when an
obligor under a Motorcycle conditional sales contract sells a Motorcycle, the
Servicer must surrender possession of the certificate of title or will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related Motorcycle conditional sales
contract before release of the lien. Under the Agreement, the Servicer is
obligated to take such steps, at its expense, as are necessary to maintain
perfection of security interests in the Motorcycles.
Under the laws of most states, liens for repairs performed on a
motorcycle take priority even over a perfected security interest. The Seller
will represent in the Transfer and Sale Agreement that as of the sale date of
the Contracts, it has no knowledge of any such liens with respect to any
Motorcycle securing payment on any Contract. However, such liens could arise at
any time during the term of a Contract. No notice will be given to the Trust,
to the Noteholders or Certificateholders in the event such a lien arises.
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ENFORCEMENT OF SECURITY INTERESTS IN MOTORCYCLES
The Servicer on behalf of the Trust may take action to enforce the
Trust's security interest with respect to defaulted Contracts by repossession
and resale of the Motorcycles securing such defaulted Contracts. Under the laws
applicable in most states, a creditor can repossess a motorcycle securing a
contract by voluntary surrender, by "SELF-HELP" repossession that is "PEACEFUL"
(I.E., without breach of the peace) or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
The UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. In the event of such
repossession and resale of a Motorcycle, the Trust would be entitled to be paid
out of the sale proceeds before such proceeds could be applied to the payment of
the claims of unsecured creditors or the holders of subsequently perfected
security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
OTHER MATTERS
The so-called "HOLDER-IN-DUE-COURSE" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders' assignees) to transfer such contract free of
notice of claims by the debtor thereunder. The effect of this rule is to
subject the assignee of such a contract to all claims and defenses which the
debtor could assert against the seller. Liability under this rule, which would
be applicable to the Trust, is limited to amounts paid under a Contract;
however, the Obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trust against such
Obligor. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination of and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to comply with
their provisions may affect the enforceability of the related Contract. See
generally "RISK FACTORS -- ADDITIONAL LEGAL LIMITS ON THE APPLICABLE TRUSTEE'S
ABILITY TO REALIZE ON ITS SECURITY INTEREST IN THE MOTORCYCLES; CONSUMER
PROTECTION LAWS" in the Prospectus.
REPURCHASE OBLIGATIONS
Under the Transfer and Sale Agreement, the Seller will make warranties
relating to validity, subsistence, perfection and priority of the security
interest in each Motorcycle securing a Contract. Accordingly, if any defect
exists in the perfection of the security interest in any Motorcycle and such
defect materially adversely affects a Contract, such defect would constitute a
breach of a representation and warranty under the Transfer and Sale Agreement
and would create an obligation of the Trust Depositor to repurchase such
Contract from the Trust unless the breach is cured. See "CERTAIN INFORMATION
REGARDING THE SECURITIES--CONVEYANCE OF CONTRACTS" above.
In addition, the Seller will also warrant under the Transfer and Sale
Agreement that each Contract complies with all requirements of law.
Accordingly, if any Obligor has a claim against the Trust for violation of any
law and such claim materially adversely affects the Trust's interest in a
Contract, such violation would constitute a breach of a representation and
warranty under the Transfer and Sale Agreement and would create an obligation to
repurchase such Contract unless the breach is cured. See "CERTAIN INFORMATION
REGARDING THE SECURITIES--CONVEYANCE OF CONTRACTS" above.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general and brief discussion of certain United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes and the Certificates. For a full description of the material federal
income tax consequences of the ownership of Notes and Certificates in the Owner
Trust, see the Prospectus, "FEDERAL INCOME TAX CONSEQUENCES--OWNER TRUSTS." Any
material variations from the discussion in the Prospectus, "FEDERAL INCOME TAX
CONSEQUENCES--OWNER TRUSTS" will be specified below.
The discussion herein is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), Treasury Regulations promulgated
thereunder, current administrative rulings, judicial decisions and other
applicable authorities in effect as of the date hereof, all of which are subject
to change, possibly with retroactive effect. There are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving a trust and
instruments issued by that trust with terms similar to those of the Trust, and
the Notes and the Certificates. As a result, there can be no assurance that the
IRS will not challenge the conclusions set forth in the following summary, and
no ruling from the IRS has been or will be sought on any of the issues discussed
below. Furthermore, legislative, judicial or administrative changes may occur,
perhaps with retroactive effect, which could affect the accuracy of the
statements and conclusions set forth herein as well as the tax consequences to
holders of the Notes and the Certificates.
This discussion and the more detailed discussion set forth in the
Prospectus, "FEDERAL INCOME TAX CONSEQUENCES--OWNER TRUSTS," do not purport to
deal with all aspects of federal income taxation that may be relevant to all
holders of Notes and Certificates in light of their personal investment or tax
circumstances nor to certain types of holders who may be subject to special
treatment under the federal income tax laws (including, without limitation,
financial institutions, broker-dealers, insurance companies, foreign persons,
tax-exempt organizations and persons who hold the Notes or Certificates as part
of a straddle, hedging or conversion transaction). This information is
generally directed to prospective purchasers who purchase Notes or Certificates
at the time of original issue, who are citizens or residents of the United
States, and who hold the Notes or Certificates as "CAPITAL ASSETS" within the
meaning of Section 1221 of the Code. Taxpayers and preparers of tax returns
(including those filed by any partnership or other issuer) 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, taxpayers 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. PROSPECTIVE
INVESTORS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE,
LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF NOTES AND CERTIFICATES.
TAX CHARACTERIZATION OF THE TRUST AND THE NOTES
Winston & Strawn, as federal tax counsel ("FEDERAL TAX COUNSEL") to
the Trust Depositor has delivered an opinion to the Trust Depositor that for
U.S. federal income tax purposes (i) the Trust will not be treated as an
association (or publicly traded partnership) taxable as a corporation and
(ii) the Notes will be treated as indebtedness of the Trust. This opinion is
based on the assumption that the terms of the Trust Agreement and related
documents will be complied with, including, without limitation, that the
Trust Depositor, each Certificateholder, and each Noteholder will agree to
treat the Certificates as equity interests in a partnership and the Notes as
debt of such partnership and that the Certificateholders will take all action
necessary, if any, or refrain from taking any inconsistent action so as to
ensure that the Trust is a partnership under Treasury Regulations sections
301.7701-2 and 301.7701-3. The Owner Trustee on behalf of the Trust will
file IRS Form 8832 making for the Trust a protective election to be treated
as a partnership for federal income tax purposes. The opinion is also based
on Federal Tax Counsel's conclusions that (i) the Trust will constitute a
business entity that has two or more members within the meaning of those
regulations; (ii) the nature of the Trust's income will exempt it from the
rule that certain publicly traded partnerships are taxable as corporations,
and (iii) the Trust, if a corporation, would not constitute a regulated
investment company under Code Section 851. An opinion of
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counsel is not binding on a court or the IRS and there can be no assurance that
the IRS or a court will agree with Federal Tax Counsel's opinion.
GENERAL TAX TREATMENT OF HOLDER'S OF NOTES
Unless the Notes are treated as having original issue discount, a holder
of a Note will generally be taxable on the interest received or accrued with
respect to the Note under the holder's general system of tax accounting. On a
sale of a Note, a holder will generally recognize gain or loss on the difference
between the amount realized and the holder's basis in the Note. Such gain or
loss generally will be capital gain or loss. Withholding tax may be imposed on
payments received with respect to the Notes unless certain IRS forms are
provided to the Owner Trustee or the holder is eligible for an exemption from
such withholding. For a complete discussion of these withholding rules and the
other federal income tax consequences to a holder of the Notes, see the
Prospectus, "FEDERAL INCOME TAX CONSEQUENCES--OWNER TRUSTS."
GENERAL TAX TREATMENT OF A HOLDER A CERTIFICATE
A holder of a Certificate, as a partner in a partnership, will be
treated as receiving such holder's allocable share of the Trust's income, gain,
loss, or deductions in accordance with the terms of the Trust Agreement, the
Code, and the Regulations promulgated thereunder. The holder will generally
recognize gain or loss on the sale of a Certificate equal to the difference
between the amount realized and the holder's basis in its partnership interest
that is allocated to the Certificate. Withholding taxes may also be imposed
with respect to payments on the Certificates unless certain IRS forms are
provided to the Owner Trustee or the holder is eligible for an exemption from
such withholding. For a complete discussion of these withholding tax rules and
the other federal income tax consequences to a holder of a Certificate, see the
Prospectus, "FEDERAL INCOME TAX CONSEQUENCES--OWNER TRUSTS."
ERISA CONSIDERATIONS
THE NOTES
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on employee benefit plans subject to
ERISA ("ERISA PLANS") and prohibits certain transactions between ERISA Plans and
persons who are "PARTIES IN INTEREST" (as defined under ERISA) with respect to
assets of such Plans. Section 4975 of the Code prohibits a similar set of
transactions between certain plans or individual retirement accounts ("CODE
PLANS," and together with ERISA Plans, "PLANS") and persons who are
"DISQUALIFIED PERSONS" (as defined in the Code) with respect to Code Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the requirements of ERISA or Section 4975 of the Code, and assets of such plans
may be invested in the Notes, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code is, however,
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in the Notes, an ERISA
Plan fiduciary should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and liquidity needs of the
ERISA Plan.
PROHIBITED TRANSACTIONS
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
parties in interest and disqualified persons with respect to ERISA Plans and
Code Plans from engaging in certain transactions involving such Plans or "PLAN
ASSETS" of such Plans, unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code and Sections 502(i) and 502(1) of
ERISA provide for the imposition of certain excise taxes and civil penalties on
certain
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persons that engage or participate in such prohibited transactions. The Trust
Depositor, the Underwriters, the Servicer, the Indenture Trustee or the Owner
Trustee or certain affiliates thereof may be considered or may become parties in
interest or disqualified persons with respect to a Plan. If so, the acquisition
or holding of the Notes by, on behalf of or with "PLAN ASSETS" of such Plan may
be considered to give rise to a "prohibited transaction" within the meaning of
ERISA and/or Section 4975 of the Code, unless an administrative exemption
described below or some other exemption is available.
The Notes may not be purchased with the assets of a Plan if the Trust
Depositor, the Underwriters, the Servicer, the Indenture Trustee, or the Owner
Trustee or an affiliate thereof either (a) has discretionary authority or
control with respect to the investment or management of such assets or (b) has
authority or responsibility to give, or regularly gives, investment advice with
respect to such assets pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular needs of the
Plan or (c) is an employer of employees covered under the Plan unless such
investment is made through an insurance company general or pooled separate
account or a bank collective investment fund and an exemption is available.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the Notes - for
example, Prohibited Transaction Class Exemption ("PTCE") 96-23, which exempts
certain transactions effected on behalf of a Plan by an "IN-HOUSE ASSET
MANAGER;" PTCE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest; PTCE 91-38, which exempts
certain transactions between bank collective investment funds and parties in
interest; PTCE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or PTCE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "QUALIFIED
PROFESSIONAL ASSET MANAGER." There can be no assurance that any of these
exemptions will apply with respect to any Plan's investment in the Notes or,
even if an exemption were deemed to apply, that any exemption would apply to all
prohibited transactions that may occur in connection with such investment.
Due to the complexity of these rules and the penalties imposed, any
fiduciary or other Plan investor who proposes to invest assets of a Plan in the
Notes should consult with its counsel with respect to the potential consequences
under ERISA and Section 4975 of the Code of doing so.
THE CERTIFICATES
The Certificates may not be acquired by a Plan. By its acceptance of a
Certificate or a beneficial interest therein, each Certificateholder or
Certificate Owner will be deemed to have represented and warranted that it is
not (i) an employee benefit plan (as defined in Section 3(3) of ERISA) that is
subject to the provisions of Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Code (other than a governmental plan described in Section
4975(g)(2) of the Code) or (iii) any entity whose underlying assets include
assets of such a plan by reason of the plan's investment in the entity or which
uses assets of such a plan to acquire Certificates.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement dated [ ], 199__, among the Seller, the Trust Depositor and the
Underwriters (the "UNDERWRITING AGREEMENT"), the Seller has agreed to cause the
Trust to sell to the Underwriters named below (the "UNDERWRITERS"), and the
Underwriters have agreed to purchase, the principal amount of the Securities set
forth below.
<TABLE>
<CAPTION>
Principal Amount Principal Amount Principal Amount
Underwriters of Class A-1 Notes of Class A-2 Notes of Certificates
<S> <C> <C> <C>
Salomon Smith Barney Inc. $ $ $
----------- ----------- -----------
Total $ $ $
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Securities if any
Securities are purchased. In the event of default by the Underwriters, the
Underwriting Agreement provides that, in certain circumstances, the Underwriting
Agreement may be terminated.
Distribution of the Securities may be made by the Underwriters from time to
time in one or more negotiated transactions, or otherwise, at varying prices to
be determined at the time of sale. The Underwriters may effect such
transactions by selling the Securities to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters. In connection with the sale of the
Securities, the Underwriters may be deemed to have received compensation from
the Seller in the form of underwriting compensation. The Underwriters and any
dealers that participate with the Underwriters may be deemed to be an
underwriter, and any commissions received by them and any profit on the resale
of the Securities positioned by them may be deemed to be underwriting discounts
and commissions, under the Securities Act.
If the Underwriters create a short position in the Securities in connection
with the offering, I.E., if they sell more Securities than are set forth on the
cover page of this Prospectus Supplement, the Underwriters may reduce that short
position by purchasing Securities in the open market.
In general, purchases of a security to reduce a short position could cause
the price of the security to be higher than it might be in the absence of such
purchases.
Neither the Seller nor the Underwriters make any representations or
prediction as to the direction or magnitude of any effect that the transactions
described above, if engaged in, may have on the prices of the Securities. In
addition, neither the Seller nor the Underwriters make any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The Underwriters have represented and agreed that (i) they have not offered
or sold and, prior to the expiration of the period of six months from the
Closing Date, will not offer or sell any Securities to persons in the United
Kingdom, except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation 1995; (ii) they
have complied and will comply with all applicable provisions of the Financial
Services Act
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<PAGE>
1986 with respect to anything done by it in relation to the Securities in, from
or otherwise involving the United Kingdom; and (iii) they have only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Securities to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995, or is a person to whom such
document may otherwise lawfully be issued or passed on.
The Underwriting Agreement provides that the Seller and the Trust Depositor
will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or contribute to payments the Underwriters
may be required to make in respect thereof.
RATINGS OF THE SECURITIES
It is a condition of issuance that the Class A-1 Notes be rated AAA by S&P
and Aaa by Moody's and the Class A-2 Notes be rated AAA by S&P and Aaa by
Moody's and the Certificates be rated at least [ ] by S&P and [ ] by
Moody's.
There is no assurance that any such rating will continue for any period of
time or that it will not be revised or withdrawn entirely by the assigning
rating agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such rating may have an adverse effect on the market price of the
Notes and the Certificates. A security rating is not a recommendation to buy,
sell or hold the Securities.
LEGAL MATTERS
Certain legal matters with respect to the Securities, including certain
federal income tax matters, will be passed upon for the Seller, Servicer, Trust
Depositor and the Trust by Winston & Strawn, Chicago, Illinois. Certain legal
matters for the Underwriters will be passed upon by Brown & Wood LLP, New York,
New York.
S-64
<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 DTC and, in the
case of the Notes, 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.
Capitalized terms used but not defined in this Annex I have the meanings
assigned to them in the Prospectus Supplement and the Prospectus.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (I.E. seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to similar issues on pass-through
certificates. Investors' securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "LOCK-UP" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish 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 similar issues
of pass-through certificates in same-day funds.
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<PAGE>
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Securities will accrue from, the value date; (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (I.E., the trade fails), the CEDEL or
Euroclear cash debit will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-positions funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account, would be back-valued to the value date (which would be
the preceding day, when settlement occurred in New York). Should the CEDEL
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation or receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day-period. If settlement is not completed on
the intended value date (I.E., the trade fails), receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date. Finally, day traders that use, CEDEL
or Euroclear and that purchase Global Securities from
S-66
<PAGE>
DTC Participants for delivery to CEDEL Participants or Euroclear Participants
should note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL
or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(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 REQUIREMENT
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 issued discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of
Securities that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WILL EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons that are Securityholders residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the Securityholder or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURES. The holder 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.
S-67
<PAGE>
The term "U.S. PERSON" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (ii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source or which is under the supervision of a U.S.
court or U.S. fiduciary. 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.
S-68
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
<S> <C>
Index
ACH Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-18
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-55
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-13
Aggregate Principal Balance . . . . . . . . . . . . . . . . . . . . . .S-44
Aggregate Principal Balance Decline . . . . . . . . . . . . . . . . . .S-44
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Available Amount. . . . . . . . . . . . . . . . . . . . . . . . .S-11, S-49
Available Interest. . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
Available Monies. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
Available Principal . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
Average Delinquency Ratio . . . . . . . . . . . . . . . . . . . . . . .S-48
Average Loss Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . .S-48
Buell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Carrying Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-12
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Certificate Distributable Amount. . . . . . . . . . . . . . . . . . . .S-45
Certificate Distribution Account. . . . . . . . . . . . . . . . . . . .S-43
Certificate Final Distribution Date . . . . . . . . . . . . . . . . . . S-6
Certificate Interest Carryover Shortfall. . . . . . . . . . . . . . . .S-45
Certificate Interest Distributable Amount . . . . . . . . . . . . . . .S-45
Certificate Monthly Interest Distributable Amount . . . . . . . . . . .S-45
Certificate Monthly Principal Distributable Amount. . . . . . . . . . .S-45
Certificate Percentage. . . . . . . . . . . . . . . . . . . . . . . . .S-45
Certificate Pool Factor . . . . . . . . . . . . . . . . . . . . . . . .S-20
Certificate Principal Carryover Shortfall . . . . . . . . . . . . . . .S-45
Certificate Principal Distributable Amount. . . . . . . . . . . . . . .S-45
Certificate Reserve Amount. . . . . . . . . . . . . . . . . . . .S-11, S-49
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Class A-1 Final Distribution Date . . . . . . . . . . . . . . . . . . . S-6
Class A-1 Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Class A-1 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Class A-1 Rate. . . . . . . . . . . . . . . . . . . . . . . . . . .S-2, S-6
Class A-2 Final Distribution Date . . . . . . . . . . . . . . . . . . . S-6
Class A-2 Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Class A-2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . .S-4, S-5
Class A-2 Rate. . . . . . . . . . . . . . . . . . . . . . . . . . .S-2, S-6
Collection Account. . . . . . . . . . . . . . . . . . . . . . . . . . .S-41
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Cumulative Loss Ratio . . . . . . . . . . . . . . . . . . . . . . . . .S-49
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-39
Dealer Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-21
Delinquency Amount. . . . . . . . . . . . . . . . . . . . . . . . . . .S-48
Delinquency Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .S-48
Determination Date. . . . . . . . . . . . . . . . . . . . . . . .S-13, S-43
Distribution Accounts . . . . . . . . . . . . . . . . . . . . . . . . .S-43
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Due Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-45
Eaglemark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Eligible Investments. . . . . . . . . . . . . . . . . . . . . . . . . .S-41
S-69
<PAGE>
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . .S-34
Excess Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-10
Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Final Distribution Dates. . . . . . . . . . . . . . . . . . . . . . . . S-6
Funding Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-11
Harley-Davidson . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Initial Certificate Balance . . . . . . . . . . . . . . . . . . . . . . S-8
Initial Certificate Reserve Amount. . . . . . . . . . . . . . . . . . .S-11
Initial Class A-1 Note Balance. . . . . . . . . . . . . . . . . . . . . S-4
Initial Class A-2 Note Balance. . . . . . . . . . . . . . . . . . . . . S-4
Initial Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Initial Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . .S-2, S-9
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-46
Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Interest Reserve Account. . . . . . . . . . . . . . . . . . . . . . . .S-12
Lien Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-40
Liquidated Contract . . . . . . . . . . . . . . . . . . . . . . . . . .S-48
Loss Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-48
Mandatory Special Redemption. . . . . . . . . . . . . . . . . . . . . . S-7
Monthly Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . .S-16
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Motorcycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Net Liquidation Losses. . . . . . . . . . . . . . . . . . . . . . . . .S-48
Net Liquidation Proceeds. . . . . . . . . . . . . . . . . . . . . . . .S-48
Note Distributable Amount . . . . . . . . . . . . . . . . . . . . . . .S-46
Note Distribution Account . . . . . . . . . . . . . . . . . . . . . . .S-43
Note Final Distribution Dates . . . . . . . . . . . . . . . . . . . . . S-6
Note Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . .S-46
Note Interest Distributable Amount. . . . . . . . . . . . . . . . . . .S-46
Note Monthly Interest Distributable Amount. . . . . . . . . . . . . . .S-46
Note Monthly Principal Distributable Amount . . . . . . . . . . . . . .S-46
Note Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-46
Note Pool Factor. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-19
Note Principal Carryover Shortfall. . . . . . . . . . . . . . . . . . .S-46
Note Principal Distributable Amount . . . . . . . . . . . . . . . . . .S-46
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Optional Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . .S-47
Principal Distributable Amount. . . . . . . . . . . . . . . . . . . . .S-47
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-6, S-9
Registrar of Titles . . . . . . . . . . . . . . . . . . . . . . . . . .S-40
Reserve Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .S-10, S-42
Reserve Fund Deposits . . . . . . . . . . . . . . . . . . . . . . . . .S-10
Reserve Fund Initial Deposit. . . . . . . . . . . . . . . . . . . . . .S-10
Reserve Fund Trigger Event. . . . . . . . . . . . . . . . . . . . . . .S-48
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
S-70
<PAGE>
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-2, S-4
Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-16
Specified Reserve Fund Balance. . . . . . . . . . . . . . . . . .S-11, S-48
Subsequent Certificate Reserve Amount . . . . . . . . . . . . . . . . .S-11
Subsequent Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Subsequent Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . S-9
Subsequent Reserve Fund Amount. . . . . . . . . . . . . . . . . . . . .S-10
Subsequent Transfer Agreement . . . . . . . . . . . . . . . . . . . . .S-17
Subsequent Transfer Date. . . . . . . . . . . . . . . . . . . . . . . . S-9
Transfer and Sale Agreement . . . . . . . . . . . . . . . . . . . . . . S-2
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trust Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trust Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . .S-33
Trust Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-34
Trust Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-5, S-6
voting interests. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-51
</TABLE>
S-71
<PAGE>
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- -------------------------------------------------------------------------------
No dealer, salesman or other person is authorized to give any information or to
make any representation not contained in this Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, as sponsor of the Trusts or the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any security other than the Securities offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
Securities to any person in any jurisdiction in which the person making such
offer or solicitation is not qualified to do so or to anyone whom it is unlawful
to make such an offer or solicitation to such person. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstance create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-16
FORMATION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . .S-18
POOL FACTORS AND TRADING INFORMATION . . . . . . . . . . . . . . . . . . . .S-19
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-19
THE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-19
HARLEY-DAVIDSON MOTORCYCLES. . . . . . . . . . . . . . . . . . . . . . . . .S-30
YIELD AND PREPAYMENT CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . .S-30
EAGLEMARK FINANCIAL SERVICES, INC.; EAGLEMARK, INC.. . . . . . . . . . . . .S-31
EAGLEMARK CUSTOMER FUNDING CORPORATION-[ ]. . . . . . . . . . . . . . . . .S-31
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . .S-32
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . .S-34
CERTAIN INFORMATION REGARDING THE SECURITIES . . . . . . . . . . . . . . . .S-35
SECURITY INTEREST AND OTHER ASPECTS OF THE
CONTRACTS; REPURCHASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . .S-57
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-59
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-63
RATINGS OF THE SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . .S-64
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-64
PROSPECTUS
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
THE TRUSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
HARLEY-DAVIDSON MOTORCYCLES. . . . . . . . . . . . . . . . . . . . . . . . . .18
THE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
WEIGHTED AVERAGE LIFE OF THE SECURITIES. . . . . . . . . . . . . . . . . . . .19
POOL FACTORS AND TRADING INFORMATION . . . . . . . . . . . . . . . . . . . . .20
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
EAGLEMARK FINANCIAL SERVICES, INC.;
EAGLEMARK, INC.; AND THE TRUST DEPOSITORS. . . . . . . . . . . . . . . . . . .21
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . .21
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . .26
CERTAIN INFORMATION REGARDING THE SECURITIES . . . . . . . . . . . . . . . . .27
DESCRIPTION OF THE TRANSFER AND SALE AGREEMENTS. . . . . . . . . . . . . . . .34
DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . .36
CERTAIN LEGAL ASPECTS OF THE CONTRACTS . . . . . . . . . . . . . . . . . . . .46
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . .49
OWNER TRUSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
CERTAIN STATE TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . .61
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
</TABLE>
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities offered by this Prospectus Supplement,
whether or not participating in this distribution, may be required to deliver
this Prospectus Supplement and the Prospectus. This is in addition to the
obligation of dealers to deliver this Prospectus Supplement and the Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$[ ]
HARLEY-DAVIDSON EAGLEMARK
MOTORCYCLE TRUST 199__ - [ ]
$[ ] [ ]% HARLEY-DAVIDSON
MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$[ ] [ ]% HARLEY-DAVIDSON
MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$[ ] [ ]% HARLEY-DAVIDSON
MOTORCYCLE CONTRACT BACKED CERTIFICATES
EAGLEMARK, INC.
Seller and Servicer
EAGLEMARK CUSTOMER
FUNDING CORPORATION-[ ]
Trust Depositor
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
SALOMON SMITH BARNEY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE INFORMATION HEREIN HAS BEEN
COMPLETED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED [ ], 199_
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED [ ], 199_)
$[ ]
HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES
HARLEY-DAVIDSON EAGLEMARK MOTORCYCLE TRUST 199_-[ ]
[ ]% CERTIFICATES, CLASS A
[ ]% CERTIFICATES, CLASS B
EAGLEMARK, INC.
SELLER AND SERVICER
EAGLEMARK CUSTOMER FUNDING CORPORATION-[ ]
TRUST DEPOSITOR
The Harley-Davidson Eaglemark Motorcycle Trust 199_-[ ] (the "TRUST")
Harley-Davidson Motorcycle Contract Backed Certificates described in this
Prospectus Supplement will consist of one class of senior certificates (the
"CLASS A CERTIFICATES") and one class of subordinated certificates (the
"CLASS B CERTIFICATES" and, together with the Class A Certificates, the
"CERTIFICATES"). The Class A Certificates and the Class B Certificates
offered hereby will evidence in the aggregate undivided ownership interests
of ___% (the "CLASS A PERCENTAGE") and ___% (the "CLASS B PERCENTAGE"),
respectively, in the Trust. The Trust will be created by Eaglemark Customer
Funding Corporation-[ ], a 100% owned subsidiary of Eaglemark, Inc., as
trust depositor (the "TRUST DEPOSITOR") pursuant to a Pooling and Servicing
Agreement dated as of [ ], 199_ (the "AGREEMENT"), to be entered into by
and among the Trust Depositor, Eaglemark, Inc. ("EAGLEMARK"), as servicer (in
such capacity, the "SERVICER") and Harris Trust and Savings Bank, as trustee
(in such capacity, the "TRUSTEE").
The rights of the Class B Certificateholders to receive distributions from
the assets of the Trust with respect to interest will be subordinate to the
rights of the Class A Certificateholders to receive distributions with
respect to interest, and the rights of the Class B Certificateholders to
receive distributions of principal will be subordinate to the rights of the
Class A Certificateholders to receive distributions of interest and
principal. See "SUMMARY OF TERMS -- SUBORDINATION OF THE CLASS B
CERTIFICATES; RESERVE FUND" and "DESCRIPTION OF THE CERTIFICATES --
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE FUND."
The Trust property will consist of an initial pool of fixed-rate, simple
interest motorcycle conditional sales contracts (the "INITIAL CONTRACTS"
which, together with any Subsequent Contracts as defined below, are
collectively the "CONTRACTS") relating to Motorcycles manufactured by
Harley-Davidson, Inc. ("HARLEY-DAVIDSON") or, in certain limited instances as
described herein, Motorcycles manufactured by an affiliate of
Harley-Davidson, Buell Motorcycle Company ("BUELL"), including all rights to
receive payments collected on such Initial Contracts on or after
[ ],199_ (the "INITIAL CUTOFF DATE"). The Trust property also
will consist of security interests in the motorcycles financed through the
Contracts; proceeds from certain insurance policies as described in
"DESCRIPTION OF THE CERTIFICATES -- INDIVIDUAL MOTORCYCLE INSURANCE;" an
Agreement to Deposit Contracts dated as of [ ], 199_ from the Trust
Depositor in favor of the
<PAGE>
Trust (the "DEPOSIT AGREEMENT"); rights under a Security Agreement in favor
of the Trust (the "SECURITY AGREEMENT") securing the Trust Depositor's
obligation under the Deposit Agreement to purchase Subsequent Contracts and
transfer the same to the Trust, through the pledge of monies on deposit in a
collateral account (the "PRE-FUNDING ACCOUNT") established thereunder;
amounts held for the Trust in the Collection Account; and certain other
property as more fully described herein.
(cover continued on next page)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE POTENTIAL RISK FACTORS
SET FORTH UNDER "RISK FACTORS" ON PAGE S-[ ] HEREOF AND ON PAGE 13 OF THE
PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER, THE TRUST DEPOSITOR
OR ANY AFFILIATE THEREOF, EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. THE
CERTIFICATES DO NOT REPRESENT OBLIGATIONS OF, AND WILL NOT BE INSURED OR
GUARANTEED BY, ANY GOVERNMENTAL AGENCY.
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.
The Underwriters have agreed to purchase the Certificates [from the Seller]
as provided herein, and the Certificates will be offered by the Underwriters
from time to time as provided herein in negotiated transactions or otherwise
at varying prices to be determined at the time of sale. The aggregate
proceeds to the Seller from the sale of the Securities are expected to be $
before deducting expenses payable by the Seller of approximately $
.
The Certificates are offered subject to receipt and acceptance by the
Underwriters and to the Underwriters' right to reject any offer in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Certificates will be made in book-entry form
through the facilities of The Depository Trust Company ("DTC") on or about
________.
Underwriters of the Certificates
SALOMON SMITH BARNEY [ ]
The date of this Prospectus Supplement is [__________]
The Contracts were originated by Eaglemark indirectly through Harley-Davidson
motorcycle dealers. Contracts with an aggregate principal balance (as of the
Initial Cutoff Date) of $_______________ will be sold by Eaglemark (in such
capacity, the "SELLER") to the Trust Depositor on the date of issuance of the
Certificates pursuant to a Transfer and Sale Agreement dated as of
[ ], 199_ by and between the Seller and the Trust Depositor (the
"TRANSFER AND SALE AGREEMENT") and will be further transferred and assigned
by the Trust Depositor to the Trust on such date. Additional fixed-rate,
simple interest Harley-Davidson (and, in limited instances, Buell) motorcycle
conditional sales contracts (the "SUBSEQUENT CONTRACTS") will be sold from
time to time by the Seller to the Trust Depositor at or before the end of the
Funding Period (as defined herein) and concurrently, in accordance with the
Deposit Agreement, transferred by the Trust Depositor to the Trust, with the
purchase price to be payable to the Seller from funds on deposit in the
Pre-Funding Account.
S-2
<PAGE>
Principal, and interest to the extent of the Class A Pass-Through Rate of
[ ]% per annum (the "CLASS A PASS-THROUGH RATE") and the Class B
Pass-Through Rate of [ ]% per annum (the "CLASS B PASS-THROUGH RATE"),
will be distributable with respect to the Class A Certificates and the Class
B Certificates, respectively, on the fifteenth day of each month (or, if such
fifteenth day is not a Business Day, the first Business Day thereafter)
beginning [ ], 199_ (each, a "PAYMENT DATE"). The Class A
Initial Certificate Principal Balance and the Class B Initial Certificate
Principal Balance represent the aggregate of the Principal Balances of the
Initial Contracts on the Initial Cutoff Date, plus amounts on deposit in the
Pre-Funding Account as of the date of issuance of the Certificates. The
final scheduled Payment Date of the Certificates will be on [ ] (the
"FINAL SCHEDULED PAYMENT DATE"). See "DESCRIPTION OF THE CERTIFICATES."
However, payment in full of the Certificates could occur earlier than such
date as described herein. In addition, the Certificates will be subject to
prepayment in whole, but not in part, on any Payment Date on which the Seller
exercises its option to purchase the Contracts. The Seller may purchase the
Contracts when the aggregate outstanding Class A Certificate Balance and
Class B Certificate Balance has declined to less than 10% of the aggregate
Class A Initial Certificate Balance and Class B Initial Certificate Balance.
The Certificates will also be subject to partial mandatory prepayment,
without premium, in the event that funds remain in the Pre-Funding Account at
the end of the Funding Period (as defined herein).
It is a condition of issuance that the Class A Certificates be rated AAA by
Standard & Poor's Ratings Services ("S&P") and Aaa by Moody's Investors
Service, Inc. ("MOODY'S"), and the Class B Certificates be rated at least
_____ by S&P and ______ by Moody's (S&P, together with Moody's, the "RATING
AGENCIES").
S-3
<PAGE>
THE SECURITIES ARE BEING OFFERED [BY THE SELLER] FROM TIME TO TIME PURSUANT
TO THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ACCOMPANYING THIS PROSPECTUS
SUPPLEMENT. THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION
ABOUT THE OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS. TO THE EXTENT THAT ANY STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT MODIFY STATEMENTS CONTAINED IN THE PROSPECTUS, THE STATEMENTS IN
THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
There currently is no secondary market for the Securities and there is no
assurance that one will develop. The Certificate Underwriters expect, but
are not obligated, to make a market in the Certificates. There is no
assurance that any such market will develop, or if one does develop, that it
will continue or provide sufficient liquidity.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT AFFECT THE PRICE OF THE CERTIFICATES. SUCH TRANSACTIONS MAY INCLUDE THE
PURCHASE OF CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS. FOR A
DESCRIPTION OF THESE TRANSACTIONS, SEE "UNDERWRITING" HEREIN.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from an Underwriter or a request by such
investor's representative within the period during which there is an
obligation to deliver a Prospectus Supplement and Prospectus, the Seller or
such Underwriter will promptly deliver, or cause to be delivered, without
charge, a paper copy of the Prospectus Supplement and Prospectus.
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
REPORT TO SECURITYHOLDERS
Unless and until the Certificates are issued in definitive certificate form,
monthly and annual unaudited reports containing information concerning the
Contracts will be prepared by the Servicer and sent on behalf of the trust
only to Cede & Co., as nominee of DTC and registered holder of the
Certificates. See "CERTAIN INFORMATION REGARDING THE SECURITIES--BOOK-ENTRY
REGISTRATION" and "--REPORTS TO SECURITYHOLDERS" in the accompanying
Prospectus. Such reports will not constitute financial statements prepared
in accordance with generally accepted accounting principles. The Servicer
will file with the Securities and Exchange Commission (the "COMMISSION") such
periodic reports with respect to the Trust as are required under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the
rules and regulations of the Commission thereunder.
S-4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
STRUCTURE OF THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . .14
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
HARLEY-DAVIDSON MOTORCYCLES . . . . . . . . . . . . . . . . . . . . . . .25
YIELD AND PREPAYMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . .25
EAGLEMARK FINANCIAL SERVICES, INC.;
EAGLEMARK, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
EAGLEMARK CUSTOMER FUNDING CORPORATION-[ ] . . . . . . . . . . . . . .26
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . .27
SECURITY INTERESTS AND OTHER ASPECTS OF THE CONTRACTS;
REPURCHASE OBLIGATIONS. . . . . . . . . . . . . . . . . . . . .41
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . .44
ERISA CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .45
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
</TABLE>
S-5
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT ON THE PAGES INDICATED IN THE "INDEX OF DEFINED TERMS" ON PAGE 51 OR,
TO THE EXTENT NOT DEFINED HEREIN, HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN
THE PROSPECTUS.
<TABLE>
<S> <C>
Securities Offered. . . . . . Certificates for Harley-Davidson Motorcycle
Contracts [ ]% Certificates, Class A
("CLASS A CERTIFICATES") and [ ]%
Certificates, Class B ("CLASS B CERTIFICATES"
and, together with the Class A Certificates,
the "CERTIFICATES"). The Class A
Certificates and the Class B Certificates
will evidence in the aggregate undivided
ownership interests of [ ]% (the "CLASS A
PERCENTAGE") and [ ]% (the "CLASS B
PERCENTAGE"), respectively, in the Trust.
The rights of the Class B Certificateholders
to receive distributions with respect to
assets of the Trust will be subordinate to
the right of the Class A Certificateholders
to the extent described herein. See "SUMMARY
OF TERMS - SUBORDINATION OF THE CLASS B
CERTIFICATES; RESERVE FUND" and "DESCRIPTION
OF THE CERTIFICATES -- SUBORDINATION OF THE
CLASS B CERTIFICATES; RESERVE FUND" below.
Trust . . . . . . . . . . . . Harley-Davidson Eaglemark Motorcycle Trust
199_-[ ] (THE "TRUST"), to be created by
the Trust Depositor pursuant to the
Agreement.
Class A Initial Certificate
Balance and Class B Initial
Certificate Balance . . . . . $[ ] (the "CLASS A INITIAL CERTIFICATE
BALANCE") representing the aggregate
Principal Balance of the Initial Contracts on
[ ], 199_ (the "INITIAL CUTOFF
DATE") plus the amount on deposit in the
Pre-Funding Account as of the Closing Date
multiplied by the Class A Percentage, and
$[ ] (the "CLASS B INITIAL
CERTIFICATE BALANCE") representing the
aggregate Principal Balance of the Initial
Contracts on the Initial Cutoff Date plus the
amount on deposit in the Pre-Funding Account
as of the Closing Date multiplied by the
Class B Percentage.
Trustee . . . . . . . . . . . Harris Trust and Savings Bank, an Illinois
banking corporation (THE "TRUSTEE"). The
Trustee will also act as Paying Agent.
Trust Depositor . . . . . . . Eaglemark Customer Funding Corporation-[ ],
a 100% owned subsidiary of Eaglemark, Inc.
(THE "TRUST DEPOSITOR").
S-6
<PAGE>
Seller and Servicer . . . . . Eaglemark, Inc. ("EAGLEMARK" or the "SELLER" or
the "SELLER/SERVICER" or, solely in its
capacity as Servicer, the "SERVICER"), a 100%
owned subsidiary of Eaglemark Financial
Services, Inc.
Trust Property. . . . . . . . The Trust property consists of, among other
things, the pool of Initial Contracts
together with any Subsequent Contracts
transferred to the Trust, and all rights,
benefits, obligations and proceeds arising
therefrom or in connection therewith,
including security interests in the
Harley-Davidson (and, in certain limited
instances, Buell) motorcycles (the
"MOTORCYCLES"; see "THE CONTRACTS-
HARLEY-DAVIDSON MOTORCYCLES" below) securing
such Contracts and proceeds, if any, from
certain insurance policies with respect to
individual Motorcycles. No more than [
]% of the Principal Balance of all Contracts
conveyed to the Trust (including all
Subsequent Contracts) will relate to Buell
motorcycles.
Distributions on the
Certificates. . . . . . . . . Distributions of interest and principal on the
Certificates will be made on the fifteenth
day of each month or, if such day is not a
Business Day, the next succeeding Business
Day, commencing [ ], 199_
(each, a "PAYMENT DATE"). In addition, if
amounts remain on deposit in the Pre-Funding
Account at the end of the Funding Period (as
defined herein), such amounts will be
distributed on the corresponding Payment Date
as a Special Distribution of principal (see
"MANDATORY SPECIAL DISTRIBUTION" below).
Distributions on any Payment Date will be
made to the holders of the related
Certificates who are of record on the last
day immediately preceding the calendar month
in which such Payment Date occurs, whether or
not such day is a Business Day (each, a
"RECORD DATE").
Class A Pass-Through Rate
and Class B Pass- Through
Rate . . . . . . . . . . . . [ ]% per annum for the Class A Certificates
and [ ]% per annum for the Class B
Certificates, both computed on the basis of a
360-day year consisting of twelve 30-day
months (the "CLASS A PASS-THROUGH RATE" and
the "CLASS B PASS-THROUGH RATE",
respectively).
Monthly Interest
Distributions . . . . . . . . The Trustee will distribute, to the extent of
funds available for the payment thereof, on
each Payment Date to the holders of record of
the Class A Certificates (the "CLASS A
CERTIFICATEHOLDERS") and the holders of
record of the Class B Certificates (the
"CLASS B CERTIFICATEHOLDERS") as of the
Record Date, the Class A Interest
Distributable
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<PAGE>
Amount and the Class B Interest Distributable
Amount, respectively, as described
immediately below. The "CLASS A INTEREST
DISTRIBUTABLE AMOUNT" with respect to any
Payment Date will be an amount equal to the
sum of (i) the product of (a) one-twelfth
(or, with respect to the first Payment Date,
a fraction, the numerator of which equals the
number of days from and including the Closing
Date to but excluding the first Payment Date
and the denominator of which equals 360) of
the Class A Pass-Through Rate and (b) the
Class A Certificate Balance (defined below)
as of the immediately preceding Payment Date
(after giving effect to distributions of
principal made on such immediately preceding
Payment Date) or, in the case of the first
Payment Date, the Class A Initial Certificate
Balance, plus (ii) the Class A Interest
Carryover Shortfall (as defined below) for
such Payment Date. The "CLASS B INTEREST
DISTRIBUTABLE AMOUNT" with respect to any
Payment Date (other than the first Payment
Date), will be an amount equal to the sum of
(i) the product of (a) one-twelfth (or, with
respect to the first Payment Date, a fraction
the numerator of which equals the number of
days from and including the Closing Date to
but excluding the first Payment Date and the
denominator of which equals 360) of the Class
B Pass-Through Rate and (b) the Class B
Certificate Balance (defined below) as of the
immediately preceding Payment Date (after
giving effect to distributions of principal
made on such immediately preceding Payment
Date) or, in the case of the first Payment
Date, the Class B Initial Certificate
Balance, plus (ii) the Class B Interest
Carryover Shortfall (as defined below) for
such Payment Date. As used herein, "CLASS A
CERTIFICATE BALANCE" means the Class A
Initial Certificate Balance, reduced by all
amounts previously distributed to Class A
Certificateholders and allocable to
principal; "CLASS B CERTIFICATE BALANCE"
means, initially, the Class B Initial
Certificate Principal Balance, and
thereafter, the amount by which the sum of
the aggregate Principal Balance of all
Contracts, plus the Pre-Funded Amount,
exceeds the Class A Certificate Balance;
"CLASS A INTEREST CARRYOVER SHORTFALL" means,
with respect to any Payment Date, (i) the
excess of the Class A Interest Distributable
Amount for the preceding Payment Date over
the amount of interest that was actually
distributed to Class A Certificateholders on
such preceding Payment Date, plus (ii) 30
days of interest on the amount specified in
clause (i), to the extent permitted by law,
at the Class A Pass-Through
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<PAGE>
Rate; and "CLASS B INTEREST CARRYOVER
SHORTFALL" means, with respect to any Payment
Date, (i) the excess of the Class B Interest
Distributable Amount for the preceding
Payment Date over the amount of interest that
was actually distributed to Class B
Certificateholders on such preceding Payment
Date, plus (ii) 30 days of interest on the
amount specified in clause (i), to the extent
permitted by law, at the Class B Pass-Through
Rate.
The Class A Interest Distributable Amount and
Class B Interest Distributable Amount are
first payable out of Available Interest.
"AVAILABLE INTEREST" means, with respect to
any Payment Date, the total (without
duplication) of the following amounts
received by the Servicer on or in respect of
the Contracts during the calendar month
preceding such Payment Date (such calendar
month period, with respect to that Payment
Date, being the related "DUE PERIOD"): (i)
all amounts received in respect of interest
on the Contracts (as well as late payment
penalty fees and extension fees), (ii) the
interest component of all Net Liquidation
Proceeds (as defined in the Agreement) with
respect to any Contract, (iii) the interest
component of the aggregate of the Repurchase
Prices (as defined in "STRUCTURE OF THE
TRANSACTION" below) for Contracts repurchased
by the Seller with respect to breaches of
certain representations and warranties, (iv)
all Advances (as defined in "SUMMARY OF TERMS
-- ADVANCES" below) made by the Servicer, (v)
the interest component of all amounts paid by
the Seller in connection with an optional
repurchase of the Contracts in the event that
the aggregate of the Class A Certificate
Balance and Class B Certificate Balance is
less than 10% of the aggregate of the Class A
Initial Certificate Balance and Class B
Initial Certificate Balance, (vi) all amounts
received in respect of Carrying Charges (as
defined in "SUMMARY OF TERMS - INTEREST
RESERVE" below) transferred from the Interest
Reserve Account (as defined herein), and
(vii) all amounts received in respect of
interest, dividends, gains, income and
earnings on investment of funds in the
Collection Account and the Special
Distribution Subaccount, as defined in the
Agreement (the "TRUST ACCOUNTS").
Additionally, the Class A Interest
Distributable Amount with respect to any
Payment Date is payable, to the extent not
paid from Available Interest as described
above, from the Class B Percentage of
Available Principal (as defined in "SUMMARY
OF TERMS - MONTHLY PRINCIPAL DISTRIBUTIONS"
below) for such Payment Date.
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<PAGE>
Finally, if not paid from the above-described
sources, the Class A Interest Distributable
Amount and Class B Interest Distributable
Amount are payable from the Reserve Fund.
See "DESCRIPTION OF THE CERTIFICATES --
PAYMENTS ON CONTRACTS; AVAILABLE FUNDS,
AVAILABLE INTEREST AND AVAILABLE PRINCIPAL,"
"-- CALCULATION OF DISTRIBUTABLE AMOUNTS,"
and "-- SUBORDINATION OF THE CLASS B
CERTIFICATES; RESERVE FUND" below).
Monthly Principal
Distributions . . . . . . . . The Trustee will distribute, to the extent of
funds available for the payment thereof, on
each Payment Date to the Class A
Certificateholders and the Class B
Certificateholders the Class A Principal
Distributable Amount and the Class B
Principal Distributable Amount, respectively.
The "CLASS A PRINCIPAL DISTRIBUTABLE AMOUNT"
with respect to any Payment Date, equals the
sum of (i) the product of the Class A
Percentage and the Monthly Principal (as
defined below) for such Payment Date, plus
(ii) the Class A Principal Carryover
Shortfall (as defined below) for such Payment
Date. The "CLASS B PRINCIPAL DISTRIBUTABLE
AMOUNT" with respect to any Payment Date
equals the sum of (i) the product of the
Class B Percentage and the Monthly Principal
for such Payment Date, plus (ii) the Class B
Principal Carryover Shortfall (as defined
below) for such Payment Date. "MONTHLY
PRINCIPAL" means, as to any Payment Date, the
following amount calculated as of the related
Determination Date: the difference between
(i) the sum of (A) the Principal Balance of
the Contracts (as defined below) as of the
first day of the Due Period preceding the Due
Period in which such Payment Date occurs (or,
in the case of the first Payment Date, the
Principal Balance of the Contracts as of the
Initial Cutoff Date), plus (B) the
Pre-Funded Amount on such date (or, in the
case of the first Payment Date, the
Pre-Funded Amount on the Closing Date) and
(ii) the sum of (A) the Principal Balance of
the Contracts as of the first day of the Due
Period in which such Payment Date occurs,
plus (B) the Pre-Funded Amount on such day,
plus (C) the amount of any Special
Distribution occurring from the day referred
to in clause (i)(A) above to the day referred
to in clause (ii)(A) above; provided, that on
the Final Scheduled Payment Date, Monthly
Principal shall equal the aggregate of the
Class A Certificate Balance and the Class B
Certificate Balance on such date (subject to
adjustments for Special Distributions). The
"PRINCIPAL BALANCE" of the Contracts means
the aggregate of the unpaid principal balance
of each
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<PAGE>
Contract as of the related Cutoff Date,
reduced by the sum of (x) all payments
received by the Servicer allocable to
principal, plus (y) any reduction in the
principal balance of such Contract
attributable to bankruptcy court order.
Also, the Principal Balance of the following
Contracts is deemed to be zero: (i) Contracts
with respect to which the Seller has given
notice of the intent to exercise an optional
repurchase, or which the Seller has in fact
repurchased as a result of a breach of
representation or warranty; and (ii)
Contracts as to which extensive delinquencies
or defaults exist beyond the threshold levels
set forth in the Agreement, or with respect
to which a 90 day period has elapsed
following repossession of the related
Motorcycle. Also, as used herein, "CLASS A
PRINCIPAL CARRYOVER SHORTFALL" means, with
respect to any Payment Date, the excess of
(i) the Class A Principal Distributable
Amount for the preceding Payment Date over
(ii) the amount of principal that was
actually distributed to Class A
Certificateholders on such preceding Payment
Date; "CLASS B PRINCIPAL CARRYOVER SHORTFALL"
means, with respect to any Payment Date, the
excess of (i) the Class B Principal
Distributable Amount for the preceding
Payment Date over (ii) the amount of
principal that was actually distributed to
Class B Certificateholders on such preceding
Payment Date.
The Class A Principal Distributable Amount and
Class B Principal Distributable Amount are
payable out of Available Principal.
"AVAILABLE PRINCIPAL" means, with respect to
any Payment Date, the total (without
duplication) of the following amounts
received by the Servicer on or in respect of
the Contracts during the related Due Period:
(i) all amounts received in respect of
principal on the Contracts, (ii) the
principal component of all Net Liquidation
Proceeds, (iii) the principal component of
the aggregate of the Repurchase Prices for
Contracts repurchased by the Seller with
respect to breaches of certain
representations and warranties, and (iv) the
principal component of all amounts paid by
the Seller in connection with an optional
repurchase of the Contracts in the event the
Class A Certificate Balance and Class B
Certificate Balance is less than 10% of the
Class A Initial Certificate Balance and Class
B Initial Certificate Balance. Additionally,
the Class A Principal Distributable Amount
and Class B Principal Distributable Amount
are payable, subject to certain limitations,
from remaining Available Interest (after
payment of the Class A Interest
S-11
<PAGE>
Distributable Amount, the Class B Interest
Distributable Amount, and certain other costs
therefrom) and from the Reserve Fund. See
"DESCRIPTION OF THE CERTIFICATES -- PAYMENTS
ON CONTRACTS; AVAILABLE FUNDS, AVAILABLE
INTEREST AND AVAILABLE PRINCIPAL," "--
CALCULATION OF DISTRIBUTABLE AMOUNTS," and
"-- SUBORDINATION OF THE CLASS B
CERTIFICATES; RESERVE FUND" below.
Subordination of the Class B
Certificates; Reserve Fund . The rights of the Class B Certificateholders to
receive distributions to which they would
otherwise be entitled with respect to the
Contracts will be subordinated to the rights
of the Class A Certificateholders.
The Class B Certificateholders will not receive
any distributions in respect of the Class B
Interest Distributable Amount on a Payment
Date until the Class A Interest Distributable
Amount for such Payment Date has been
distributed to the Class A
Certificateholders, and the Class B
Certificateholders will not receive any
distributions of the Class B Principal
Distributable Amount for such Payment Date
until the Class A Interest Distributable
Amount and the Class A Principal
Distributable Amount for such Payment Date
has been distributed to the Class A
Certificateholders. Distributions of the
Class B Interest Distributable Amount, to the
extent of Available Interest (after payment
of the Class A Interest Distributable Amount
for such Payment Date) and certain available
amounts on deposit in the Reserve Fund (as
defined herein), will not be subordinated to
the payment of the Class A Principal
Distributable Amount.
The protection afforded to the Class A
Certificateholders by the subordination
feature described above will be effected by
the preferential right of the Class A
Certificateholders to receive current
distributions from collections on or in
respect of the Contracts and from the Reserve
Fund to the extent described herein.
Certificateholders will have the benefit of a
segregated trust account held by Harris Trust
and Savings Bank as collateral agent (in such
capacity, the "RESERVE AGENT") for the
benefit of the Certificateholders (the
"RESERVE FUND"). The Reserve Fund will not
be part of the Trust. The Reserve Fund will
be created with an initial deposit by the
Trust Depositor of $[ ] (the "RESERVE
FUND INITIAL DEPOSIT"). Monies in the
Reserve Fund will thereafter be supplemented
on each Payment
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<PAGE>
Date by the deposit therein of certain monies
(such monies, together with the Reserve Fund
Initial Deposit, the "RESERVE FUND
DEPOSITS"). The Reserve Agent will retain
Reserve Fund Deposits in the Reserve Fund
until the amounts therein reach amounts
specified in the Reserve Fund Agreement (as
further defined herein the "RESERVE FUND
REQUISITE AMOUNT"); additionally, on each
Subsequent Purchase Date, to the extent
necessary, the Seller will contribute
additional monies into the Reserve Fund
("RESERVE FUND ADDITIONAL DEPOSITS"). In the
event and to the extent the Reserve Fund
Deposits exceed the Reserve Fund Requisite
Amount on a Payment Date (after giving effect
to all other withdrawals from the Reserve
Fund required to be made on such date), such
excess amounts will be released from the
Reserve Fund to the Trust Depositor.
On each Payment Date, to the extent necessary
and to the extent monies are available in the
Reserve Fund, monies will be withdrawn from
the Reserve Fund for distribution FIRST to
the Class A Certificateholders to the extent
necessary to pay the Class A Interest
Distributable Amount for such Payment Date,
SECOND, to the Class B Certificateholders to
the extent necessary to pay the Class B
Interest Distributable Amount for such
Payment Date, THIRD, to the Class A
Certificateholders to the extent necessary to
pay the Class A Principal Distributable
Amount for such Payment Date, and FOURTH, to
the Class B Certificateholders to the extent
necessary to pay the Class B Principal
Distributable Amount for such Payment Date.
See "DESCRIPTION OF THE CERTIFICATES --
SUBORDINATION OF THE CLASS B CERTIFICATES;
RESERVE FUND" below.
The Contracts . . . . . . . . The Contracts will be fixed-rate,
simple-interest conditional sales contracts
for Motorcycles, including any and all rights
to receive payments collected thereunder on
or after the related Cutoff Date (as defined
herein) and security interests in the
Motorcycles financed thereby.
On the Closing Date, the Trust Depositor will
sell, transfer and assign to the Trust
pursuant to the Agreement Initial Contracts
with an aggregate principal balance of $[ ]
as of [ ], the Initial Cutoff Date.
Following the Closing Date, pursuant to the
Deposit Agreement, the Trust Depositor will
be obligated, subject only to the
availability thereof, to sell, and the Trust
will be obligated to purchase, subject to the
satisfaction of
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<PAGE>
certain conditions set forth therein,
Subsequent Contracts from time to time during
the Funding Period (as defined below) having
an aggregate principal balance equal to $[ ]
such amount being equal to the amount on
deposit in the Pre-Funding Account
established under the Security Agreement (the
"PRE-FUNDED AMOUNT") on the Closing Date.
With respect to each transfer of Subsequent
Contracts to the Trust, the Trust Depositor
will designate as a cutoff date (each a
"SUBSEQUENT CUTOFF DATE") the date as of
which such Subsequent Contracts are deemed
sold to the Trust. Each date on which
Subsequent Contracts are conveyed is referred
to herein as a "SUBSEQUENT TRANSFER DATE".
The Initial Contracts and the Subsequent
Contracts will be selected from retail
Motorcycle installment sales contracts in the
Seller's portfolio based on the criteria
specified in the Transfer and Sale Agreement
executed and delivered on the Closing Date.
The Contracts arise and will arise from loans
to Obligors located in 50 states, the
District of Columbia and the U.S.
Territories. As of the Initial Cutoff Date,
the annual percentage rate of interest on the
Initial Contracts ranges from [ ]% to [ ]%
with a weighted average of approximately [ ]%.
The Initial Contracts had a weighted
average term to scheduled maturity, as of
origination, of approximately [ ] months,
and a weighted average term to scheduled
maturity, as of the Initial Cutoff Date, of
approximately [ ] months. The final
scheduled payment date on the Initial
Contract with the latest maturity is no later
than [ ]. No Contract (including
any Subsequent Contract) will have a
scheduled maturity later than [ ].
The Contracts generally are or will be
prepayable at any time without penalty to the
Obligor. Following the transfer of
Subsequent Contracts to the Trust, the
aggregate characteristics of the entire pool
of Contracts may vary from those of the
Initial Contracts as of the Initial Cutoff
Date as to the criteria identified and
described above and in "THE CONTRACTS" below.
Pre-Funding Account . . . . . During the period (the "FUNDING PERIOD") from
and including the Closing Date until the
earliest of (a) the Payment Date on which the
amount on deposit in the Pre-Funding Account
is less than $[ ], (b) the date on
which an Event of Termination occurs with
respect to the Servicer under the Agreement,
(c) the date on which certain events of
insolvency occur with respect to the Seller,
or (d)
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<PAGE>
the close of business on the date which is 90
days from and including the Closing Date, the
Pre-Funded Account will be maintained in the
Pre-Funding Account established under the
Security Agreement as a collateral account
pledged by the Trust Depositor in favor of
the Trustee to secure the Trust Depositor's
obligations under the Deposit Agreement to
purchase and transfer Subsequent Contracts to
the Trust. The Pre-Funded Amount will
initially equal $[ ] and,
during the Funding Period, will be reduced by
the amount thereof that the Trust Depositor
uses to purchase Subsequent Contracts from
the Seller. The Trust Depositor expects that
the Pre-Funded Account will be reduced to
less than $[_______] by the Payment Date
occurring in [ ]. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the
Certificateholders as described below in
"MANDATORY SPECIAL DISTRIBUTIONS". The
Pre-Funding Account will not be part of the
Trust.
Mandatory Special
Distribution. . . . . . . . . The Class A Certificates and Class B Certificat
es will be prepaid in part, without premium,
on the Payment Date on or immediately
following the last day of the Funding Period
in the event that any amount remains on
deposit in the Pre-Funding Account after
giving effect to the purchase of all
Subsequent Contracts, including any such
purchase on such date (a "SPECIAL
DISTRIBUTION"). The aggregate principal
amount of Class A Certificates and Class B
Certificates to be prepaid will be an amount
equal to the amount then on deposit in the
Pre-Funding Account multiplied by the Class A
Percentage and Class B Percentage,
respectively.
Interest Reserve Account . . The Trust Depositor has established, and funded
with an initial deposit on the Closing Date,
a separate collateral account under the
Security Agreement (the "INTEREST RESERVE
ACCOUNT") for the purpose of providing
additional funds (for payment to the Trust of
Carrying Charges as described below) to pay
certain distributions on Payment Dates
occurring during (and on the first Payment
Date following the end of) the Funding
Period. In addition to the initial deposit,
all investment earnings with respect to the
Pre-Funded Amount are to be deposited into
the Interest Reserve Account and, pursuant to
the Deposit Agreement, the Trust Depositor is
obligated to pay to the Trust, on each
Payment Date described above, amounts in
respect of Carrying Charges from such
account. "CARRYING CHARGES" means the sum of
(i) the product of (A)
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<PAGE>
one-twelfth (1/12th) of the sum of (x) the
Class A Pass-Through Rate and (y)[ ]%
times (B) the Class A Percentage of the
Pre-Funded Amount as of the beginning of the
related Due Period plus (ii) the product of
(A) one-twelfth (1/12th) of the sum of (x)
the Class B Pass-Through Rate and (y) [ ]%
times] (B) the Class B Percentage of the
Pre-Funded Amount as of the beginning of the
related Due Period. The Interest Reserve
Account has been established to account for
the fact that a portion of the proceeds
obtained from the sale of Certificates will
be initially deposited in the Pre-Funding
Account (as the initial Pre-Funded Amount)
rather than invested in Contracts, and the
monthly investment earnings on such
Pre-Funded Amount (until the Pre-Funded
Amount is used to purchase Subsequent
Contracts) are expected to be less than the
Class A Pass-Through Rate and Class B
Pass-Through Rate, with respect to the
corresponding portion of the Class A
Certificate Balance and Class B Certificate
Balance and the amount necessary to pay the
Trustee's Fee. The Interest Reserve Account
is not designed to provide any protection
against losses on the Contracts in the Trust.
After the Funding Period, money remaining in
the Interest Reserve Account will be released
to the Trust Depositor free and clear of the
lien of the Security Agreement. The Interest
Reserve Account will not be part of the
Trust.
Advances. . . . . . . . . . . The Servicer is obligated to advance each month
an amount equal to accrued and unpaid
interest on the Contracts which was
delinquent with respect to the related Due
Period (each an "ADVANCE"), but only to the
extent that the Servicer believes that the
amount of such Advance will be recoverable
from collections on the Contracts. The
Servicer will be entitled to reimbursement of
outstanding Advances on any Payment Date by
means of a first priority withdrawal of
Available Funds then held in the Collection
Account (as defined herein). See
"DESCRIPTION OF THE CERTIFICATES--ADVANCES."
Mandatory Repurchases by
the Seller. . . . . . . . . . Under the Transfer and Sale Agreement, the
Seller has agreed, in the event of a breach
of certain representations and warranties
made by the Seller and contained therein
which materially and adversely affects the
Trust's interest in any Contract, to
repurchase such Contract within 90 days,
unless such breach is cured. See "DESCRIPTION
OF THE CERTIFICATES -- CONVEYANCE OF
CONTRACTS."
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<PAGE>
Repurchase Option . . . . . . The Seller will have the option to repurchase
all of the outstanding Contracts on any
Payment Date on which the aggregate of the
Class A Certificate Balance and Class B
Certificate Balance is less than 10% of the
Class A Initial Certificate Balance and of
the Class B Initial Certificate Balance, at a
price equal to the aggregate of the Class A
Certificate Balance and Class B Certificate
Balance on the prior Payment Date plus the
aggregate of the Class A Interest
Distributable Amount and the Class B Interest
Distributable Amount for the current Payment
Date and any accrued and unpaid fees to the
date of such repurchase. See "DESCRIPTION OF
THE CERTIFICATES -- REPURCHASE OPTION."
Security Interests and
Other Aspectsof the
Contracts . . . . . . . . . . In connection with the establishment of the
Trust as well as the transfer of contracts
(including Subsequent Contracts) to the
Trust, security interests in the Motorcycles
securing the Contracts have been (or will be)
conveyed and assigned by (i) the Seller to
the Trust Depositor pursuant to the Transfer
and Sale Agreement (and, in the case of
Subsequent Contracts, the related Subsequent
Purchase Agreement as defined therein and
executed thereunder) and (ii) the Trust
Depositor to the Trust pursuant to the
Agreement (and, in the case of Subsequent
Contracts, the related Subsequent Transfer
Agreement as defined herein and executed
thereunder). The Agreement will designate
the Servicer as custodian to maintain
possession, as the Trustee's agent, of the
Contracts and any other documents relating to
the Motorcycles. Uniform Commercial Code
financing statements will be filed in both
Nevada and Illinois, reflecting the
conveyance and assignment of the Contracts to
the Trust Depositor from the Seller and from
the Trust Depositor to the Trust, and the
Seller's and the Trust Depositor's accounting
records and computer systems will also
reflect such conveyance and assignment. To
facilitate servicing and save administrative
costs, such documents will not be segregated
from other similar documents that are in the
Servicer's possession. However, the
Contracts will be stamped to reflect their
conveyance and assignment to the Trust. If,
however, through fraud, negligence or
otherwise, a subsequent purchaser were able
to take physical possession of the Contracts
without notice of such conveyance and
assignment, the Trust's interest in the
Contracts could be defeated. In addition,
due to administrative burden and expense, the
certificates
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<PAGE>
of title to the Motorcycles will not be
amended or reissued to reflect the assignment
of the Seller's security interest in the
Motorcycles related to the Contracts to the
Trust Depositor or the Trust. In the absence
of amendments to the certificates of title,
the Trustee may not have a perfected security
interest in the Motorcycles. Further,
Federal and state consumer protection laws
impose requirements upon creditors in
connection with extensions of credit and
collections on conditional sales contracts,
and certain of these laws make an assignee of
such a contract liable to the obligor thereon
for any violation of such laws by the lender.
The Seller has agreed to repurchase any
Contract as to which it has failed to perfect
a security interest in the Motorcycle
securing such Contract, or as to which a
breach of federal or state laws exists if
such breach materially adversely affects the
Trust's interest in such Contract, if such
failure or breach has not been cured within
the time period specified in the Transfer and
Sole Agreement. See "SECURITY INTERESTS AND
OTHER ASPECTS OF THE CONTRACTS; REPURCHASE
OBLIGATIONS" below.
Monthly Servicing Fee . . . . The Servicer will be entitled to receive for
each Due Period a monthly servicing fee (the
"MONTHLY SERVICING FEE") equal to 1/12th of
[ ]% of the Principal Balance of the
Contracts as of the beginning of such Due
Period. The Servicer will also be entitled
to receive any extension fees or late payment
penalty fees paid by Obligors (collectively
with the Monthly Servicing Fee, the
"SERVICING FEE"). The Servicing Fee is
payable from Available Interest, prior to the
payment of the Class A Distributable Amount
and the Class B Distributable Amount. See
"DESCRIPTION OF THE CERTIFICATES -- SERVICING
COMPENSATION AND PAYMENT OF EXPENSES," and
"-- RIGHTS UPON AN EVENT OF TERMINATION"
below.
Tax Status. . . . . . . . . . In the opinion of Winston & Strawn, federal
income tax counsel to the Trust Depositor,
the Trust will be classified as a grantor
trust for federal income tax purposes and not
as an association taxable as a corporation.
Each Certificateholder will be treated as the
owner of an undivided interest in the assets
of the Trust, including the Contracts.
Accordingly, each Certificateholder must
report on its federal income tax return its
share of income from the Contracts and,
subject to limitations on deductions by
individuals, estates and trusts, may deduct
its share of the reasonable fees paid by the
Trust, as if such Certificateholder held its
share of the assets
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<PAGE>
of the Trust directly. Furthermore, the
Certificates may represent interests in
"STRIPPED BONDS" and "STRIPPED COUPONS"
within the meaning of Section 1286 of the
Internal Revenue Code of 1986, as amended
(the "CODE"). See "FEDERAL INCOME TAX
CONSEQUENCES -- GRANTOR TRUST" in the
Prospectus.
ERISA Considerations. . . . . After the expiration of the Funding Period, the
Class A Certificates will be eligible for
purchase by employee benefit plans. Any plan
fiduciary who proposes to cause a plan to
acquire any of the Certificates should
consult with its own counsel with respect to
the applicability of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA") and the Code to such investment,
including the availability of any class or
individual ERISA prohibited transaction
exemption. See "ERISA CONSIDERATIONS" below.
The Class B Certificates are not eligible for
purchase by (i) employee benefit plans
subject to ERISA, or (ii) individual
retirement accounts and other retirement
plans subject to Section 4975 of the Code,
other than through an insurance company
general account after the expiration of the
Funding Period. See "ERISA CONSIDERATIONS"
below.
Ratings . . . . . . . . . . . It is a condition to the closing that the Class
A Certificates be rated Aaa by Moody's and
AAA by S&P and the Class B Certificates be
rated at least [ ] by Moody's and [ ] by
S&P. 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 rating agency.
In the event that the rating initially
assigned to the Certificates is subsequently
lowered or withdrawn for any reason, no
person or entity will be obligated to provide
any additional credit enhancement with
respect to the Certificates.
</TABLE>
S-19
<PAGE>
RISK FACTORS
THE CONTRACTS AND REINVESTMENT RISK ASSOCIATED WITH THE PRE-FUNDING
ACCOUNT. On the Closing Date, the Trust Depositor will transfer
$[ ] of Initial Contracts to the Trust, which Initial
Contracts the Trust Depositor purchased from the Seller using part of the
proceeds of the Certificates sold to investors. The Trust Depositor will
pledge $[ ] I.E., the remaining Certificate proceeds
(representing the Pre-Funded Amount) pursuant to the Security Agreement in
favor of the Trust, and such amount will be deposited into the Pre-Funding
Account maintained by Harris Trust and Savings Bank as collateral agent under
the Security Agreement (the "COLLATERAL AGENT"). Such pledge will secure the
Trust Depositor's obligation, in favor of the Trust, to purchase from the
Seller and transfer to the Trust Subsequent Contracts in a principal amount
equal to the initial Pre-Funded Amount at or before the end of the Funding
Period. The Pre-Funding Account will not be a part of or otherwise
includible in the Trust and will be a segregated trust account held by the
Trust Depositor for the benefit of the Trustee. Any amounts held on deposit
in the Pre-Funding Account and any investment earnings thereon are owned by,
and will be taxable to, the Trust Depositor for federal income tax purposes.
If the Seller fails to originate a principal amount of eligible Contracts
during the Funding Period which is at least equal to the Pre-Funded Amount,
the Trust Depositor will be unable to acquire sufficient Subsequent Contracts
to transfer to the Trust on one or more Subsequent Transfer Dates, thereby
resulting in a Special Distribution and prepayment of principal to the
Certificateholders as described in the following paragraph. See "--TRUST'S
RELATIONSHIP TO THE TRUST DEPOSITOR AND SELLER" below. In addition, any
conveyance of Subsequent Contracts is subject to the satisfaction, on or
before the related Subsequent Transfer Date, of the following conditions,
among others: (i) each such Subsequent Contract satisfies the eligibility
criteria specified in the Transfer and Sale Agreement and the related
Subsequent Purchase Agreement executed thereunder; (ii) as of the applicable
Subsequent Cutoff Date, no Contract in the Trust, including the Subsequent
Contracts that the Trust Depositor will be conveying as of such Subsequent
Cutoff Date, will have a scheduled maturity date later than
[ ]; (iii) the Trust Depositor shall have executed and
delivered in favor of the Trust a written assignment (a "SUBSEQUENT TRANSFER
AGREEMENT") conveying such Subsequent Contracts to the Trust (including a
schedule identifying such Subsequent Contracts); (iv) the Trust Depositor
shall have delivered certain opinions of counsel to the Trustee, the
Placement Agent and the Rating Agencies with respect to the validity and
other aspects of the conveyance of all such Subsequent Contracts; and (v) the
Rating Agencies shall have each notified the Trust Depositor and the Trustee
in writing that, following the addition of such Subsequent Contracts, the
Class A Certificates will be rated AAA by S&P and Aaa by Moody's and the
Class B Certificates will be rated at least [ ] by S&P and [ ]
by Moody's, respectively. Such confirmation of the ratings of the Class A
Certificates and Class B Certificates may depend on factors other than the
characteristics of the Subsequent Contracts, including the delinquency,
repossession and net loss experience on the Contracts in the Trust. Also,
there can be no assurance that the Seller will continue to generate
Motorcycle conditional sales contracts that satisfy the criteria set forth in
the Transfer and Sale Agreement.
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Contracts by the Trust
Depositor during the Funding Period, the Class A Certificateholders and Class
B Certificateholders will receive, on the Payment Date on or immediately
following the last day of the Funding Period, a prepayment of principal in an
amount equal to the amount remaining in the Pre-Funding Account (taking into
account applications to the purchase of any Subsequent Contracts on such
Payment Date) multiplied by the Class A Percentage and Class B Percentage,
respectively. See also "RISK FACTORS--REINVESTMENT RISK ASSOCIATED WITH
PRE-FUNDING ACCOUNTS AND COLLATERAL REINVESTMENT ACCOUNTS" in the Prospectus.
It is anticipated that even if the Seller originates sufficient Subsequent
Contracts to exhaust most of the Pre-Funded Amount, the principal amount of
Subsequent Contracts conveyed to the Trust by the end of the Funding Period
will not be exactly equal to the amount on deposit in the Pre-Funding Account
and that therefore there will be at least a nominal amount of principal
prepaid to the Certificateholders at the end of the Funding Period in any
event.
S-20
<PAGE>
Following the transfer of Subsequent Contracts to the Trust, the
aggregate characteristics of the entire pool of Contracts may vary from those
of the Initial Contracts as of the Initial Cutoff Date, as to the criteria
described in "THE CONTRACTS" below.
RISKS ASSOCIATED WITH NON-RECOURSE NATURE OF SECURITIES - NO RECOURSE
TO THE TRUST DEPOSITOR OR SELLER. Neither the Trust Depositor nor the Seller
is generally obligated to make any payments in respect of the Certificates or
the Contracts. However, in connection with each conveyance of Contracts by
the Seller to the Trust Depositor and by the Trust Depositor to the Trust,
each of the Seller and the Trust Depositor will make representations and
warranties with respect to the characteristics of such Contracts. In certain
circumstances, the Seller is obligated to repurchase Contracts with respect
to which such representations or warranties are not true as of the date made.
Neither the Seller nor the Trust Depositor is otherwise obligated with
respect to the Certificates (other than in respect of the transfer of
Subsequent Contracts as described herein). See also "RISK FACTORS--RISKS
ASSOCIATED WITH NON-RECOURSE NATURE OF SECURITIES - NO RECOURSE TO THE
COMPANY, TRUST DEPOSITORS OR THEIR AFFILIATES" and "--RISKS ASSOCIATED WITH
NON-RECOURSE NATURE OF THE SECURITIES -TRUSTS HAVE NO SIGNIFICANT ASSETS OR
SOURCES OF FUNDS OTHER THAN THE CONTRACTS" in the Prospectus.
SUBORDINATION; LIMITED ASSETS. The rights of the Class B
Certificateholders to receive payments in respect of the Class B Interest
Distributable Amount on any Payment Date are subordinated to the rights of
the Class A Certificateholders to receive payments in respect of the Class A
Interest Distributable Amount on such date, and the rights of the Class B
Certificateholders to receive payments in respect of the Class B Principal
Distributable Amount on any Payment Date are subordinated to the rights of
the Class A Certificateholders to receive payments in respect of the Class A
Interest Distributable Amount and the Class A Principal Distributable Amount
for such date. Consequently, on any Payment Date, Available Interest (after
the payment therefrom of any unreimbursed Advances to the Servicer, the
Servicing Fee, the Back-up Servicing Fee and the Trustee's Fee on such date)
and monies on deposit in the Reserve Fund will be applied to the payment of
the Class A Interest Distributable Amount before payment of the Class B
Interest Distributable Amount, and on any Payment Date, Available Principal
(after the payment therefrom of any unreimbursed Advances to the Servicer),
Available Interest (after the payment therefrom of any unreimbursed Advances
to the Servicer, the Servicing Fee, the Trustee's Fee, the Back-up Servicer
Fee, the Class A Interest Distributable Amount and the Class B Interest
Distributable Amount) and monies on deposit in the Reserve Fund will be
applied to the payment of the Class A Principal Distributable Amount before
payment of the Class B Principal Distributable Amount. In addition, on any
Payment Date, amounts in respect of the Class B Percentage of Available
Principal may be distributed to pay the Class A Interest Distributable
Amount. If amounts otherwise allocable to the Class B Certificates are used
to fund payments of interest on or principal of the Class A Certificates,
distributions with respect to the Class B Certificates may be delayed or
reduced and Class B Certificateholders may suffer a loss. See "DESCRIPTION
OF THE CERTIFICATES -- SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE
FUND."
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Contracts, its rights
against the Trust Depositor under the Deposit Agreement as secured by the
Pre-Funding Account and the Interest Reserve Account pledged by the Trust
Depositor under the Security Agreement, and the Reserve Fund. Holders of the
Certificates must rely for repayment upon payments on the Contracts and, if
and to the extent available, amounts on deposit in the Pre-Funding Account,
the Interest Reserve Account and the Reserve Fund. The Pre-Funding Account
and the Interest Reserve Account will only be available during the Funding
Period. The Pre-Funding Account will be used solely to purchase Subsequent
Contracts and is not available to cover losses on the Contracts. The
Interest Reserve Account is designed to cover obligations of the Trust
relating to that portion of the initial Certificate proceeds not invested in
Contracts, and is not designed to provide any protection against losses on
the Contracts.
LIMITED DELINQUENCY AND LOAN LOSS EXPERIENCE WITH MOTORCYCLE
CONTRACTS. The Seller/Servicer was organized in January 1993 and began
purchasing and servicing conditional sales contracts for Motorcycles in
February 1993, and thus has limited underwriting and servicing experience,
delinquency experience and loan loss and repossession experience with respect
to the Contracts. Accordingly, and for other reasons, the
S-21
<PAGE>
Seller's/Servicer's delinquency experience and loan loss and repossession
experience set forth under "THE CONTRACTS" may not be indicative of the
performance of the Contracts sold to the Trust Depositor and held by the Trust.
The Trust Depositor is a special purpose corporation established for the limited
purpose of purchasing the Contracts (and other similar retail motorcycle
conditional sales contracts) and related assets from the Seller, and selling the
same into the Trust (and other similar trusts); the Trust Depositor was
organized in [_____________].
RISKS ASSOCIATED WITH GEOGRAPHIC CONCENTRATIONS OF CONTRACTS. [___]% of
the aggregate principal balances on the Initial Contracts as of the Initial
Cutoff Date arise from loans to Obligors in [___]. ____ may have negative
implications on repayments of the Contracts, including____.
See generally "RISK FACTORS--RISK OF UNPERFECTED SECURITY INTERESTS IN
FINANCED MOTORCYCLES" and "-- ADDITIONAL LEGAL LIMITS ON THE APPLICABLE
TRUSTEE'S ABILITY TO REALIZE ON ITS SECURITY INTEREST -BANKRUPTCY LAWS" and " --
ADDITIONAL LEGAL LIMITS ON THE APPLICABLE TRUSTEE'S ABILITY TO REALIZE ON ITS
SECURITY INTEREST CONSUMER PROTECTION LAWS" in the Prospectus.
LIMITED LIQUIDITY. There is currently no secondary market for the
Certificates offered hereby. The Underwriter currently intends to make a market
in the Certificates, but it is under no obligation to do so. There can be no
assurance that a secondary market will develop or, if a secondary market does
develop, that it will provide the Certificateholders with liquidity of
investment or that it will continue for the life of the Certificates.
SELLER BANKRUPTCY CONSIDERATIONS. See generally "RISK FACTORS--COMPANY
BANKRUPTCY CONSIDERATIONS" in the Prospectus.
See generally "RISK FACTORS--PREPAYMENTS ON CONTRACTS AFFECT YIELD OF
SECURITIES" in the Prospectus.
The Class B Certificates will be subordinated to the Class A
Certificates as described herein. Accordingly, the yield on the Class B
Certificates will be extremely sensitive to the loss experience on the Contracts
and the timing of such losses. If the actual rate and amount of losses
experienced on the Contracts exceed the rate and amount of losses assumed by an
investor, the yield to maturity of the Class B Certificates may be lower than
anticipated.
RISK ASSOCIATED WITH FAILURE OF OBLIGORS TO DESIGNATE PAYMENTS AS BEING
PAYMENTS ON THE CONTRACTS - JOINT ACCOUNTS. In certain circumstances, the
monthly billing statements relating to the Contracts and provided to the
Obligors also reflect the Obligors' outstanding "HARLEY CARD" monthly balance.
See "EAGLEMARK, INC. - GENERAL" below. With respect to such a joint billing
statement, the Obligor sends one payment which if not appropriately designated
by such Obligor in the statement returned with their payment will be allocated
first to the minimum payment due on the Harley Card. To the extent a payment is
insufficient to cover payment amounts due under both the Contract and the
minimum amount due on the Harley Card, the Contract will suffer the associated
shortfall.
YEAR 2000. See generally "RISK FACTORS--RISKS RELATED TO YEAR 2000
ISSUES" in the Prospectus.
STRUCTURE OF THE TRANSACTION
On the date of issuance of the Certificates, the Seller will sell,
transfer, assign, set over and otherwise convey the Initial Contracts and
related assets to the Trust Depositor, and the Trust Depositor will
simultaneously establish the Trust, and sell, transfer, assign, set over and
otherwise convey to the Trust all right, title and interest in such Initial
Contracts and related assets. Additionally, the Trust Depositor will deposit
into the Pre-Funding Account, the Pre-Funded Amount; into the Reserve Fund, the
Reserve Fund Initial Deposit; and into the Interest Reserve Account, the amount
required to be deposited therein. On behalf of the Trust, as the issuer of the
Certificates offered hereby, the Trustee will, concurrently with such
conveyance, execute and deliver the Certificates to or upon the
S-22
<PAGE>
order of the Trust Depositor. The Seller will continue to service the Contracts
pursuant to the Agreement, and will be compensated as Servicer.
The Trust will use funds on deposit in the Pre-Funding Account to
acquire Subsequent Contracts during the Funding Period as and to the extent
described herein. Any such acquisition of Subsequent Contracts is subject to
the availability thereof and to the satisfaction of the conditions described
herein. To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Contracts during the
Funding Period, the Class A Certificates and Class B Certificates will be
prepaid in part, without premium, on the Payment Date immediately following the
last day of the Funding Period in an amount equal to the amount then on deposit
in the Pre-Funding Account multiplied by the Class A Percentage and Class B
Percentage, respectively.
The Certificates will represent fractional undivided interests in the
Trust, the corpus of which will consist of the Initial Contracts and related
assets (including all rights to receive payments collected on such Contracts on
or after [ ], 199_, I.E., the Initial Cutoff Date, security
interests in the Motorcycles financed through such Contracts, and rights, if
any, under individual insurance policies with respect thereto); rights of the
Trust against the Trust Depositor under the Deposit Agreement; rights of the
Trust in respect of the collateral which the Trust Depositor has pledged under
the Security Agreement securing its obligations under the Deposit Agreement; any
Subsequent Contracts which the Trust Depositor conveys to the Trust in
accordance with the Deposit Agreement (including all rights to receive payments
collected on such Contracts on or after the applicable Subsequent Cutoff Date,
related security interests and insurance policy rights as described above);
amounts held for the Trust in the Collection Account (as defined below); and
rights in the Interest Reserve Account and Reserve Fund. The Certificates will
be issued in denominations of $1,000.
Payments and recoveries in respect of principal and interest on the
Contracts will be paid into a separate trust account maintained at the Trustee
in the name of the Trust (the "COLLECTION ACCOUNT"), no later than two Business
Days after receipt. Payments deposited in the Collection Account in respect of
each Due Period, net of certain fees and other amounts which the Trustee is
authorized to withdraw therefrom as described herein, will be applied on each
Payment Date to pay interest and principal to Certificateholders as and to the
extent described herein.
The Servicer is obligated to advance each month an amount equal to
accrued and unpaid interest on the Contracts which was delinquent with respect
to the related Due Period (subject to the limitations described below). The
Servicer will be entitled to reimbursement of such Advances by means of a first
priority withdrawal from the Collection Account of Available Funds. The Servicer
will not be required to make any such Advances to the extent that it does not
expect to recoup the Advance from such funds.
The Seller, as seller of the Contracts, will make certain
representations and warranties to the Trust Depositor with respect to the
Contracts. Under the Transfer and Sale Agreement, the Seller will agree that in
the event of a breach of any such representation and warranty made by the Seller
that materially and adversely affects the Trust's interest in any Contract
(without regard to the benefits of the Reserve Fund), the Seller will repurchase
such Contract within the time specified in the Transfer and Sale Agreement at a
price equal to (a) the remaining Principal Balance of such Contract, plus (b)
accrued and unpaid interest at the Contract Rate on such Contract from the end
of the Due Period with respect to which the Obligor last made a payment through
the end of the immediately preceding Due Period (the "REPURCHASE PRICE").
S-23
<PAGE>
USE OF PROCEEDS
The Trust Depositor will use the net proceeds received from the sale of
the Certificates (i) for the purchase of the Initial Contracts and related
assets from the Seller, and (ii) the remainder for the funding of the
Pre-Funding Account held by the Collateral Agent under the Security Agreement.
The Seller will use the proceeds from the Trust Depositor's purchase of the
Initial Contracts, as well as Subsequent Contracts, for the repayment of a
substantial portion of the outstanding principal of the warehouse lines through
which it finances its motorcycle conditional sales contracts. Following each
such repayment, it is expected that the warehouse lines will be used to build a
new portfolio of Motorcycle conditional sales contracts.
THE CONTRACTS
Each Contract is (or will be, in the case of Subsequent Contracts)
secured by a Motorcycle (as described below) and is (or will be) a conditional
sales contract originated by a Harley-Davidson dealer and purchased by the
Seller. No Contract may be substituted by the Seller or the Trust Depositor
with another Motorcycle contract after such Contract has been sold by the Trust
Depositor to the Trust.
Each Contract (a) is (or will be) secured by a Motorcycle, (b) has
(or will have) a fixed annual percentage rate and provide for, if timely
made, payments of principal and interest which fully amortize the loan on a
simple interest basis over its term, (c) with respect to the Initial
Contracts, has its last scheduled payment due no later than
[ ], and with respect to the Contracts as a whole
(including any Subsequent Contracts conveyed to the Trust after the Closing
Date), will have a last scheduled payment due no later than
[ ], and (d) with respect to the Initial Contracts, has its
first scheduled payment due no later than [ ]. The
Contracts were (or will be) acquired by the Seller in the ordinary course of
the Seller's business. A detailed listing of the Initial Contracts is
appended to the Agreement. See "DESCRIPTION OF THE CERTIFICATES" below.
(For general composition of the Initial Contracts see Table 1 below).
Approximately [ ]% of the Principal Balance of the Initial
Contracts as of the Initial Cutoff Date is attributable to loans to purchase
Motorcycles which were new and approximately [ ]% is attributable
to loans to purchase Motorcycles which were used at the time the related
Contract was originated. All Initial Contracts have a contractual rate of
interest of at least [ ]% per annum and not more than [ ]
% per annum and the weighted average contractual rate of interest of the
Initial Contracts as of the Initial Cutoff Date is approximately [ ]%
per annum (see Table 2 below). The Initial Contracts have remaining
maturities as of the Initial Cutoff Date of at least 6 months but not more
than [ ] months and original maturities of at least [ ] months but
not more than [ ]months (see Tables 3 and 4 below). The Initial Contracts
had a weighted average term to scheduled maturity, as of origination, of
approximately [ ] months, and a weighted average term to scheduled
maturity as of the Initial Cutoff Date of approximately [ ] months.
The average principal balance per Initial Contract as of the Initial Cutoff
Date was approximately $[ ] and the principal balances on the
Initial Contracts as of the Initial Cutoff Date ranged from $[ ] to
$[ ] (see Table 5 below). The Contracts arise (or will arise) from
loans to Obligors located in 50 states, the District of Columbia and the U.S.
Territories, and with respect to the Initial Contracts, in the following
approximate amounts expressed as a percentage of the aggregate principal
balances on the Initial Contracts as of the Initial Cutoff Date: [ ]% in
the state of [ ], [ ]% in [ ], [ ]% in
[ ], [ ]% in [ ], [ ]% in [ ], [ ]
% in [ ], [ ]% in [ ], [ ]% in [ ], and
[ ]% in [ ] (see Table 6 below). No other state represented
more than [ ]% of the Initial Contracts.
Except for the criteria described in the preceding paragraph and under
"RISK FACTORS -- THE CONTRACTS AND THE PRE-FUNDING ACCOUNT," there will be no
required characteristics of the Subsequent Contracts. Therefore, following the
transfer of the Subsequent Contracts to the Trust, the aggregate
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<PAGE>
characteristics of the entire pool of the Contracts, including the composition
of the Contracts, the distribution by APR of the Contracts, the distribution by
calculated remaining term of the Contracts, the distribution by original term to
maturity of the Contracts, the distribution by current balance of the Contracts,
and the geographic distribution of the Contracts, described in the following
tables, may vary from those of the Initial Contracts as of the Initial Cutoff
Date.
The motorcycle dealer agreements between each of the originating dealers
and the Seller require the originating dealer to repurchase certain motorcycles
repossessed by the Seller in the event of a default by the Obligor ("DEALER
RECOURSE"); the Dealer Recourse will be assigned by the Seller to the Trust
Depositor pursuant to the Transfer and Sale Agreement and from the Trust
Depositor to the Trust pursuant to the Agreement. There can be no assurance
that an originating dealer will perform its Dealer Recourse obligations under
such motorcycle dealer agreements if and when required to do so.
TABLE 1
COMPOSITION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<S> <C>
Aggregate Principal Balance . . . . . . . . . . . . . . $[_____________]
Number of Contracts . . . . . . . . . . . . . . . . . . [_____]
Average Principal Balance . . . . . . . . . . . . . . . $[________]
Weighted Average Annual Percentage
Rate ("APR") . . . . . . . . . . . . . . . . . . . [_____]%
(Range). . . . . . . . . . . . . . . . . . . . . . [_____]% to [_____]%
Weighted Average Original Term (in months). . . . . . . [____]
(Range). . . . . . . . . . . . . . . . . . . . . . [___] to [___]
Weighted Average Calculated Remaining Term (in months). [_____]
(Range). . . . . . . . . . . . . . . . . . . . . . [__] to [___]
</TABLE>
TABLE 2
DISTRIBUTION BY APR OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
TOTAL
PERCENT OF OUTSTANDING PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL POOL
RATE CONTRACTS CONTRACTS BALANCE BALANCE
<S> <C> <C> <C> <C>
8.01-9.00% % $ %
9.01-10.00
10.01-11.00
11.01-12.00
S-25
<PAGE>
12.01-13.00
13.01-14.00
14.01-15.00
15.01-16.00
16.01-17.00
TOTALS: 100.00% 100.00%
</TABLE>
S-26
<PAGE>
TABLE 3
DISTRIBUTION BY CALCULATED REMAINING TERM
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
TOTAL
PERCENT OF OUTSTANDING PERCENT OF
CALCULATED NUMBER OF NUMBER OF PRINCIPAL POOL
REMAINING TERM CONTRACTS CONTRACTS BALANCE BALANCE
<S> <C> <C> <C> <C>
1-12 MONTHS % $ %
13-24 MONTHS
25-36 MONTHS
37-48 MONTHS
49-60 MONTHS
61-72 MONTHS
TOTALS: 100.00% 100.00%
</TABLE>
TABLE 4
DISTRIBUTION BY ORIGINAL TERM TO MATURITY
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
TOTAL
PERCENT OF OUTSTANDING PERCENT OF
ORIGINAL NUMBER OF NUMBER OF PRINCIPAL POOL
TERM CONTRACTS CONTRACTS BALANCE BALANCE
<S> <C> <C> <C> <C>
1-12 MONTHS $ %
13-24 MONTHS
25-36 MONTHS
37-48 MONTHS
49-60 MONTHS
61-72 MONTHS
TOTALS: 0 100.00% 100.00%
</TABLE>
S-27
<PAGE>
TABLE 5
DISTRIBUTION BY CURRENT BALANCE OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
TOTAL
PERCENT OF OUTSTANDING PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL POOL
CURRENT BALANCE CONTRACTS CONTRACTS BALANCE BALANCE
<S> <C> <C> <C> <C>
$01 - $1,000 $ %
$1,001 - $1,500
$1,501 - $2,000
$2,001 - $2,500
$2,501 - $3,000
$3,001 - $3,500
$3,501 - $4,000
$4,001 - $4,500
$4,501 - $5,000
$5,001 - $5,500
$5,501 - $6,000
$6,001 - $6,500
$6,501 - $7,000
$7,001 - $7,500
$7,501 - $8,000
$8,001 - $8,500
$8,501 - $9,000
$9,001 - $9,500
$9,501 - $10,000
$10,001 - $10,500
$10,501 - $11,000
$11,001 - $11,500
$11,501 - $12,000
$12,001 - $12,500
$12,501 - $13,000
$13,001 - $14,000
$14,001 - $15,000
$15,001 - $16,000
$16,001 - $17,000
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<PAGE>
$17,001 - $18,000
$18,001 - $19,000
$19,001 - $20,000
$20,001 - $22,000
$22,001 - $24,000
$24,001 - $26,000
$26,001 - $28,000
$28,001 - $30,000
$30,001 - $32,000
TOTALS: 100.00% 100.00%
</TABLE>
TABLE 6
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<TABLE>
<CAPTION>
TOTAL
PERCENT OF OUTSTANDING PERCENT
NUMBER OF NUMBER OF PRINCIPAL OF POOL
STATE CONTRACTS CONTRACTS BALANCE BALANCE
<S> <C> <C> <C> <C>
ALABAMA $ %
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
DISTRICT OF COLUMBIA
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
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<PAGE>
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
TABLE 6
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(CONTINUED)
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
OTHER
TOTALS: 100.00% 100.00%
</TABLE>
S-30
<PAGE>
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
The Seller was organized in January 1993 and is a one hundred percent
owned subsidiary of Eaglemark Financial Services, Inc., a Delaware corporation
("EAGLEMARK FINANCIAL"). The Seller began purchasing and servicing conditional
sales contracts for Motorcycles in February 1993. Accordingly, the Seller has
not accumulated a significant amount of delinquency and loss data on Motorcycle
conditional sales contracts similar to the Contracts. See "RISK FACTORS --
LIMITED EXPERIENCE WITH MOTORCYCLE CONTRACTS."
The following tables set forth the delinquency experience and loan loss
and repossession experience of the Seller's portfolio of conditional sales
contracts for Motorcycles since the Seller began purchasing and servicing such
contracts. These figures include data in respect of contracts which the Seller
has previously sold with respect to prior securitizations and for which the
Seller acts as servicer.
S-31
<PAGE>
DELINQUENCY EXPERIENCE
(UNAUDITED)
(DOLLARS IN THOUSANDS)
AT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, [ ], [ ],
------------ ------------ ------------ ------------- -------------
1994 1995 1996 199 199
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NUMBER OF MOTORCYCLE
CONDITIONAL SALES CONTRACTS
AND ASSOCIATED OUTSTANDING
PRINCIPAL DOLLAR BALANCES (1)...
PERIOD OF DELINQUENCY AND
ASSOCIATED OUTSTANDING
PRINCIPAL BALANCES (2)..........
30-59 DAYS......................
60-89 DAYS......................
90 DAYS OR MORE.................
TOTAL NUMBER OF DELINQUENT
MOTORCYCLE CONDITIONAL SALES
CONTRACTS.......................
DELINQUENT MOTORCYCLE
CONDITIONAL SALES CONTRACTS
AS A PERCENT OF TOTAL NUMBER
OF MOTORCYCLE CONDITIONAL
SALES CONTRACTS.................
AGGREGATE PRINCIPAL BALANCE
OF DELINQUENT MOTORCYCLE
CONDITIONAL SALES CONTRACTS.....
</TABLE>
- ------------------------------
(1) Excludes Contracts already in repossession, which Contracts the
Servicer does not consider outstanding.
(2) The period of delinquency is based on the number of days
payments are contractually past due (assuming 30-day months).
Consequently, a contract due on the first day of a month is not
30 days delinquent until the first day of the next month.
S-32
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, [ ], [ ],
------------ ------------ ------------ ------------- -------------
1994 1995 1996 199 199
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AGGREGATE PRINCIPAL BALANCE
OF DELINQUENT MOTORCYCLE
CONDITIONAL SALES CONTRACTS
AS A PERCENTAGE OF THE
AGGREGATE OUTSTANDING
PRINCIPAL BALANCE OF
MOTORCYCLE CONDITIONAL SALES
CONTRACTS.......................
</TABLE>
S-33
<PAGE>
LOAN LOSS/REPOSSESSION EXPERIENCE
(UNAUDITED)
(ACTUAL DOLLARS)
<TABLE>
<CAPTION>
Twelve Months
Ended Twelve Months Twelve Months
December 31, Ended Ended [Three Months [Three Months
1994 December December 31, Ended Ended
31, 1995 1996 ] ]
<S> <C> <C> <C> <C> <C>
Principal
Balance of all
Motorcycle
conditional
contracts
serviced (1)
Contract
liquidations (2)
Net losses:
Dollars(3)
Percentage(4)
</TABLE>
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of Contracts being serviced as of
period end, calculated on an annualized basis.
(3) The calculation of net loss includes actual charge-offs, deficiency
balances remaining after liquidation of repossessed vehicles, expenses
of repossession and liquidation, net of recoveries.
(4) As a percentage of the principal amount of contracts being serviced as
of period end, calculated on an annualized basis.
THE DATA PRESENTED IN THE FOREGOING TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY
AND THERE IS NO ASSURANCE THAT THE DELINQUENCY, LOAN LOSS OR REPOSSESSION
EXPERIENCE OF THE CONTRACTS WILL BE SIMILAR TO THAT SET FORTH ABOVE.
S-34
<PAGE>
HARLEY-DAVIDSON MOTORCYCLES
All of the motorcycles securing Contracts were manufactured by
Harley-Davidson, Inc., except not more than 2.5% of the Contracts (including all
Subsequent Contracts) relate to, and are secured by, motorcycles manufactured by
Buell. Buell produces "PERFORMANCE" motorcycles using engines and certain other
parts manufactured by Harley-Davidson. Buell is a wholly-owned subsidiary of
Harley-Davidson.
Harley-Davidson produces and sells premium heavyweight motorcycles.
Within the heavyweight class, Harley-Davidson sells touring motorcycles
(equipped for long-distance touring), as well as custom motorcycles which
emphasize the distinctive styling associated with certain classic
Harley-Davidson motorcycles. Harley-Davidson motorcycles are based on
variations of five basic chassis designs and are powered by one of four air
cooled, twin cylinder engines of "V" configuration which have displacements of
883cc, 1200cc, 1340cc and 1450cc. Harley-Davidson manufactures its own engines
and frames and is the only major manufacturer of motorcycles in the United
States. Harley-Davidson, as of December 31, 1997, accounts for approximately
55% of the market for motorcycles with an engine displacement of 751cc and
above.
Buell produces "PERFORMANCE" motorcycles using Harley-Davidson 1200cc
engines that are further modified in the manufacturing process, as well as
certain other Harley parts. The "PERFORMANCE" aspect of the motorcycles refers
to overall handling characteristics of the motorcycle, including cornering,
acceleration and braking. Buell motorcycles and related products are currently
distributed exclusively through Harley-Davidson dealers. Buell's overall share
of the "PERFORMANCE" market is negligible, but increasing.
As of December 31, 1997, Eaglemark has originated Contracts with
principal balances outstanding equal to approximately $_______ which are related
to, and secured by, "touring cycles", and $_______ which are related to, and
secured by, "street legal" cycles. "Touring cycles" (with displacements
typically over 750cc) are generally intended for use in long distance travel,
and "street legal cycles" include all other motorcycles which may be licensed
for street use under applicable state or local law and which are not generally
viewed as falling with the "touring cycle" category.
YIELD AND PREPAYMENT CONSIDERATIONS
By their terms, the Contracts may be prepaid, in whole or in part, at
any time and each Contract contains a provision which permits the Seller to
require full prepayment in the event of a sale of the Motorcycle securing a
Contract. In addition, repurchases of the Contracts by the Seller could occur
in the event of a breach of certain representations and warranties with respect
to the Contracts and upon exercise of the Seller's limited option to repurchase
the Contracts when the principal balance of the Certificates has decreased to a
certain level. Any prepayments and repurchases of Contracts will reduce the
average life of the Certificates and the interest received by the
Certificateholders over the life of the Certificates (for this purpose the term
"PREPAYMENT" includes liquidations due to default, as well as receipt of
proceeds from credit life, credit disability and casualty insurance policies).
In addition, the occurrence of a Special Distribution at or before the end of
the Funding Period would have the effect of reducing the interest received by
Certificateholders over the life of the Certificates.
The Class B Certificates will be subordinated to the Class A
Certificates as described herein. Accordingly, the yield on the Class B
Certificates will be extremely sensitive to the loss experience on the Contracts
and the timing of such losses. If the actual rate and amount of losses
experienced on the Contracts exceed the rate and amount of losses assumed by an
investor, the yield to maturity of the Class B Certificates may be lower than
anticipated.
S-35
<PAGE>
Although the contractual rates of interest on the Contracts vary,
disproportionate rates of principal prepayments between Contracts with higher
and lower contractual rates of interest will not affect the yield on the
Certificates if the Certificates are purchased at par because the contractual
rate of interest on each Contract is greater than the sum of the Class B
Pass-Through Rate, the Monthly Servicing Fee, the Back-up Servicing Fee and the
Trustee Fee.
The final scheduled payment date on the Initial Contract with the latest
maturity is no later than [ ]. The final scheduled payment date
on the Contract with the latest maturity among the Contracts as a whole,
including any Subsequent Contracts, will be not later than [ ].
EAGLEMARK FINANCIAL SERVICES, INC.;
EAGLEMARK, INC.
EAGLEMARK FINANCIAL SERVICES, INC.
Eaglemark Financial was formed in June 1992 with a capital infusion of
$10,000,000 from Harley-Davidson and an additional $15,000,000 capital
contribution from a major institutional investor in January 1993. In November
1995, Harley-Davidson purchased the equity owned by the major institutional
investor and as a result Eaglemark Financial is a 97.8% owned subsidiary of
Harley-Davidson. The business of Eaglemark Financial, through its 100%
ownership of Eaglemark, has been to provide wholesale and retail financing,
credit card and insurance services to dealers and customers of Harley-Davidson.
EAGLEMARK, INC.
Eaglemark is a Nevada corporation and is a wholly-owned subsidiary of
Eaglemark Financial. Eaglemark began operations in January 1993 when it
purchased the $85 million wholesale financing portfolio of certain
Harley-Davidson dealers from ITT Commercial Finance; subsequently, Eaglemark
entered the retail consumer finance business. Eaglemark provides financing to
Harley-Davidson customers for new and used motorcycles, as well as certain other
recreational products such as single-engine aircraft and marine products.
Harley-Davidson motorcyles are financed through the Canadian Harley-Davidson
dealers under the trade name "Deeley Credit." Eaglemark also finances extended
service contracts on Motorcycles. Eaglemark's financing, credit card and
insurance programs are designed to work together as a package that appeals to
the needs of Harley-Davidson's customers. The intent of such a package is to
increase dealer and customer loyalty to Eaglemark while improving revenue and
profits over time. Eaglemark's principal executive offices are located at 4150
Technology Way, Carson City, Nevada 89706 (telephone 702/886-3200). As of
December 31, 1997, Eaglemark had total assets of $551.8 million, and
stockholder's equity of $68.1 million.
EAGLEMARK CUSTOMER FUNDING CORPORATION-[__]
The Trust Depositor is a special purpose corporation incorporated in the
State of Nevada in [_____]. All of the common stock of the Trust Depositor is
owned by the Seller. All of the officers and directors of the Trust Depositor
are employed by the Seller, except that at least two directors of the Trust
Depositor are required to be independent of the Seller. The Trust Depositor's
business is limited to purchasing the Contracts and related assets (and other
similar retail motorcycle installment conditional sales contracts) from the
Seller, acting as the settlor of the Trust and other similar trusts and
performing the obligations described in the Agreement and the Transfer and Sale
Agreement (as well as similar agreements entered into in connection with the
formation of similar trusts).
S-36
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement to be entered
into by the Trust Depositor, as originator of the Trust, the Servicer as the
servicer of the Contracts and Harris Trust and Savings Bank, as Trustee and as
Back-up Servicer. The Certificates will be issued in book-entry form only and
will represent fractional undivided interests in the Trust. The Certificates
will be issued in denominations of $1,000 in excess thereof, except for one
Class A Certificate with a denomination representing the remainder of the Class
A Initial Certificate Balance and one Class B Certificate with a denomination
representing the remainder of the Class B Initial Certificate Balance. The
Trust will consist of (among other things) the Contracts and the rights,
benefits, obligations and proceeds arising therefrom or in connection therewith,
security interests in the Motorcycles financed through the Contracts, proceeds
from certain insurance policies on individual Motorcycles, the Deposit
Agreement, rights under the Security Agreement securing the Trust Depositor's
obligation under the Deposit Agreement to purchase Subsequent Contracts and
transfer the same to the Trust through the pledge of monies on deposit in the
Pre-Funding Account, and amounts held for the Trust in the Collection Account.
Distributions of the Class A Interest Distributable Amount, the Class B
Interest Distributable Amount, the Class A Principal Distributable Amount, and
the Class B Principal Distributable Amount will be made by the Paying Agent
monthly on each Payment Date to persons in whose names the Class A Certificates
and Class B Certificates are registered as of the Record Date. The first
Payment Date for the Certificates will be [ ], 199_. Payments will
be made by check mailed to such Certificateholder at the address appearing on
the Certificate Register; PROVIDED, HOWEVER, that a Certificateholder may
request payment by wire transfer pursuant to instructions delivered to the
Trustee at least ten (10) days prior to such Payment Date. Final payments of
principal and interest will be made only upon tender of the Certificates to the
Paying Agent for cancellation.
CONVEYANCE OF CONTRACTS
On the date of issuance of the Certificates, the Seller will sell,
transfer, assign, set over and otherwise convey the Initial Contracts and
related assets to the Trust Depositor, and the Trust Depositor will
simultaneously establish the Trust and sell, transfer, assign, set over and
otherwise convey to the Trust all right, title and interest in the Initial
Contracts and related assets. On behalf of the Trust, as the issuer of the
Certificates offered hereby, the Trustee will, concurrently with such
conveyance, execute and deliver the Certificates to or upon the order of the
Trust Depositor. The Initial Contracts will be described on a list delivered to
the Trustee and certified by a duly authorized officer of the Trust Depositor.
Such list will include the amount of monthly payments due on each Initial
Contract as of the Initial Cutoff Date, the contractual rate of interest on each
Contract and the maturity date of each Contract. Such list will be available
for inspection by any Certificateholder at the principal office of the Servicer.
Prior to the conveyance of the Initial Contracts to the Trust, the Servicer's
compliance officer will have completed a review of all the related Contract
files, including the certificates of title to, or other evidence of a perfected
security interest in, the Motorcycles, confirming the accuracy of the list of
Initial Contracts delivered to the Trustee. The Trust Depositor will deliver to
the Trustee a report of a nationally recognized independent public accounting
firm which states that such firm has performed specific procedures for a sample
of the Initial Contracts supplied by the Seller. Any Contract discovered not to
agree with such list in a manner that is materially adverse to the interests of
the Certificateholders will be required to be repurchased by the Seller, or, if
the discrepancy relates to the unpaid Principal Balance of a Contract, the
Seller may deposit cash in the Collection Account in an amount sufficient to
offset such discrepancy.
S-37
<PAGE>
In addition to the Initial Contracts, the Trust property will include
the Trust's rights under the Deposit Agreement in respect of the Trust
Depositor's obligation to purchase from the Seller, and concurrently convey to
the Trust, Subsequent Contracts purchased as of the applicable Subsequent
Cutoff Date (the Initial Cutoff Date or any Subsequent Cutoff Date being
individually referred to herein as a "CUTOFF DATE"). Any conveyance of
Subsequent Contracts on a Subsequent Transfer Date will be subject to the
satisfaction of the following conditions, among others (computed, where
applicable, based on the characteristics of the Initial Contracts on the Initial
Cutoff Date and any Subsequent Contracts as of the related Subsequent Cutoff
Date): (i) each such Subsequent Contract satisfies the eligibility criteria
specified in the Transfer and Sale Agreement and the related Subsequent Purchase
Agreement executed thereunder; (ii) as of the applicable Subsequent Cutoff
Date, no Contract in the Trust, including the Subsequent Contracts that the
Trust Depositor will be conveying as of such Subsequent Cutoff Date, will have a
scheduled maturity date later than [ ]; (iii) the
Trust Depositor shall have executed and delivered in favor of the Trust a
Subsequent Transfer Agreement conveying such Subsequent Contracts to the Trust
(including a schedule identifying such Subsequent Contracts); (iv) the Trust
Depositor shall have delivered certain opinions of counsel to the Trustee, the
Placement Agent and the Rating Agencies with respect to the validity and other
aspects of the conveyance of all such Subsequent Contracts; and (v) the Rating
Agencies shall have each notified the Trust Depositor and the Trustee in writing
that, following the addition of such Subsequent Contracts, the Class A
Certificates will be rated AAA by S&P and Aaa by Moody's and the Class B
Certificates will be rated [ ] by S&P and [ ] by Moody's.
The Agreement will designate the Servicer as custodian to maintain
possession, as the Trustee's agent, of the Contracts and any other documents
relating to the Motorcycles. To facilitate servicing and save administrative
costs, the documents will not be segregated from other similar documents that
are in the Servicer's possession. Uniform Commercial Code financing statements
will be filed in Nevada and Illinois, reflecting the conveyance and assignment
of the Contracts to the Trust Depositor from the Seller and from the Trust
Depositor to the Trustee, and the Seller's and the Trust Depositor's accounting
records and computer systems will also reflect such conveyance and assignment.
In addition, each Contract will be stamped to reflect their conveyance and
assignment to the Trust. However, if, through fraud, negligence or otherwise, a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such conveyance and assignment, the Trust's interest in the
Contracts could be defeated. In addition, certificates of title with respect to
the Motorcycles will not be amended to reflect the assignment of the Seller's
security interest in the Motorcycles to the Trust Depositor and the assignment
of the Trust Depositor's security interest in the Motorcycles to the Trust. In
the absence of amendments to the certificates of title, the Trust may not have a
perfected security interest in the Motorcycles. See "RISK FACTORS--RISK OF
UNPERFECTED SECURITY INTERESTS IN FINANCIAL MOTORCYCLES" in the Prospectus.
The Seller will make certain representations and warranties in the
Transfer and Sale Agreement with respect to each Contract, including that
(references to the Closing Date below being deemed, in respect of Subsequent
Contracts, to refer to the related Subsequent Transfer Date): (a) as of the
related Cutoff Date the most recent scheduled payment was made or was not
delinquent more than 30 days and, to the best of the Seller's knowledge, all
payments on the Contract were made by the Obligor of the Contract; (b) as of the
Closing Date no provision of a Contract has been waived, altered or modified in
any respect, except by instruments or documents identified in the Contract File;
(c) each Contract is a genuine, legal, valid and binding obligation of the
Obligor and is enforceable in accordance with its terms (except as may be
limited by laws affecting creditors' rights generally); (d) as of the Closing
Date no Contract is subject to any right of rescission, set-off, counterclaim or
defense, (e) as of the Closing Date each Motorcycle securing a Contract is
covered by certain insurance policies described under "DESCRIPTION OF THE
CERTIFICATES--INDIVIDUAL MOTORCYCLE INSURANCE" below; (f) each Contract was
originated by a Harley-Davidson motorcycle dealer in the ordinary course of such
dealer's business which dealer had all necessary licenses and permits to
originate the Contracts in the state
S-38
<PAGE>
where such dealer was located, was fully and properly executed by the parties
thereto and was sold by such dealer to the Seller without any fraud or
misrepresentation on the part of such dealer; (g) no Contract was originated in
or is subject to the laws of any jurisdiction whose laws would make the
transfer, sale and assignment of the Contract pursuant to the Transfer and Sale
Agreement or the Agreement or pursuant to transfers of Certificates unlawful,
void or voidable; (h) each Contract and each sale of the related Motorcycle
complies with all requirements of any applicable federal, state or local law and
regulations thereunder, including, without limitation, usury, truth in lending,
motor vehicle installment loan and equal credit opportunity laws, with such
compliance not being affected by the Trust Depositor's or the Trust's ownership
of the Contracts and with the Seller to maintain in its possession, available
for inspection by or delivery to the Trust Depositor and the Trustee, evidence
of compliance with all such requirements; (i) as of the Closing Date no Contract
has been satisfied, subordinated in whole or in part or rescinded and the
Motorcycle securing the Contract has not been released from the lien of the
Contract in whole or in part; (j) each Contract creates a valid, subsisting and
enforceable first priority security interest in favor of the Seller in the
Motorcycle covered thereby, and such security interest has been conveyed and
assigned by the Seller to the Trust Depositor and the Trust Depositor to the
Trust and the original certificate of title, certificate of lien or other
notification (the "LIEN CERTIFICATE") issued by the body responsible for the
registration of, and the issuance of certificates of title relating to, motor
vehicles and liens thereon (the "REGISTRAR OF TITLES") of the applicable state
to a secured party which indicates the lien of the secured party on the
Motorcycle is recorded on the original certificate of title, and the original
certificate of title for each Motorcycle shows, or if a new or replacement Lien
Certificate is being applied for with respect to such Motorcycle the Lien
Certificate will be received within 180 days of the Closing Date and will show,
the Seller as original secured party under each Contract and as the holder of a
first priority security interest in such Motorcycle (and with respect to each
Contract for which the Lien Certificate has not yet been returned from the
Registrar of Titles, the Seller has received written evidence from the related
dealer that such Lien Certificate showing the Seller as lienholder has been
applied for), and the Seller's security interest has been validly assigned by
the Seller to the Trust Depositor and by the Trust Depositor to the Trustee
pursuant to this Agreement in order that immediately after the sale, each
Contract will be secured by an enforceable and perfected first priority security
interest in the Motorcycle in favor of the Trust as secured party, which
security interest is prior to all other liens upon and security interests in
such Motorcycle which now exist or may hereafter arise or be created (except, as
to priority, for any lien for taxes, labor, materials or any state law
enforcement agency affecting a Motorcycle which may arise after such sale); (k)
all parties to each Contract had capacity to execute such Contract; (l) no
Contract has been sold, conveyed and assigned or pledged to any other person
other than the Trust Depositor and the Trustee as transferee of the Trust
Depositor and prior to the transfer of the Contract to the Trust Depositor, the
Seller has good and marketable title to each Contract free and clear of any
encumbrance, equity, loan, pledge, charge, claim or security interest, and as of
the Closing Date the Trustee will have a first priority perfected security
interest therein; (m) as of the related Cutoff Date there was no default,
breach, violation or event permitting acceleration under any Contract (except
for payment delinquencies permitted by clause (a) above), no event which with
notice and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such Contract,
and the Seller has not waived any of the foregoing; (n) as of the Closing Date
there are, to the best of the Seller's knowledge, no liens or claims which have
been filed for work, labor or materials affecting a motorcycle securing a
Contract, which are or may be liens prior or equal to the lien of the Contract;
(o) each Contract has a fixed rate of interest and provides for monthly payments
of principal and interest which, if timely made, would fully amortize the loan
on a simple interest basis over its term; (p) each Contract contains customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for realization against the collateral of the benefits
of the security; (q) the description of each Contract set forth in the list
delivered to the Trustee is true and correct; and (r) there is only one original
of each Contract. The Seller will also make certain representations and
warranties with respect to the Contracts in the aggregate, including that (i)
the aggregate principal amount payable by the Obligors as of the Cutoff Date
equals the Initial Certificate
S-39
<PAGE>
Principal Balance (plus the Pre-Funded Amount as of the Closing Date), and each
Initial Contract has a contractual rate of interest of at least [ ]%, (ii)
all motorcycles securing the Contracts are Harley-Davidson or Buell motorcycles,
(iii) approximately [ ]% of the aggregate Principal Balance of the Initial
Contracts is attributable to loans to purchase new Motorcycles and approximately
[ ]% of the aggregate Principal Balance of the Initial Contracts is
attributable to loans to purchase used Motorcycles, (iv) no Initial Contract has
a remaining maturity of more than [ ]months, (v) the first payment under each
Initial Contract is due on or before[ ], 199_ and (vi) no adverse
selection procedures were or will be employed in selecting the Contracts from
the Seller's portfolio.
Under the Transfer and Sale Agreement, the Seller will agree that in the
event of a breach of any such representations and warranties made by the Seller
that materially and adversely affects the Trustee's interest in any Contract the
Seller will repurchase such Contract within 90 days at the Repurchase Price (as
defined in "STRUCTURE OF THE TRANSACTION" above), unless such breach is cured.
Under the Agreement, the Trust Depositor will assign all of its right, title and
interest in such representations and warranties (including the Seller's
repurchase obligations) to the Trustee. The Trust Depositor will make no
representations and warranties with respect to the Contracts. The Seller is
selling the Contracts without recourse and, accordingly, will have no obligation
with respect to the Contracts other than pursuant to such representations,
warranties and repurchase obligations. The repurchase obligations of the Seller
described above will constitute the sole remedy against the Seller by the Trust
and the Certificateholders for a breach of any such representations and
warranties made by the Seller.
Pursuant to the Agreement, the Servicer will service and administer the
Contracts conveyed and assigned to the Trustee as more fully set forth below.
PAYMENTS ON CONTRACTS; AVAILABLE FUNDS, AVAILABLE INTEREST AND AVAILABLE
PRINCIPAL
The Trust Depositor, on behalf of the Trust, will establish and maintain
the Collection Account at the Trustee's office. The Collection Account must be
established and maintained as an "ELIGIBLE ACCOUNT", which is (i) a segregated
direct deposit account maintained with a depositary institution or trust company
organized under the laws of the United States of America or any of the States
thereof, or the District of Columbia, having a certificate of deposit,
short-term deposit or commercial paper rating of at least A-1 by S&P and P-1 by
Moody's. The Servicer may authorize the Trustee to invest the funds in the
Collection Account in Eligible Investments (as defined in the Agreement) that
will mature not later than one Business Day prior to the applicable Payment
Date. Such Eligible Investments include, among other investments, obligations
of the United States or of any agency thereof backed by the full faith and
credit of the United States, certificates of deposit, demand and time deposits
and bankers' acceptances sold by eligible depository institutions and trust
companies, certain repurchase agreements of United States government securities
with eligible commercial banks, corporate securities assigned the highest rating
by Moody's and S&P of which no investment in the securities of any one company
may exceed 10% of amounts in the Collection Account at the time of such
investment or pledge as security, and commercial paper assigned the highest
rating by Moody's and S&P. The Servicer is required to use its best efforts to
cause Obligors to make all payments on the Contracts directly to one or more
Lockbox Banks, acting as agent for the Trust pursuant to a Lockbox Agreement.
The Servicer is required to deposit without deposit into any intervening
account into the Collection Account as promptly as possible, but in any case not
later than the second Business Day following the receipt thereof, all amounts
received on or in respect of the Contracts.
The "AVAILABLE FUNDS" for any Payment Date is an amount equal to the sum
of the Available Interest and the Available Principal for such Payment Date.
S-40
<PAGE>
The Available Interest for a Payment Date will be equal to the total
(without duplication) of the following amounts received by the Servicer on or in
respect of the Contracts during the related Due Period: (i) all amounts received
in respect of interest on the Contracts (as well as late payment penalty fees
and extension fees), (ii) the interest component of all Net Liquidation Proceeds
(as defined in the Agreement) with respect to any Contract, (iii) the interest
component of the aggregate of the Repurchase Prices for Contracts repurchased by
the Seller as the result of the Seller's breach of representations and
warranties, (iv) all Advances made by the Servicer, (v) the interest component
of all amounts paid by the Seller in connection with an optional repurchase of
the Contracts when the aggregate outstanding Class A Certificate Balance and
Class B Certificate Balance has declined to less than 10% of the aggregate Class
A Initial Certificate Balance and Class B Initial Certificate Balance, (vi) all
amounts received in respect of Carrying Charges transferred from the Interest
Reserve Account, and (vii) all amounts received in respect of interest,
dividends, gains, income and earnings on investment of funds in the Trust
Accounts.
The Available Principal for a Payment Date means the total (without
duplication) of the following amounts received by the Servicer on or in respect
of the Contracts during the related Due Period: (i) all amounts received in
respect of principal on the Contracts, (ii) the principal component of all Net
Liquidation Proceeds, (iii) the principal component of the aggregate of the
Repurchase Prices for Contracts repurchased by the Seller as the result of the
Seller's breach of certain representations and warranties, and (iv) the
principal component of all amounts paid by the Seller in connection with an
optional repurchase of the Contracts in the circumstance described above.
CALCULATION OF DISTRIBUTABLE AMOUNTS
The "CLASS A DISTRIBUTABLE AMOUNT" with respect to a Payment Date will
equal the sum of (a) the Class A Principal Distributable Amount (as defined in
"SUMMARY OF TERMS -- MONTHLY PRINCIPAL DISTRIBUTIONS" above), and (b) the Class
A Interest Distributable Amount (as defined in "SUMMARY OF TERMS -- MONTHLY
INTEREST DISTRIBUTIONS" above) for such Payment Date.
The "CLASS B DISTRIBUTABLE AMOUNT" with respect to a Payment Date will
equal the sum of (a) the Class B Principal Distributable Amount (as defined in
"SUMMARY OF TERMS -- MONTHLY PRINCIPAL DISTRIBUTIONS" above) and (b) the Class
B Interest Distributable Amount (as defined in "SUMMARY OF TERMS -- MONTHLY
INTEREST DISTRIBUTIONS" above) for such Payment Date.
DISTRIBUTIONS ON CERTIFICATES
On the fourth Business Day of each month (the "DETERMINATION DATE") the
Servicer will determine the following: (i) the amount of the Available Funds
with respect to the upcoming Payment Date occurring in such month, (ii)
Available Interest with respect to the upcoming Payment Date occurring in such
month, and (iii) Available Principal with respect to the upcoming Payment Date
occurring in such month.
On each Payment Date, the Trustee will distribute the following amounts
in the following order and priority:
(a) from the Special Distribution Subaccount, the amount of
any Mandatory Special Distribution, to be distributed (i) to the Class A
Certificateholders, in an amount equal to the Class A Percentage
multiplied by the amount in the Special Distribution Subaccount and (ii)
to the Class B Certificateholders, in an amount equal to the Class B
Percentage multiplied by the amount in the Special Distribution
Subaccount, with the amounts in the Special Distribution Subaccount
being derived from draws on the Pre-Funding Account (which amounts are
available solely for payment of such Special Distributions and not for
any other purpose);
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(b) from the Available Funds, reimbursement to the Servicer
for Advances previously made;
(c) from the Available Interest, the Servicing Fee to the
Servicer;
(d) from the Available Interest, the Trustee's Fee for the
related Due Period to the Trustee;
(e) from the Available Interest, the Back-up Servicer Fee
for the related Due Period to the Back-up Servicer;
(f) from the Available Interest, to the Class A
Certificateholders of record, an amount equal to the Class A Interest
Distributable Amount (including Class A Interest Carryover Shortfall)
for such Payment Date and, if such Available Interest is insufficient,
the Class A Certificateholders will receive such shortfall first, from
the Class B Percentage of Available Principal and second, if such
amounts are still insufficient, from monies on deposit in the Reserve
Fund;
(g) from the Available Interest, to the Class B
Certificateholders of record, an amount equal to the Class B Interest
Distributable Amount (including Class B Interest Carryover Shortfall)
for such Payment Date and, if such Available Interest is insufficient,
the Class B Certificateholders will receive such shortfall from monies
on deposit in the Reserve Fund;
(h) from the Available Principal, to the Class A
Certificateholders of record, an amount equal to the Class A Principal
Distributable Amount (including Class A Principal Carryover Shortfall)
for such Payment Date and, if such Available Principal is insufficient,
the Class A Certificateholders will receive such shortfall first, from
Available Interest and second, if such amounts are still insufficient,
from monies on deposit in the Reserve Fund;
(i) from the Available Principal, to the Class B
Certificateholders of record, an amount equal to the Class B Principal
Distributable Amount (including Class B Principal Carryover Shortfall)
for such Payment Date and, if such Available Principal is insufficient,
the Class B Certificateholders will receive such shortfall first, from
Available Interest and second, if such amounts are still insufficient,
from monies on deposit in the Reserve Fund; and
(j) any remaining Available Funds after the payments
described in clauses (a) through (i) above shall be transferred to the
Reserve Agent for deposit in the Reserve Account.
Distributions on each Payment Date will be made to holders of record of
each Class of Certificates on the related Record Date in an amount equal to the
product of the Fractional Interest (as defined herein) represented by the
Certificates of such Class held by such Certificateholders on such Record Date
and the aggregate amounts distributed in respect of the Certificates of such
Class on such Payment Date. The "FRACTIONAL INTEREST" represented by the
Certificates of a Class held by a Certificateholder on any date equals the
percentage obtained by dividing (i) the principal balance of all Certificates of
such Class held by such Certificateholder on such date by (ii) the aggregate of
the principal balances of all of the Certificates of such Class held by all
Certificateholders on such date.
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE FUND; INTEREST RESERVE
ACCOUNT
SUBORDINATION. The rights of the Class B Certificateholders to receive
payments in respect of the Class B Interest Distributable Amount on any Payment
Date are subordinated to the rights of the Class A Certificateholders to receive
payments in respect of the Class A Interest Distributable Amount
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on such date, and the rights of the Class B Certificateholders to receive
payments in respect of the Class B Principal Distributable Amount on any Payment
Date are subordinated to the rights of the Class A Certificateholders to receive
payments in respect of the Class A Interest Distributable Amount and the Class A
Principal Distributable Amount for such date. Consequently, on any Payment
Date, Available Interest (after the payment therefrom of any unreimbursed
Advances to the Servicer, the Servicing Fee, the Back-up Servicing Fee and the
Trustee's Fee on such date) and monies on deposit in the Reserve Fund will be
applied to the payment of the Class A Interest Distributable Amount before
payment of the Class B Interest Distributable Amount, and on any Payment Date,
Available Principal (after the payment therefrom of any unreimbursed Advances to
the Servicer), Available Interest (after the payment therefrom of any
unreimbursed Advances to the Servicer, the Servicing Fee, the Trustee's Fee, the
Back-up Servicing Fee, the Class A Interest Distributable Amount and the Class
B Interest Distributable Amount) and monies on deposit in the Reserve Fund will
be applied to the payment of the Class A Principal Distributable Amount before
payment of the Class B Principal Distributable Amount. In addition, on any
Payment Date, amounts in respect of the Class B Percentage of Available
Principal may be distributed to pay the Class A Interest Distributable Amount.
If amounts otherwise allocable to the Class B Certificates are used to fund
payments of interest on or principal of the Class A Certificates, distributions
with respect to the Class B Certificates may be delayed or reduced and Class B
Certificateholders may suffer a loss.
The Certificateholders will have the benefit of the Reserve Fund. The
Reserve Fund will not be a part of or otherwise includible in the Trust and will
be a segregated trust account held by the Reserve Agent for the benefit of the
Trustee. Any amounts held on deposit in the Reserve Fund and any investment
earnings thereon are owned by, and will be taxable to, the Trust Depositor for
federal income tax purposes. The Reserve Fund will be created with an initial
deposit by the Trust Depositor of an amount equal to [ ]% of the
Principal Balance of the Initial Contracts ($_________) in the Trust and will
thereafter be funded on each Payment Date by the deposit therein of certain
monies pursuant to the Agreement, until the monies in the Reserve Fund reach an
amount equal to the Reserve Fund Requisite Amount (as hereinafter defined).
Thereafter, on each Payment Date on which amounts held in the Reserve Fund
(after giving effect to any required withdrawals therefrom on such date) exceed
the Reserve Fund Requisite Amount such amounts shall be released to the Trust
Depositor and the Trustee's lien thereon shall be released.
The "RESERVE FUND REQUISITE AMOUNT" with respect to any Payment Date
will be an amount equal to [ ]% of the Principal Balance of the Contracts in
the Trust as of the first day of the immediately preceding Due Period; provided,
however, in the event a Reserve Fund Trigger Event (as defined herein) occurs
with respect to a Payment Date and has not terminated for three consecutive
Payment Dates (inclusive of the respective Payment Date), the Reserve Fund
Requisite Amount shall be equal to [ ]% of the Principal Balance of the
Contracts in the Trust as of the first day of the immediately preceding Due
Period. Notwithstanding the foregoing, after the Funding Period, in no event
shall the Reserve Fund Requisite Amount be less than [ ]% of the aggregate
of the Initial Class A Certificate Balance and Initial Class B Certificate
Balance. As of any Payment Date, the amount of funds actually on deposit in the
Reserve Fund may, in certain circumstances, be less than the Reserve Fund
Requisite Amount.
A "RESERVE FUND TRIGGER EVENT" will have been deemed to occur with
respect to any Payment Date if (i) the Average Delinquency Ratio (as defined
herein) for such Payment Date is equal to or greater than [ ]%; (ii) the
Average Loss Ratio (as defined herein) for such Payment Date is equal to or
greater than [ ]%, (iii) the Cumulative Loss Ratio (as defined herein) for
such Payment Date is equal to or greater than (a) [ ]% with respect to any
Payment Date which occurs within the period from the Closing Date to, and
inclusive of, the first anniversary of the Closing Date, (b) [ ]% with
respect to any Payment Date which occurs within the period from the day after
the first anniversary of the Closing Date to, and inclusive of, the second
anniversary of the Closing Date, or (c)
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[ ]% for any Payment Date following the second anniversary of the Closing
Date or (iv) the Average Default Ratio for such Payment Date is equal to or
greater than [ ]%. The "AVERAGE DELINQUENCY RATIO" for any Payment Date is
equal to the arithmetic average of the Delinquency Ratios for the Payment Date
and the two immediately preceding Payment Dates and the Delinquency Ratio for
any Payment Date is equal to the fraction (expressed as a percentage) derived by
dividing (a) the Delinquency Amount during the immediately preceding Due Period
multiplied by twelve by (b) the Principal Balance of the Contracts as of the
beginning of the related Due Period. The "DELINQUENCY AMOUNT" as of any Payment
Date means the Principal Balance of all Contracts that were delinquent 60 days
or more as of the end of the related Due Period (including Contracts in respect
of which the related Motorcycles have been repossessed and are still inventory).
The "AVERAGE LOSS RATIO" for any Payment Date is equal to the arithmetic average
of the Loss Ratios for such Payment Date and the two immediately preceding
Payment Dates and the Loss Ratio for any Payment Date is equal to the fraction
(expressed as a percentage) derived by dividing (x) the Net Liquidation Losses
for all Contracts that became Liquidated Contracts during the immediately
preceding Due Period multiplied by twelve by (y) the outstanding Principal
Balances of all Contracts as of the beginning of the related Due Period. "NET
LIQUIDATION LOSSES" means, with respect to a Liquidated Contract, the amount, if
any, by which (a) the outstanding Principal Balance of such Liquidated Contract
plus accrued and unpaid interest thereon at the Contract Rate to the date on
which such Liquidated Contract became a Liquidated Contract exceeds (b) the Net
Liquidation Proceeds for such Liquidated Contract. "NET LIQUIDATION PROCEEDS"
means, as to any Liquidated Contract, the proceeds realized on the sale or other
disposition of the related Motorcycle, including proceeds realized on the
repurchase of such Motorcycle by the originating dealer for breach of
warranties, and the proceeds of any insurance relating to such Motorcycle, after
payment of all expenses incurred thereby, together, in all instances, with the
expected or actual proceeds of any recourse rights relating to such Contract as
well as any post disposition proceeds received by the Servicer. "LIQUIDATED
CONTRACT" means any defaulted Contract as to which the Servicer has determined
that all amounts which it expects to recover from or on account of such Contract
have been recovered; provided that any defaulted Contract in respect of which
the related Motorcycle has been realized upon and disposed of and the proceeds
of such disposition have been realized shall be deemed to be a Liquidated
Contract; and provided further, a Contract which has been repossessed and has
not been sold by the Servicer for a period in excess of 90 days from such date
of repossession or a Contract which has been delinquent more than 150 days shall
be deemed to be a Liquidated Contract with a zero balance. The "CUMULATIVE LOSS
RATIO" for any Payment Date means the fraction (expressed as a percentage)
computed by the Servicer by dividing (a) the aggregate Net Liquidation Losses
for all Contracts since the Cutoff Date through the end of the related Due
Period by (b) the sum of (i) the Principal Balance of the Contracts as of the
Cutoff Date plus (B) the Principal Balance of any Subsequent Contracts as of the
related Subsequent Cutoff Date. The "AVERAGE DEFAULT RATIO" for any Payment
Date is equal to the arithmetic average of the Default Ratio for such Payment
Date and the two immediately preceding Payment Dates and the Default Ratio for
any Payment Date is equal to the fraction (expressed as a percentage) derived by
dividing (x) the Principal Balance for all Contracts that become Defaulted
Contracts during the immediately preceding Due Period multiplied by twelve by
(y) the outstanding Principal Balances of all Contracts as of the beginning of
the related Due Period. A "DEFAULTED CONTRACT" means a Contract with respect to
which there has occurred one or more of the following: (i) all or some portion
of any payment under the Contract is 120 days or more delinquent, (ii)
repossession (and expiration of any redemption period) of a Motorcycle securing
a Contract, or (iii) the Servicer has determined in good faith that an Obligor
is not likely to resume payment under a Contract. A Trigger Event will be
deemed to have terminated with respect to a Payment Date if no Trigger Event
shall exist with respect to three consecutive Payment Dates (inclusive of the
respective Payment Date).
The Servicer may, from time to time after the date of this Prospectus
Supplement, request each Rating Agency to approve a formula for determining the
Reserve Fund Requisite Amount that is different from those described above and
would result in a decrease in the Reserve Fund Requisite
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Amount or the manner by which the Reserve Fund is funded. If each Rating Agency
delivers a letter to the Trustee to the effect that the use of any such new
formulation will not result in a qualification, reduction or withdrawal of its
then-current rating of the Class A Certificates and the Class B Certificates,
then the Reserve Fund Requisite Amount will be determined in accordance with
such new formula. The Agreement will accordingly be amended, without the
consent of any Certificateholder, to reflect such new calculation.
Amounts held from time to time in the Reserve Fund will continue to be
held for the benefit of the Certificateholders. Funds on deposit in the Reserve
Fund may be invested in Reserve Fund Permitted Investments (as defined in the
Agreement). Investment income on monies on deposit in the Reserve Fund will not
be available for distribution to Certificateholders or otherwise subject to any
claims or rights of the Certificateholders and will be paid to the Trust
Depositor. Any loss on such investments will be charged to the Reserve Fund.
If on any Payment Date the Class B Certificate Balance equals zero and
amounts on deposit in the Reserve Fund have been depleted as a result of losses
in respect of the Contracts, the protection afforded to the Class A
Certificateholders by the subordination of the Class B Certificates and by the
Reserve Fund will be exhausted and the Class A Certificateholders will bear
directly the risks associated with ownership of the Contracts.
Neither the Class B Certificateholders, the Seller nor the Servicer will
be required to refund any amounts properly distributed or paid to them, whether
or not there are sufficient funds on any subsequent Payment Date to make full
distributions to the Class A Certificateholders.
The Trust Depositor has established, and funded with an initial deposit
on the Closing Date, the Interest Reserve Account for the purpose of providing
additional funds (by payment to the Trust of Carrying Charges as described
below) to pay certain distributions on Payment Dates occurring during (and on
the first Payment Date following the end of) the Funding Period. In addition to
the initial deposit, all investment earnings with respect to the Pre-Funded
Amount are to be deposited into the Interest Reserve Account and, pursuant to
the Deposit Agreement, the Trust Depositor is obligated to pay to the Trust, on
each Payment Date described above, Carrying Charges from such account. The
Interest Reserve Account has been established to account for the fact that a
portion of the proceeds obtained from the sale of Certificates will be initially
deposited in the Pre-Funding Account (as the initial Pre-Funded Amount) rather
than invested in Contracts, and the monthly investment earnings on such
Pre-Funded Amount (until the Pre-Funded Amount is used to purchase Subsequent
Contracts) are expected to be less than the Class A Pass-Through Rate and Class
B Pass-Through Rate, with respect to the corresponding portion of the Class A
Certificate Balance and Class B Certificate Balance. The Interest Reserve
Account is not designed to provide any protection against losses on the
Contracts in the Trust. The Interest Reserve Account will not be a part of or
otherwise includible in the Trust and will be a segregated trust account held by
the Trust Depositor for the benefit of the Trustee. Any amounts held on deposit
in the Interest Reserve Account and any investment earnings thereon are owned
by, and will be taxable to, the Trust Depositor for federal income tax purposes.
After the Funding Period, money in the Interest Reserve Account will be released
to the Trust Depositor free and clear of the lien of the Security Agreement.
ADVANCES
The Servicer is obligated to advance each month an amount equal to
accrued and unpaid interest on the Contracts which was delinquent with respect
to the related Due Period, but only to the extent that the Servicer believes
that the amount of such Advance will be recoverable from collections on the
Contracts. The Servicer will deposit any Advances in the Collection Account no
later than the
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Determination Date. The Servicer will be entitled to recoup Advances on a
Contract by means of a first priority withdrawal from Available Funds on any
Payment Date.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to Certificateholders pursuant to
Article VIII of the Agreement, the Trustee, in its capacity as Certificate
Registrar and Paying Agent, shall cause to be mailed to each Certificateholder,
at the address appearing in the Certificate Register, a statement as of the
related Payment Date prepared by the Servicer setting forth:
(i) the amount distributed on such date and allocable to
principal of the Class A Certificates and Class B Certificates;
(ii) the amount distributed on such date and allocable to
interest on the Class A Certificates and Class B Certificates;
(iii) the amount of the Class A and Class B Principal and
Interest Carryover Shortfalls, if any, on such Payment Date and the
change in the Class A and Class B Principal and Interest Carryover
Shortfalls from the immediately preceding Payment Date;
(iv) the amount otherwise distributable to the Class B
Certificateholders that is instead distributed to the Class A
Certificateholders on such Payment Date;
(v) the amount of the distributions described in (i) or (ii)
above payable pursuant to a claim on the Reserve Fund or from any other
source not constituting Available Funds and the amount remaining in the
Reserve Fund after giving effect to all deposits and withdrawals from
the Reserve Fund on such date;
(vi) the amount of any Special Distribution to be made on
such Payment Date;
(vii) for each Payment Date during the Funding Period, the
remaining Pre-Funded Amount;
(viii) for each Payment Date during the Funding Period to and
including the Payment Date immediately following the end of the Funding
Period, the Principal Balance and number of Subsequent Contracts
conveyed to the Trust during the related Due Period;
(ix) the remaining Class A Certificate Balance and Class B
Certificate Balance after giving effect to the distribution of principal
(and Special Distribution, if any) to be made on such Payment Date;
(x) the Pool Balance as of the close of business on the last
day of the related Due Period;
(xi) the Class A Pool Factor and the Class B Pool Factor
immediately before and immediately after such Payment Date;
(xii) the amount of fees payable out of the Trust, separately
identifying the Monthly Servicing Fee, the Trustee Fee and the Back-up
Servicer Fee;
(xiii) the number and aggregate Principal Balance of Contracts
delinquent, 31-59 days, 60-89 days and 90 or more days, computed as of
the end of the related Due Period;
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(xiv) the number and aggregate Principal Balance of Contracts
that became Liquidated Contracts during the immediately preceding Due
Period, the amount of liquidation proceeds for such Due Period, the
amount of liquidation expenses being deducted from liquidation proceeds
for such Due Period, the Net Liquidation Proceeds and the Net
Liquidation Losses for such Due Period;
(xv) the Loss Ratio, the Average Loss Ratio, the Cumulative Loss
Ratio, the Delinquency Ratio, the Average Delinquency Ratio, the Default
Ratio and the Average Default Ratio as of such Payment Date;
(xvi) the number of Contracts and the aggregate Principal
Balance of such Contracts, as of the first day of the Due Period
relating to such Payment Date (after giving effect to payments received
during such Due Period and to any transfers of Subsequent Contracts to
the Trust occurring on or prior to such Payment Date);
(xvii) the aggregate Principal Balance and number of Contracts
that were repurchased by the Seller pursuant to the Agreement with
respect to the related Due Period, identifying such Contracts and the
Repurchase Price for such Contracts; and
(xviii) such other customary factual information as is available
to the Servicer as the Servicer deems necessary and can reasonably
obtain from its existing data base to enable Certificateholders to
prepare their tax return.
Within 75 days after the end of each calendar year, the Certificate
Registrar shall mail to each Certificateholder of record at any time during such
calendar year a report as to the aggregate amounts reported pursuant to
subsections (a)(i), (ii), and (xii) described above attributable to such
Certificateholder and such other information as is reasonably necessary for the
preparation of such Certificateholder's income tax return in respect of the
Certificates for such calendar year.
ANNUAL STATEMENT OF COMPLIANCE FROM SERVICER
The Servicer will deliver to the Trustee, Moody's and S&P on or before
January 31 of each year commencing January 31, 199_, an officer's certificate
stating that (a) a review of its activities during the prior calendar year and
of its performance under the Agreement was made under the supervision of the
officer signing such certificate and (b) to such officer's knowledge, based on
such review, the Servicer has fully performed all its obligations under the
Agreement throughout such period, or, if there has been a default in the
performance of any such obligation, specifying each such default known to such
officer and the nature and status thereof. A copy of such certificate may be
obtained by any Certificateholder by a request in writing to the Trustee
addressed as follows: 311 West Monroe Street, 12th Floor, Chicago, Illinois
60606, Attention: Indenture Trust Division.
REPURCHASE OPTION
The Agreement will provide that on any Payment Date on which the
aggregate of the Class A and Class B Certificate Balance is less than 10% of the
Class A and Class B Initial Certificate Principal Balance, the Seller will have
the option to repurchase, on 20 days' prior written notice to the Trustee, all
outstanding Contracts at a price equal to the Class A and Class B Certificate
Balance on the prior Payment Date plus the aggregate of the Class A Interest
Distributable Amount and the Class B Interest Distributable Amount for the
current Payment Date as well as the accrued and unpaid Monthly Servicing Fee,
Trustee Fee, Back-up Servicer Fee and unreimbursed Advances to the date of such
repurchase. Such repurchase will effect an early termination of the Trust. The
Trustee shall send written notice to
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each Certificateholder of the Seller's intention to repurchase such Contracts
within five Business Days of the Trustee's receipt of written notice from the
Seller of the Seller's intention.
MANDATORY SPECIAL DISTRIBUTIONS
The Class A Certificates and Class B Certificates will be prepaid in part
pursuant to a Mandatory Special Distribution, without premium, on the Payment
Date on or immediately following the last day of the Funding Period in the event
that any amount remains on deposit in the Pre-Funding Account after giving
effect to the purchase of all Subsequent Contracts, including any such purchase
on such date. The aggregate principal amount of Class A Certificates and Class
B Certificates to be prepaid will be an amount equal to the amount then on
deposit in the Pre-Funding Account multiplied by the Class A Percentage and
Class B Percentage, respectively.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will manage, administer, service and make collections on
the Contracts exercising the degree of skill and care consistent with the
highest degree of skill and care that the Servicer exercises with respect to
similar contracts serviced by the Servicer and in any event with no less degree
of skill and care than would be exercised by a prudent servicer of motorcycle
conditional sales contracts.
The Servicer may, consistent with its customary servicing procedures,
grant to the Obligor on any Contract an extension of payments due under such
Contract; PROVIDED that (i) the extension period is limited to 45 days, (ii) and
the Obligor has not received an extension during the previous twelve-month
period, (iii) the evidence supports the Obligor's willingness and capability to
resume monthly payments, (iv) such extension is consistent with the Servicer's
customary servicing procedures and with the Agreement, (v) such extension does
not extend the maturity date of the Contract beyond the last maturity date of
any of the Contracts as of the Initial Cutoff Date (or as of the last Subsequent
Cutoff Date, if any) and (vi) the aggregate Principal Balances of Contracts
which have had extensions granted does not exceed more than 3% of the aggregate
of the Class A Initial Certificate Principal Balance and the Class B Initial
Certificate Principal Balance.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to receive a Monthly Servicing Fee for
each Due Period (to be paid on the related Payment Date) equal to 1/12th of
[_______%] of the Principal Balance of the Contracts as of the beginning of such
Due Period. Along with the Monthly Servicing Fee, and included as part of the
"SERVICING FEE" as defined in the Agreement, the Servicer will be entitled to
receive late payment penalty fees and extension fee paid by Obligors during the
related Due Period as additional compensation. Such Servicing Fee is payable
from Available Interest prior to the payment from such Available Interest of
interest and/or principal on the Certificates. See "DESCRIPTION OF THE
CERTIFICATES -- DISTRIBUTIONS ON CERTIFICATES" above.
The Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the Trust, for
additional administrative services performed by the Servicer on behalf of the
Trust and for expenses paid by the Servicer on behalf of the Trust.
Customary servicing activities include collecting and recording
payments, communicating with Obligors, investigating payment delinquencies,
providing billing and tax records to Obligors and maintaining internal records
with respect to each Contract. Administrative services performed by the
Servicer on behalf of the Trust include selecting and packaging the Contracts,
calculating distributions to Certificateholders and providing related data
processing and reporting services for Certificateholders
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and on behalf of the Trustee. Expenses incurred in connection with servicing of
the Contracts and paid by the Servicer from its servicing fees include payment
of fees and expenses of accountants, payments of all fees and expenses incurred
in connection with the enforcement of Contracts, and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
INDIVIDUAL MOTORCYCLE INSURANCE
The terms of each Contract require that for the life of the Contract,
each Motorcycle is covered by a collision and comprehensive or equivalent
insurance policy which covers physical damage risks, provides limited insurance
coverage for damage to the Motorcycle and names the Seller as a loss payee. The
amount of insurance coverage is limited to the value of the Motorcycle. In the
Transfer and Sale Agreement, the Seller has warranted that all premium payments
on such insurance have been paid in full for one year from the date of the
Contracts' origination. Pursuant to Contract terms, the Servicer may "FORCE
PLACE" collision and comprehensive insurance with respect to the related
Motorcycle in those situations in which the Obligor has not maintained the
required insurance. As conveyee and assignee of the Contracts, the Trust will
be entitled to the benefits of such insurance. See "DESCRIPTION OF THE
CERTIFICATES--CONVEYANCE OF CONTRACTS." Following repossession of a Motorcycle
by the Servicer, the Servicer does not maintain such insurance. In the event
the Servicer repossesses a Motorcycle on behalf of the Trust, the Servicer will
act as self-insurer for any damage to such Motorcycle until it is resold.
EVIDENCE AS TO COMPLIANCE
On or before March 31 of each year, beginning on March 31, 199_, the
Servicer will deliver to the Trustee and each Rating Agency a report of a
nationally recognized accounting firm, with respect to the twelve months ended
the immediately preceding December 31, a statement (the "ACCOUNTANT'S REPORT")
addressed to the Board of Directors of the Servicer and to the Trustee to the
effect that such firm has audited the consolidated financial statements of
Eaglemark Financial and issued its report thereon and that such audit (1) was
made in accordance with generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other auditing procedures
as such firm considered necessary in the circumstances; (2) included an
examination of documents and records relating to the servicing of motorcycle
conditional sales contracts under pooling and servicing agreements substantially
similar one to another (such statement to have attached thereto a schedule
setting forth the pooling and servicing agreements covered thereby, including
the Agreement); (3) included an examination of the delinquency and loss
statistics relating to the portfolio of motorcycle conditional sales contracts
of Eaglemark Financial and its subsidiaries; and (4) except as described in the
statement, disclosed no exceptions or errors in the records relating to
motorcycle loans serviced for others that, in the firm's opinion, generally
accepted auditing standards requires such firm to report. The Accountant's
Report will further state that (1) a review in accordance with agreed upon
procedures was made of one randomly selected Monthly Report and (2) except as
disclosed in the Accountant's Report, no exceptions or errors in the Monthly
Report so examined were found.
The Agreement provides that the Servicer shall furnish to the Trustee,
S&P and Moody's such underlying data as each may reasonably request.
CERTAIN MATTERS RELATING TO THE SERVICER
The Agreement provides 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 the
Agreement or applicable law, and will prohibit the Servicer from extending
credit to any Certificateholder for the purchase of a Certificate, purchasing
Certificates in any agency or trustee capacity or, except as provided in the
Agreement, lending money to the Trust.
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EVENTS OF TERMINATION
An "EVENT OF TERMINATION" under the Agreement will occur if (a) either
the Servicer or the Seller fails to make any payment or deposit required under
the Certificates, the Agreement or the Transfer and Sale Agreement and such
failure continues for four Business Days after the date on which such payment or
deposit was due; (b) either the Servicer or the Seller fails to observe or
perform in any material respect any covenant or agreement in the Certificates,
the Agreement or the Transfer and Sale Agreement which continues unremedied for
thirty days after the date on which such failure commences; (c) either the
Servicer or the Seller assigns its duties or rights under the Agreement or the
Transfer and Sale Agreement, except as specifically permitted under the
Agreement or the Transfer and Sale Agreement, or attempts to make such an
assignment; (d) a court having jurisdiction in the premises enters a decree or
order for relief in respect of the Servicer or Trust Depositor in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Servicer, or Trust
Depositor, or for any substantial liquidation of their respective affairs; (e)
the Servicer or Trust Depositor commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an order for
relief in an involuntary case under any such law, or consents to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian
or sequestrator (or other similar official) of the Servicer or Trust Depositor
or for any substantial part of its property or shall have made any general
assignment for the benefit of creditors, or fails to, or admits in writing its
inability to, pay debts as they become due, or takes any corporate action in
furtherance of the foregoing; (f) the failure of the Servicer to deliver the
Monthly Report pursuant to the terms of the Agreement and such failure remains
uncured for five business days after the date on which such failure commences;
or (g) any representation, warranty or statement of the Servicer made in the
Agreement or any certificate, report or other writing delivered pursuant thereto
shall prove to be incorrect in any material respect as of the time when the same
shall have been made and the incorrectness of such representation, warranty or
statement has a material adverse effect on the Trust and, within 30 days after
written notice thereof shall have been given to the Servicer or the Trust
Depositor by the Trustee, the circumstances or condition in respect of which
such representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured. The Servicer will be required under the
Agreement to give the Trustee, Moody's, S&P, the Back-up Servicer and the
Certificateholders notice of an Event of Termination promptly upon the
occurrence of such Event.
RIGHTS UPON AN EVENT OF TERMINATION
If an Event of Termination has occurred and is continuing, (a) the
Trustee or (b) the holders of Certificates with aggregate Fractional Interests
evidencing 25% or more of the Trust may terminate all of the Servicer's
management, administrative, servicing, custodian and collection functions under
the Agreement. Upon such termination, the Back-up Servicer will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Agreement
and will be entitled to similar compensation arrangements; PROVIDED, HOWEVER,
that the Back-up Servicer will not assume any obligation of the Seller to
repurchase Contracts for breach of representations and warranties, and the
Back-up Servicer will not be liable for any acts or omissions of the Servicer
occurring prior to a transfer of the Servicer's servicing and related functions
or for any breach by the Servicer of any of its representations and warranties
contained in the Agreement or any related document or agreement.
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. No such termination will affect in any manner the
Seller's obligation to repurchase certain Contracts for breaches of
representations and warranties under the Agreement. In the event that the
Back-up Servicer in so acting would be in violation of legal requirements with a
resulting material adverse effect upon it, it may resign such role and if a
successor has not been appointed within 60 days, it may petition a court of
competent jurisdiction for its removal.
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Following an Event of Termination, the Trustee shall terminate the
Lockbox Agreement and direct all Obligors under the Contracts to make all
payments under the Contracts to the Trustee, or to a lockbox established by the
Trustee.
TERMINATION OF THE AGREEMENT
The Agreement will terminate (after distribution of all Class A
Distributable Amounts and Class B Distributable Amounts due to Class A
Certificateholders and Class B Certificateholders) on the Payment Date on which
the Class A Certificate Balance and Class B Certificate Balance is reduced to
zero; PROVIDED, that in no event shall the trust created hereby continue beyond
the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of St. James, living on the date hereof. "DESCRIPTION OF THE
CERTIFICATES--REPURCHASE OPTION" above. However, the Seller's representations,
warranties and indemnities will survive any termination of the Agreement. Upon
termination, amounts in the Collection Account, if any, will be paid to the
Seller. See "DESCRIPTION OF THE CERTIFICATES--SERVICING COMPENSATION AND
PAYMENT OF EXPENSES" above.
AMENDMENT; WAIVER
The Agreement may be amended by agreement of the Trustee, the Servicer
and the Trust Depositor at any time without the consent of the
Certificateholders to correct manifest error, to cure any ambiguity, to correct
or supplement any provision which may be inconsistent with any other provision
or to add other provisions not inconsistent with the Agreement upon receipt of
an opinion of counsel to the Trust Depositor that such amendment will not
adversely affect in any material respect the interests of any Certificateholder.
The Agreement may also be amended from time to time by the Trustee, the
Servicer and the Trust Depositor, and with the consent of Certificateholders
evidencing Fractional Interests representing 66-2/3% or more of the Certificate
Principal Balance of each Class voting as a separate Class PROVIDED that no
such amendment or waiver shall (a) reduce in any manner the amount of, or delay
the timing of, collections of payments on Contracts or distributions which are
required to be made on any Certificate or (b) reduce the aggregate amount of
Certificates required for any amendment of the Agreement on any waiver of an
Event of Termination, without unanimous consent of the Certificateholders.
The Trustee is required under the Agreement to furnish
Certificateholders, S&P and Moody's with notice promptly upon execution of any
amendment to the Agreement and a copy of any such amendment.
INDEMNIFICATION
The Agreement will provide that the Servicer will defend and indemnify
the Trust, the Trustee (including any agent of the Trustee), and the
Certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation arising out of or resulting from the use, ownership or operation
by the Servicer or any affiliate thereof of any Motorcycle securing a Contract.
The Transfer and Sale Agreement further provides that the Seller will pay any
taxes and defend, indemnify and hold harmless the Trust, the Trustee (including
any agent of the Trustee) 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 for any taxes which may at any
time be asserted with respect to the conveyance of the Contracts to the Trust
(but not including any federal, state or other tax arising out of the creation
of the Trust and the issuance of the Certificates).
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The Agreement will also provide that the Servicer, in connection with
its duties as servicer of the Contracts, will defend and indemnify the Trust,
the Trustee and the Certificateholders (which indemnification will survive any
removal of the Seller as Servicer of the Contracts) against any and all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel and expenses of litigation, in respect of any action taken
by the Servicer with respect to any Contract.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of the Agreement, the Certificates or of any Contract, Contract file
or related documents, and will not be accountable for the use or application by
the Trust Depositor of any funds paid to the Trust Depositor in consideration of
the conveyance of the Contracts or deposited into or withdrawn from the
Collection Account by the Servicer. If no Event of Termination has occurred,
the Trustee will be required to perform only those duties specifically required
of it under the Agreement and will not be personally liable for any actions
taken, suffered or omitted by it in good faith with the direction of
Certificateholders evidencing Fractional Interests representing at least 25% of
the Certificate Principal Balance of each Class voting as a separate Class.
However, upon receipt of the various certificates, reports 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 Agreement.
Certificateholders with Fractional Interests representing 25% or more
of the Certificate Principal Balance of each Class voting as a separate Class
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee under the Agreement, or
exercising any trust or power conferred on the Trustee under the Agreement,
except that the required percentage for waivers of Events of Termination shall
be more than 50% of each Class voting as a separate Class.
Under the Agreement the Servicer will agree to indemnify the Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the Trust and its duties thereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties thereunder.
The Agreement also provides that the Trustee will maintain at its
expense in Chicago, Illinois, an office or agency where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustee and the certificate registrar and transfer agent
in respect of the Certificates pursuant to the Agreement may be served. On the
date hereof the Trustee's office for such purposes is located at 311 West Monroe
Street, 12th Floor, Chicago, Illinois 60606. The Trustee will promptly give
written notice to the Trust Depositor and the Certificateholders of any change
thereof.
THE TRUSTEE
The Trustee is an Illinois banking corporation. The Trustee may resign
at any time, in which event the Servicer will be obligated to appoint a
successor Trustee. The Servicer may also remove the Trustee if the Trustee
ceases to be eligible to continue as such under the Agreement or if the Trustee
becomes insolvent. In such circumstances, the Servicer 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. For its services under the Agreement,
the Trustee will receive the Trustee's Fee.
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SECURITY INTERESTS AND OTHER ASPECTS OF THE CONTRACTS;
REPURCHASE OBLIGATIONS
GENERAL
As a result of the Seller's conveyance and assignment of the Contracts
to the Trust Depositor pursuant to the Transfer and Sale Agreement and the Trust
Depositor's conveyance and assignment of the Contracts to the Trust pursuant to
the Agreement, the Certificateholders, through the Trust, will succeed
collectively to all of the rights under such Contracts (including the right to
receive payment on the Contracts) on or after the related Cutoff Date. Each
Contract evidences both (a) the obligation of the Obligor to repay the loan
evidenced thereby and (b) the grant of a security interest in the Motorcycle to
secure repayment of such loan. Certain aspects of both features of the
Contracts are more fully described below.
The Contracts are "CHATTEL PAPER" as defined in the Uniform Commercial
Code (the "UCC") in effect in the states in which the Motorcycles were initially
registered. Pursuant to the UCC, the sale of chattel paper is treated in a
manner similar to perfection of a security interest in chattel paper. The
Seller and the Trust Depositor will make an appropriate filing of UCC-1
financing statements in Nevada and Illinois to give notice of the Trust's
ownership of the Contracts, and the Contracts held by the Servicer as custodian
will be stamped to reflect their conveyance and assignment from the Seller to
the Trust Depositor and the Trust Depositor to the Trust. However, if a
subsequent purchaser were able to take physical possession of any Contracts
without notice of such conveyance and assignment, the Trust's interest in those
Contracts could be defeated. See "DESCRIPTION OF THE CERTIFICATES--CONVEYANCE
OF CONTRACTS" above.
SECURITY INTERESTS IN THE MOTORCYCLES
The Motorcycles securing the Contracts are located in 50 states, the
District of Columbia and the U.S. Territories. Security interests in
motorcycles may be perfected either by notation of the secured party's lien on
the certificate of title or by delivery of the required documents and payment of
a fee to the state motor vehicle authority, depending on state law. The
Seller's practice is to effect such notation or delivery of the required
documents and fees, and to obtain possession of the certificate of title, as
appropriate under the laws of the state in which any Motorcycle securing a
Motorcycle conditional sales contract is registered. In the event either the
Seller fails, due to clerical error, to effect such notation or delivery, or
files the security interest under the wrong law, the Seller may not have a first
priority security interest in the Motorcycle securing a Contract. In such
event, the only recourse of the Trust would be against the Seller pursuant to
its repurchase obligation. See "SECURITY INTEREST AND OTHER ASPECTS OF THE
CONTRACTS; REPURCHASE OBLIGATIONS--REPURCHASE OBLIGATIONS" below. However, the
Seller believes that it has obtained a perfected first priority security
interest by proper notation or delivery of the required documents and fees with
respect to all of the Motorcycles securing Contracts.
The Seller will convey and assign its security interest in the
Motorcycles to the Trust Depositor pursuant to the Transfer and Sale Agreement,
and the Trust Depositor will convey and assign its security interest in the
Motorcycles to the Trust pursuant to the Agreement. However, because of the
administrative burden and expense, neither the Seller, the Trust Depositor nor
the Trustee will amend the certificates of title to identify the Trust as the
new secured party and, accordingly, the Seller will continue to be named as the
secured party on the certificates of title relating to the Motorcycles. See
generally "RISK FACTORS--RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED
MOTORCYCLES" in the Prospectus. The Seller, as Servicer, will continue to hold
any certificates of title relating to the Motorcycles in its possession as
custodian and agent for the Trust pursuant to the Agreement.
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In the event that the owner of a Motorcycle moves to a state other than
the state in which such Motorcycle initially is registered, under the laws of
most states the perfected security interest in the Motorcycle would continue for
four months after such relocation and thereafter until the owner re-registers
the motorcycle in such state. A majority of states generally require surrender
of a certificate of title to re-register a motorcycle; accordingly, the Servicer
must surrender possession if it holds the certificate of title to such
Motorcycle or, in the case of Motorcycles registered in states which provide for
notation of lien, the Seller would receive notice of surrender if the security
interest in the Motorcycle is noted on the certificate of title. Accordingly,
the Servicer would have the opportunity to re-perfect its security interest in
the Motorcycle in the state of relocation. In states which do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing its portfolio of
Motorcycle conditional sales contracts, the Servicer takes steps to effect such
re-perfection upon receipt of notice of re-registration or information from the
obligor or the obligor's insurance carrier as to relocation. Similarly, when an
obligor under a Motorcycle conditional sales contract sells a Motorcycle, the
Servicer must surrender possession of the certificate of title or will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related Motorcycle conditional sales
contract before release of the lien. Under the Agreement, the Servicer is
obligated to take such steps, at its expense, as are necessary to maintain
perfection of security interests in the Motorcycles.
Under the laws of most states, liens for repairs performed on a
motorcycle take priority even over a perfected security interest. The Seller
will represent in the Transfer and Sale Agreement that as of the sale date of
the Contracts, it has no knowledge of any such liens with respect to any
Motorcycle securing payment on any Contract. However, such liens could arise at
any time during the term of a Contract. No notice will be given to the Trust or
Certificateholders in the event such a lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN MOTORCYCLES
The Servicer on behalf of the Trust may take action to enforce the
Trust's security interest with respect to defaulted Contracts by repossession
and resale of the Motorcycles securing such defaulted Contracts. Under the laws
applicable in most states, a creditor can repossess a motorcycle securing a
contract by voluntary surrender, by "SELF-HELP" repossession that is "PEACEFUL"
(I.E., without breach of the peace) or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
The UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. In the event of such
repossession and resale of a Motorcycle, the Trust would be entitled to be paid
out of the sale proceeds before such proceeds could be applied to the payment of
the claims of unsecured creditors or the holders of subsequently perfected
security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
OTHER MATTERS
The so-called "HOLDER-IN-DUE-COURSE" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise
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to the transaction (and certain related lenders' assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule, which would be applicable to the Trust, is limited to amounts paid under a
Contract; however, the Obligor also may be able to assert the rule to set off
remaining amounts due as a defense against a claim brought by the Trust against
such Obligor. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination of and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to comply with
their provisions may affect the enforceability of the related Contract. See
generally "RISK FACTORS--ADDITIONAL LEGAL LIMITS ON THE APPLICABLE TRUSTEE'S
ABILITY TO REALIZE ON ITS SECURITY INTEREST IN THE MOTORCYCLES; CONSUMER
PROTECTION LAWS" in the Prospectus.
REPURCHASE OBLIGATIONS
Under the Transfer and Sale Agreement, the Seller will make warranties
relating to validity, subsistence, perfection and priority of the security
interest in each Motorcycle securing a Contract. Accordingly, if any defect
exists in the perfection of the security interest in any Motorcycle and such
defect materially adversely affects a Contract, such defect would constitute a
breach of a representation and warranty under the Transfer and Sale Agreement
and would create an obligation of the Seller to repurchase such Contract from
the Trust unless the breach is cured. See "DESCRIPTION OF THE
CERTIFICATES--CONVEYANCE OF CONTRACTS" above.
In addition, the Seller will also warrant under the Transfer and Sale
Agreement that each Contract complies with all requirements of law.
Accordingly, if any Obligor has a claim against the Trust for violation of any
law and such claim materially adversely affects the Trust's interest in a
Contract, such violation would constitute a breach of a representation and
warranty under the Transfer and Sale Agreement and would create an obligation to
repurchase such Contract unless the breach is cured. See "DESCRIPTION OF THE
CERTIFICATES--CONVEYANCE OF CONTRACTS" above.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general and brief discussion of certain United States
federal income tax consequences of the purchase, ownership and disposition of
the Certificates. For a full description of the material federal income tax
consequences of the ownership of the Certificates in the Trust, see the
Prospectus, "Federal Income Tax Consequences--Grantor Trusts." Any material
variations from the discussion in the Prospectus, "Federal Income Tax
Consequences--Grantor Trusts" will be specified below.
The discussion herein is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), Treasury Regulations promulgated
thereunder, current administrative rulings, judicial decisions and other
applicable authorities in effect as of the date hereof, all of which are subject
to change, possibly with retroactive effect. There are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving a trust and
instruments issued by that trust with terms similar to those of the Trust and
the Certificates. As a result, there can be no assurance that the IRS will not
challenge the conclusions set forth in the following summary, and no ruling from
the IRS has been or will be sought on any of the issues discussed below.
Furthermore, legislative, judicial or administrative changes may occur, perhaps
with retroactive effect, which could affect the accuracy of the statements and
conclusions set forth herein as well as the tax consequences to holders of
the Certificates.
This discussion and the more detailed discussion set forth in the
Prospectus, "Federal Income Tax Consequences--Grantor Trusts," do not purport to
deal with all aspects of federal income taxation that may be relevant to all
holders of Certificates in light of their personal investment or tax
circumstances nor to certain types of holders who may be subject to special
treatment under the federal income tax laws (including, without limitation,
financial institutions, broker-dealers, insurance companies, foreign persons,
tax-exempt organizations and persons who hold the Certificates as part of a
straddle, hedging or conversion transaction). This information is generally
directed to prospective purchasers who purchase Certificates at the time of
original issue, who are citizens or residents of the United States, and who hold
the Certificates as "CAPITAL ASSETS" within the meaning of Section 1221 of the
Code. Taxpayers and preparers of tax returns (including those filed by any
partnership or other issuer) 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,
taxpayers 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. PROSPECTIVE INVESTORS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL,
FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CERTIFICATES.
TAX CHARACTERIZATION OF THE TRUST
Winston & Strawn, as federal tax counsel ("FEDERAL TAX COUNSEL") to the
Trust Depositor, has delivered an opinion to the Trust Depositor that for U.S.
federal income tax purposes the Trust will be classified as a grantor trust and
not as an association taxable as a corporation, and that each Certificateholder
will be treated as the owner of an undivided interest in the assets and income
of the Trust. An opinion of counsel is not binding on a court or the IRS and
there can be no assurance that the IRS or a court will agree with Federal Tax
Counsel's opinion.
GENERAL TAX TREATMENT OF CERTIFICATEHOLDERS
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As a grantor trust, each Certificateholder will be treated as the owner
of an undivided interest in the assets of the Trust, including the Contracts.
Accordingly, each Certificateholder must report on its federal income tax return
its share of income from the Contracts and other Trust assets and, subject to
the limitations on deductions by individuals, estates, and trusts, may deduct
its share of the reasonable fees and expenses paid by the Trust, as if such
Certificateholder held its share of the assets of the Trust directly.
The Certificates will be treated as representing interests in stripped
bonds and stripped coupons within the meaning of Section 1286 of the Code. As a
result, Certificateholders will be treated as having original issue discount
("OID") which is includible in income as it economically accrues regardless of
when cash is actually paid. It is expected, however, that the amount and
accrual of OID should closely correspond to the timing and amount of payments on
the Certificates at their respective pass-through rates so that a
Certificateholder will not experience any material difference between the cash
received at the pass-through rate and the Certificateholder's taxable OID
income. A Certificateholder will recognize gain or loss when the
Certificateholder sells a Certificate or an asset of the Trust is sold. For a
complete discussion of the federal tax consequences of owning a Certificate in
the Trust, see Prospectus, "Federal Income Tax Consequences--Grantor Trusts."
ERISA CONSIDERATIONS
THE CLASS A CERTIFICATES
THE CLASS A CERTIFICATES DURING THE FUNDING PERIOD. During the Funding
Period, the Class A Certificates may not be acquired by any employee benefit
plan subject to ERISA or Section 4975 of the Code.
THE CLASS A CERTIFICATES AFTER THE FUNDING PERIOD. Notwithstanding the
above described restriction which is applicable solely during the Funding
Period, the following analysis is applicable to a Class A Certificate after the
Funding Period. ERISA and Section 4975 of the Code impose certain restrictions
on employee benefit plans subject to ERISA and/or subject to the requirements of
Section 4975 of the Code (including, for example, individual retirement accounts
and Keogh plans) (collectively, "PLANS"), and on persons who are "PARTIES IN
INTEREST" (as defined under ERISA) or "DISQUALIFIED PERSONS" (as defined under
the Code) (collectively, "PARTIES IN INTEREST") with respect to such Plans.
Certain employee benefit plans, such as governmental plans and church plans
(assuming that no election has been made under Section 410(d) of the Code) are
not subject to the restrictions of ERISA or Section 4975 of the Code. However,
any such governmental or church plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code is subject to
the prohibited transaction rules set forth under Section 503 of the Code and may
be subject to additional fiduciary constraints under applicable state or local
law.
Investments by Plans covered by ERISA are subject to general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with both the documents governing the Plan and the prohibited
transaction provisions of ERISA and the Code. Any Plan fiduciary which proposes
to cause a Plan to acquire any of the Certificates should consult with its
counsel with respect to the potential consequences under ERISA and the Code of
the Plan's acquisition and ownership of such Certificates.
PLAN ASSETS. If a Plan acquires a Certificate, then the Plan's assets
may include both the Certificate it acquires and an undivided interest in the
underlying assets of the Trust. Accordingly, the acquisition of a Certificate
might constitute an improper delegation by such Plan's fiduciary of the duty to
manage Plan assets. ERISA and the Code do not define "PLAN ASSETS." The United
States Department of Labor (the "DOL") has issued a final regulation (29 C.F.R.
Section 2510.3-101) (the "PLAN ASSET
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REGULATION") containing rules for determining what constitutes the assets of a
Plan. The Plan Asset Regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships or trusts may be
deemed to be "PLAN ASSETS" unless certain exceptions apply. This offering has
not been structured to avoid plan asset characterization. If the underlying
assets of the Trust are considered "PLAN ASSETS," the persons providing services
with respect to the assets of the Trust may be subject to the fiduciary
responsibility provisions of Title I of ERISA and be subject to the prohibited
transaction provisions of ERISA and the Code with respect to transactions
involving such assets unless such transactions are subject to a statutory or
administrative exemption.
PROHIBITED TRANSACTIONS. Each fiduciary should also be aware that
Section 406 of ERISA and Section 4975 of the Code prohibit a Plan from engaging
in certain transactions involving the assets of the Plan with a person or entity
that is a "PARTY IN INTEREST" to the Plan ("PROHIBITED TRANSACTIONS"). A "PARTY
IN INTEREST" is defined to include, among others, a fiduciary of the Plan, a
service provider to the Plan, an employer of participants in the Plan and
certain affiliates of such parties. Section 4975 of the Code (or, in some
cases, Section 502 of ERISA) imposes substantial excise taxes on parties in
interest engaging in non-exempted prohibited transactions. A purchase or
holding of a Certificate by a Plan could result in a prohibited transaction;
however, such purchase or holding may be exempt from the prohibited transaction
restrictions in accordance with certain exemptions promulgated by the DOL.
UNDERWRITERS PROHIBITED TRANSACTION EXEMPTION. DOL has granted to the
Underwriters an administrative exemption (Prohibited Transaction Exemption
89-89; Exemption Application No. D-6446, 54 Fed. Reg. 42589 (1989)) (the
"EXEMPTION") from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of certificates in pass-through trusts that consist of certain
receivables, loans, and other obligations that meet the conditions and
requirements of the Exemption. The loans covered by the Exemption include
obligations that bear interest or are purchased at a discount and which are
secured by motor vehicles or equipment or qualified motor vehicle leases such as
the Contracts. It should be noted, however, that in issuing the exemption, the
DOL may not have considered interests in pools of the exact nature of the
Certificates.
Among the conditions that must be satisfied for the Exemption to apply
to the acquisition of the Certificates by a Plan are the following:
(1) the acquisition of the Certificates by a Plan is on
terms (including the price for the Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party;
(2) the rights and interest evidenced by the Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other Certificates of the Trust;
(3) the Certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of the three highest
generic rating categories from either S&P, Moody's, Duff & Phelps Inc.
("D&P") or Fitch Investors Service, Inc. ("FITCH");
(4) the Trustee must not be an affiliate of any other member
of the Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
Placement Agent in connection with the distribution of the Certificates
represents not more than reasonable compensation for placing the
Certificates; the sum of all payments made to and retained by the Trust
Depositor pursuant to the assignment of the Contracts to the Trust
represents not more than the fair market value of such Contracts; the
sum of all payments made to and retained by
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the Servicer represents not more than reasonable compensation for such
person's services under the Agreement and reimbursements of such
person's reasonable expenses in connection therewith; and
(6) the Plan investing in the Certificates is an "ACCREDITED
INVESTOR" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
In light of the foregoing requirements listed in (2) and (3), following the
expiration of the Funding Period only the Class A Certificates may be eligible
for the Exemption.
The trust fund (I.E., in the case of the Certificates, the Trust) must
also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or D&P for
at least one year prior to the Plan's acquisition of Certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Certificates.
Moreover, the Exemption may provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group; (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent or less of the fair market
value of the obligations contained in the trust; (iii) the Plan's investment in
certificates of any class does not exceed twenty-five percent (25%) of all of
the certificates of that class outstanding at the time of the acquisition; and
(iv) immediately after the acquisition, no more than twenty-five percent (25%)
of the assets of the Plan with respect to which such person is a fiduciary are
invested in certificates representing an interest in one or more trusts
containing assets sold or served by the same entity.
The Exemption does not apply to Plans sponsored by the Trust Depositor,
the Placement Agent, the Trustee, the Servicer, the Paying Agent, the
Certificate Registrar, any insurer of the assets of the Trust, any Obligor with
respect to Contracts included in the Trust constituting more than five percent
(5%) of the aggregate unamortized principal balance of the assets in the Trust,
or any affiliate of such parties (the "RESTRICTED GROUP").
Prospective Plan Investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption
or any other administrative exemption from the prohibited transaction provisions
of ERISA and the Code, and the potential consequences in their specific
circumstances, prior to making an investment in the Certificates. Moreover,
each Plan fiduciary should determine whether under the general fiduciary
standards of investment procedure and diversification an investment in the
Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
S-59
<PAGE>
THE CLASS B CERTIFICATES
The Class B Certificates may not be acquired or held by any employee
benefit plan, individual retirement account or Keogh plan subject to ERISA or
Section 4975 of the Code, other than after the Funding Period by an insurance
company using assets of its general account under circumstances in which such
purchase and holding of such Certificates would be exempt from the prohibited
transaction provision of ERISA and the Code under Prohibited Transaction Class
Exemption 95-60.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement dated [ ], 199_, among the Seller, Trust Depositor and the
Underwriters (the "UNDERWRITING AGREEMENT"), the Seller has agreed to cause the
Trust to sell to the Underwriters named below (the "UNDERWRITERS"), and the
Underwriters have agreed to purchase, the principal amount of the Certificates
set forth below.
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Certificates, Certificates,
Underwriter Class A Class B
- ----------- ------- -------
<S> <C> <C>
Salomon Smith Barney Inc. $ $
------- -------
Total $ $
--------- ---------
--------- ---------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Certificates
if any Certificates are purchased. In the event of default by the Underwriters,
the Underwriting Agreement provides that, in certain circumstances, the
Underwriting Agreement may be terminated.
Distribution of the Certificates may be made by the Underwriters from
time to time in one or more negotiated transactions, or otherwise, at varying
prices to be determined at the time of sale. The Underwriters may effect such
transactions by selling the Certificates to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters. In connection with the sale of the
Certificates, the Underwriters may be deemed to have received compensation from
the Seller in the form of underwriting compensation. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the
Certificates may be deemed to be an Underwriter and any commissions received by
them and any profit on the resale of the Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
If the Underwriters create a short position in the Certificates in
connection with the offering, I.E., if they sell more Certificates than are set
forth on the cover page of this Prospectus Supplement, the Underwriters may
reduce that short position by purchasing Certificates in the open market.
In general, purchases of a security to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases.
S-60
<PAGE>
Neither the Seller nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above, if engaged in, may have on the prices of the Certificates. In
addition, neither the Seller nor the Underwriters make any representation that
the Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Underwriters have represented and agreed that (i) they have not
offered or sold and, prior to the expiration of the period of six months from
the Closing Date, will not offer or sell any Certificates to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulation 1995;
(ii) they have complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by them in relation to
the Certificates in, from or otherwise involving the United Kingdom; and (iii)
they have only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue of the
Certificates to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995,
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The Underwriting Agreement provides that the Seller and Trust Depositor
will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or contribute to payments the Underwriters
may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will
be passed upon for the Seller, Servicer, Trust Depositor and the Trust by
Winston & Strawn, Chicago, Illinois. Certain legal matters will be passed upon
for the Underwriters by Brown & Wood LLP, New York, New York.
S-61
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Accountant's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
APR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Available Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Available Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Available Principal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Average Default Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . .33
Average Delinquency Ratio. . . . . . . . . . . . . . . . . . . . . . . . .33
Average Loss Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Buell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Carrying Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 1
Class A Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . 3
Class A Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . 2
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .1, 1
Class A Distributable Amount . . . . . . . . . . . . . . . . . . . . . . .30
Class A Initial Certificate Balance. . . . . . . . . . . . . . . . . . . . 1
Class A Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . 3
Class A Interest Distributable Amount. . . . . . . . . . . . . . . . . . . 2
Class A Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . .2, 2
Class A Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 1
Class A Principal Carryover Shortfall. . . . . . . . . . . . . . . . . . . 5
Class A Principal Distributable Amount . . . . . . . . . . . . . . . . . . 4
Class B Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . 3
Class B Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . 2
Class B Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .1, 1
Class B Distributable Amount . . . . . . . . . . . . . . . . . . . . . . .30
Class B Initial Certificate Balance. . . . . . . . . . . . . . . . . . . . 1
Class B Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . 3
Class B Interest Distributable Amount. . . . . . . . . . . . . . . . . . . 2
Class B Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . .2, 2
Class B Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 1
Class B Principal Carryover Shortfall. . . . . . . . . . . . . . . . . . . 5
Class B Principal Distributable Amount . . . . . . . . . . . . . . . . . . 4
Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Cumulative Loss Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . .33
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Dealer Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Defaulted Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Delinquency Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Deposit Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
DOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Eaglemark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Eaglemark Financial. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Event of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Final Scheduled Payment Date . . . . . . . . . . . . . . . . . . . . . . . 2
Fractional Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Harley-Davidson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Initial Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Initial Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . .1, 1
Interest Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lien Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Liquidated Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Mandatory Special Distribution . . . . . . . . . . . . . . . . . . . . . . 2
Monthly Principal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Monthly Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . .10
Motorcycles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Net Liquidation Losses . . . . . . . . . . . . . . . . . . . . . . . . . .33
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . .33
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 2
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Pre-Funded Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pre-Funding Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Registrar of Titles. . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Reserve Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reserve Fund Additional Deposits . . . . . . . . . . . . . . . . . . . . . 6
Reserve Fund Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reserve Fund Initial Deposit . . . . . . . . . . . . . . . . . . . . . . . 6
Reserve Fund Requisite Amount. . . . . . . . . . . . . . . . . . . . . 6, 32
Reserve Fund Trigger Event . . . . . . . . . . . . . . . . . . . . . . . .33
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10, 37
Special Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Subsequent Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Subsequent Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Subsequent Transfer Agreement. . . . . . . . . . . . . . . . . . . . . . .12
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . 7
Transfer and Sale Agreement. . . . . . . . . . . . . . . . . . . . . . . . 2
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trust Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or other person is authorized to give any information or to
make any representation not contained in this Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, as sponsor of the Trusts or the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any security other than the Securities offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
Securities to any person in any jurisdiction in which the person making such
offer or solicitation is not qualified to do so or to anyone whom it is unlawful
to make such an offer or solicitation to such person. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstance create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Prospectus Supplement
<S> <C>
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FORMATION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . .
POOL FACTORS AND TRADING INFORMATION . . . . . . . . . . . . . . . . . . .
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HARLEY-DAVIDSON MOTORCYCLES. . . . . . . . . . . . . . . . . . . . . . . .
YIELD AND PREPAYMENT CONSIDERATIONS. . . . . . . . . . . . . . . . . . . .
EAGLEMARK FINANCIAL SERVICES, INC.; EAGLEMARK, INC.. . . . . . . . . . . .
EAGLEMARK CUSTOMER FUNDING CORPORATION-[ ]. . . . . . . . . . . . . . . .
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . .
CERTAIN INFORMATION REGARDING THE SECURITIES . . . . . . . . . . . . . . .
SECURITY INTEREST AND OTHER ASPECTS OF THE
CONTRACTS; REPURCHASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . .
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RATINGS OF THE SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROSPECTUS
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .2
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE TRUSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
HARLEY-DAVIDSON MOTORCYCLES. . . . . . . . . . . . . . . . . . . . . . . 18
THE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
WEIGHTED AVERAGE LIFE OF THE SECURITIES. . . . . . . . . . . . . . . . . 19
POOL FACTORS AND TRADING INFORMATION . . . . . . . . . . . . . . . . . . 20
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
EAGLEMARK FINANCIAL SERVICES, INC.;
EAGLEMARK, INC.; AND THE TRUST DEPOSITORS. . . . . . . . . . . . . . . . 21
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . 21
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . 26
CERTAIN INFORMATION REGARDING THE SECURITIES . . . . . . . . . . . . . . 27
DESCRIPTION OF THE TRANSFER AND SALE AGREEMENTS. . . . . . . . . . . . . 34
DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS. . . . . . . . . . . . . . . . . . . . 36
CERTAIN LEGAL ASPECTS OF THE CONTRACTS . . . . . . . . . . . . . . . . . 46
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . 49
OWNER TRUSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
CERTAIN STATE TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . 61
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 61
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 62
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities offered by this Prospectus Supplement,
whether or not participating in this distribution, may be required to deliver
this Prospectus Supplement and the Prospectus. This is in addition to the
obligation of dealers to deliver this Prospectus Supplement and the Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$[ ]
HARLEY-DAVIDSON MOTORCYCLE
CONTRACT BACKED CERTIFICATES
HARLEY-DAVIDSON EAGLEMARK
MOTORCYCLE TRUST 199__-[ ]
___% HARLEY-DAVIDSON MOTORCYCLE
CONTRACT BACKED CERTIFICATES, CLASS A
___% HARLEY-DAVIDSON MOTORCYCLE
CONTRACT BACKED CERTIFICATES, CLASS B
EAGLEMARK, INC.
Seller and Servicer
EAGLEMARK CUSTOMER
FUNDING CORPORATION-[ ]
Trust Depositor
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
SALOMON SMITH BARNEY
[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Subject to Completion, dated , 1998
PROSPECTUS
Harley-Davidson Eaglemark Motorcycle Trusts
Harley-Davidson Motorcycle Contract Backed Notes
Harley-Davidson Motorcycle Contract Backed Certificates
-----------
EAGLEMARK, INC.
-----------
The Harley-Davidson Motorcycle Contract Backed Notes (the "NOTES") and
the Harley-Davidson Motorcycle Contract Backed Certificates (the "CERTIFICATES"
and, together with the Notes, the "SECURITIES") described herein may be sold
from time to time in one or more series, in amounts, at prices and on terms to
be determined at the time of sale and to be set forth in a supplement to this
Prospectus (a "PROSPECTUS SUPPLEMENT"). Each series of Securities, which will
include one or more classes of Certificates and may also include one or more
classes of Notes, will be issued by a trust or other legal entity to be formed
with respect to such series (each, a "TRUST"). Each Trust will be formed
pursuant to either (i) a Trust Agreement to be entered into between a special-
purpose finance subsidiary organized and established by Eaglemark, Inc. (the
"COMPANY" ) (each such special-purpose finance subsidiary, a "TRUST DEPOSITOR"),
as depositor, and the Trustee specified in the related Prospectus Supplement
(the "TRUSTEE") or (ii) a Pooling and Servicing Agreement to be entered into
among the Trustee, the Trust Depositor, as seller, and the Company, as servicer
(in such capacity, the "SERVICER"). If a series of Securities includes Notes,
such Notes will be issued and secured pursuant to an Indenture between the Trust
and the Indenture Trustee specified in the related Prospectus Supplement (the
"INDENTURE TRUSTEE") and will represent indebtedness of the related Trust. The
Certificates of a series will represent fractional undivided interests in the
related Trust. Each Prospectus Supplement will specify which class or classes
of Notes, if any, and/or which class or classes of Certificates of the related
series are being offered thereby. The property of each Trust will include a
pool of fixed rate, simple interest motorcycle conditional sales contracts
(collectively such contracts, the "CONTRACTS") relating to motorcycles
manufactured by Harley-Davidson, Inc. ("HARLEY-DAVIDSON") or, in certain limited
instances and subject to certain limitations described herein (i) motorcycles
manufactured by an affiliate of Harley-Davidson, Buell Motorcycle Company
("BUELL") and (ii) motorcycles manufactured by certain other manufacturers
("OTHER MANUFACTURERS") as well as certain monies due or received thereunder on
and after the applicable Cutoff Date set forth in the related Prospectus
Supplement, security interests in the motorcycles financed through the Contracts
and certain other property as described herein (the "TRUST PROPERTY"). In
addition, if so specified in the related Prospectus Supplement, the property of
the Trust will include monies on deposit in a trust account (the "PRE-FUNDING
ACCOUNT") and/or monies on deposit in a trust account (the "COLLATERAL
REINVESTMENT ACCOUNT") to be established with the Indenture Trustee, which will
be used to purchase additional Contracts (the "SUBSEQUENT CONTRACTS") from the
Trust Depositor from time to time during the Funding Period or Revolving Period
specified in such Prospectus Supplement.
Each class of Securities of any series will represent the right to
receive a specified amount of payments and/or distributions, expected to be
derived primarily from collections in respect of principal and interest on the
related Contracts, with such payments and/or distributions to be made at the
rates, on the dates and in the manner described herein and in such Prospectus
Supplement. If a series includes multiple classes of Securities, the rights of
one or more classes of Securities to receive payments or distributions may be
senior or subordinate to the rights of one or more of the other classes of such
series. Also, distributions on Certificates of a series may be subordinated in
priority to payments due on the Notes, if any, of such series to the extent
described herein and in the related Prospectus Supplement. A series may include
one or more classes of Notes and/or Certificates which differ from the other
classes of such series as to the timing and priority of payment, interest rate
or amount of distributions in respect of principal or interest or both. A
series may include one or more classes of Notes or Certificates entitled to
distributions in respect of principal with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no distributions in respect of principal. The rate of payment in
respect of principal of any class of Notes and the rate of distributions in
respect of the Certificate Balance (as defined herein) of the Certificates of
any class will depend on the priority of payment of such class and the rate and
timing of payments (including prepayments, defaults, liquidations and
repurchases of Contracts) on the related Contracts. A rate of payment lower or
higher than that anticipated may affect the weighted average life of each class
of Securities in the manner described herein and in the related Prospectus
Supplement.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH
UNDER "RISK FACTORS" ON PAGE 13 OF THIS PROSPECTUS AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, THE NOTES OF
A SERIES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES WILL
REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND WILL NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, EAGLEMARK
FINANCIAL SERVICES, INC., EAGLEMARK, INC., THE TRUST DEPOSITOR OR ANY OF THEIR
RESPECTIVE AFFILIATES OR ANY GOVERNMENTAL AGENCY.
--------------------
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.
Retain this Prospectus for future reference.
This Prospectus may not be used to consummate sales
of Securities offered hereby unless accompanied by a Prospectus Supplement.
--------------------
The date of this Prospectus is , 1998.
<PAGE>
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, the Servicer will prepare and
forward to the Applicable Trustee (as defined herein), for distribution to the
related Securityholders, certain monthly and annual reports concerning such
Securities and the related Trust. In addition, within the prescribed period of
time for tax reporting purposes after the end of each calendar year during the
term of each Trust, the Applicable Trustee will mail to each person who at any
time during such calendar year has been a registered Securityholder with respect
to such Trust and received any payment thereon a statement containing certain
information for the purposes of such Securityholder's preparation of federal
income tax returns. See "FEDERAL INCOME TAX CONSEQUENCES" and "CERTAIN
INFORMATION REGARDING THE SECURITIES - REPORTS TO SECURITYHOLDERS" herein.
AVAILABLE INFORMATION
The Company, as originator of the Contracts in each Trust, has filed
with the Securities and Exchange Commission (the "COMMISSION") a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"REGISTRATION STATEMENT") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to the Securities being offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information, reference is made
to the Registration Statement, which is available for inspection without charge
at the public reference facilities of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such information can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site at http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
UPON RECEIPT OF A REQUEST BY AN INVESTOR WHO HAS RECEIVED AN ELECTRONIC
PROSPECTUS SUPPLEMENT AND PROSPECTUS FROM AN UNDERWRITER OR A REQUEST BY SUCH
INVESTOR'S REPRESENTATIVE WITHIN THE PERIOD DURING WHICH THERE IS AN OBLIGATION
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS, THE COMPANY OR THE
UNDERWRITERS WITH RESPECT TO THE RELATED TRUST WILL PROMPTLY DELIVER, OR CAUSE
TO BE DELIVERED, WITHOUT CHARGE, TO SUCH INVESTOR A PAPER COPY OF THE PROSPECTUS
SUPPLEMENT AND PROSPECTUS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed on behalf of each Trust by the Company as the
originator of the Contracts in each Trust, 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 the
offering of the Securities offered by such Trusts shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
dates of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein (or in the accompanying Prospectus
Supplement) or in any subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company, on behalf of each Trust, will provide without charge to
each person, including any beneficial owner, to whom a copy of this Prospectus
is delivered, on the written or oral request of such person, a copy of any or
all of the documents incorporated herein by reference, except the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the documents incorporated herein by reference). Requests for such copies
should be directed to Secretary, Eaglemark, Inc., 4150 Technology Way, Carson
City, Nevada 89706; telephone (702) 886-3200.
2
<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 this summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms" on page 60.
Issuer. . . . . . . . . . . . . . . . With respect to each series of
Securities, a Trust will be formed
pursuant to either a Trust Agreement (as
amended and supplemented from time to
time, a "TRUST AGREEMENT") between the
Trust Depositor and the Trustee for such
Trust or a Pooling and Servicing
Agreement (a "POOLING AND SERVICING
AGREEMENT") among the Trustee, the Trust
Depositor and Eaglemark, Inc., as
Servicer for such Trust. Each Trust
that is structured as an owner trust
intended to be taxable as a partnership
for federal income tax purposes will be
referred to herein as an "OWNER TRUST".
Each Trust that is taxable as a grantor
trust under subpart E, Part I of
subchapter J of the Code (as hereinafter
defined) will be referred to herein as a
"GRANTOR TRUST". There are also
references to the possibility of a Trust
being structured as a financial asset
securitization investment trust,
referred to herein as a "FASIT," as
authorized by recent tax legislation.
Seller. . . . . . . . . . . . . . . . Eaglemark, Inc. (referred to herein as
"EAGLEMARK", the "SELLER" or the
"COMPANY"), a Nevada corporation, a 100%
owned subsidiary of Eaglemark Financial
Services, Inc. ("EAGLEMARK FINANCIAL").
The Company's principal executive
offices are located at 4150 Technology
Way, Carson City, Nevada 89706, and its
telephone number is (702) 886-3200. See
"EAGLEMARK FINANCIAL SERVICES, INC.;
EAGLEMARK, INC.; AND THE TRUST
DEPOSITORS".
Trust Depositor . . . . . . . . . . . With respect to each series of
Securities, a special-purpose finance
subsidiary of the Company.
Servicer. . . . . . . . . . . . . . . Eaglemark, Inc. (in such capacity, the
"SERVICER")
Trustee . . . . . . . . . . . . . . . With respect to a Grantor Trust, the
Trustee specified in the related
Prospectus Supplement and with respect
to an Owner Trust, the Owner Trustee
specified in the related Prospectus
Supplement.
Indenture Trustee . . . . . . . . . . With respect to any series of Securities
that is issued by an Owner Trust and
includes one or more classes of Notes,
the Indenture Trustee specified in the
related Prospectus Supplement (each such
Indenture Trustee, or other Trustee as
described immediately above, being
sometimes referred to herein, as
appropriate, as the "APPLICABLE
TRUSTEE").
Securities Offered . . . . . . . . . Each series of Securities issued by an
Owner Trust will include one or more
classes of Certificates and may also
include one or more classes of Notes.
Each series of Securities issued by a
Grantor Trust will include one or more
classes of Certificates, but will not
include any Notes. Each class of Notes
will be issued pursuant to an indenture
(each, an "INDENTURE") between the
related Owner Trust and the Indenture
Trustee specified in the related
Prospectus Supplement. Each class of
Certificates will be issued pursuant to
the related Trust Agreement or the
related Pooling and Servicing Agreement.
The related
4
<PAGE>
Prospectus Supplement will specify which
class or classes of Notes and/or
Certificates of the related series are
being offered thereby.
The Notes . . . . . . . . . . . . . . The Notes will be available for purchase
in denominations of $1,000 and integral
multiples thereof and will be available
in book-entry form only. Noteholders
will be able to receive Definitive Notes
(as defined herein) only in the limited
circumstances described herein or in
such Prospectus Supplement. See
"CERTAIN INFORMATION REGARDING THE
SECURITIES - DEFINITIVE SECURITIES".
Each class of Notes will have a stated
principal amount and will accrue
interest thereon at a specified rate
(with respect to each class of Notes,
the "INTEREST RATE"). Each class of
Notes may have a different Interest
Rate, which may be a fixed, variable or
adjustable Interest Rate, or any
combination of the foregoing. The
related Prospectus Supplement will
specify the Interest Rate for each class
of Notes, or the method for determining
such Interest Rate.
With respect to a series that includes
two or more classes of Notes, each such
class may differ from the other class or
classes of such series as to the timing
and priority of payments, seniority,
allocations of losses, Interest Rate or
amount of payments of principal or
interest. Payments of principal or
interest in respect of any such class or
classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the Pool of Contracts.
In addition, a series may include one or
more classes of Notes ("STRIP NOTES")
entitled to (i) principal payments with
disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no
principal payments.
Redemption of the Notes . . . . . . . If the Seller exercises its option to
repurchase the Contracts of a Trust
in the event the Pool Balance has
declined to less than 10% of the
Initial Pool Balance in the manner
and on the respective terms and
conditions described under
"DESCRIPTION OF THE SALE AND
SERVICING AGREEMENTS AND POOLING AND
SERVICING AGREEMENTS - TERMINATION",
one or more classes of the
outstanding Noteswill be redeemed as
set forth in the related Prospectus
Supplement. Inaddition, if the
related Prospectus Supplement
provides that the property ofa Trust
will include monies in a Pre-Funding
Account or Collateral Reinvestment
Account that will be used to purchase
additional Contracts (see "RISK
FACTORS -- SALES OF SUBSEQUENT
CONTRACTS AND EFFECT ON POOL
CHARACTERISTICS" herein) after the
Closing Date specified in such
related Prospectus Supplement (the
"CLOSING DATE"), one or more classes
of the outstanding Notes will be
subject to partial redemption at or
immediately following the end of the
Funding Period or Revolving Period
(each as defined herein and in such
Prospectus Supplement), as
applicable, in an amount and in the
manner specified in such Prospectus
Supplement. In the event of such
partial redemption, the Noteholders
may be entitled to receive a
prepayment premium from the Trust, in
the amount and to the extent provided
in the related Prospectus Supplement.
The Certificates. . . . . . . . . . . The Certificates will be available for
purchase in a minimum denomination of
$1,000 and integral multiples thereof
and will be available in book-entry form
only. Certificateholders will be able
to receive Definitive Certificates (as
defined herein) only in the limited
circumstances described herein or in
such Prospectus
5
<PAGE>
Supplement. See "CERTAIN INFORMATION
REGARDING THE SECURITIES - DEFINITIVE
SECURITIES".
Each class of Certificates will have a
stated Certificate Balance specified in
such Prospectus Supplement (the
"CERTIFICATE BALANCE") and will accrue
interest on such Certificate Balance at
a specified rate (with respect to each
class of Certificates, the "PASS-THROUGH
RATE"). Each class of Certificates may
have a different Pass-Through Rate,
which may be a fixed, variable or
adjustable Pass-Through Rate, or any
combination of the foregoing. The
related Prospectus Supplement will
specify the Pass-Through Rate for each
class of Certificates or the method for
determining such Pass-Through Rate.
With respect to a series that includes
two or more classes of Certificates,
each such class may differ from the
other class or classes of such series as
to the timing and priority of
distributions, seniority, allocations of
losses, Pass-Through Rate or amount of
distributions in respect of principal or
interest, or distributions in respect of
principal or interest in respect of any
such class or classes may or may not be
made upon the occurrence of specified
events or on the basis of collections
from designated portions of the pool of
Contracts.
In addition, a series may include one or
more classes of Certificates ("STRIP
CERTIFICATES") entitled to (i)
distributions in respect of principal
with disproportionate, nominal or no
interest distributions or (ii) interest
distributions with disproportionate,
nominal or no distributions in respect
of principal.
If a series of Securities includes
classes of Notes, distributions on the
Certificates of such series may be
subordinated in priority of payment to
payments on such Notes to the extent
specified in the related Prospectus
Supplement.
Prepayment of the Certificates. . . . If the Seller exercises its option to
repurchase the Contracts of a Trust in
the event the Pool Balance has declined
to less than 10% of the Initial Pool
Balance in the manner and on the
respective terms and conditions
described under "DESCRIPTION OF THE SALE
AND SERVICING AGREEMENTS AND POOLING AND
SERVICING AGREEMENTS - TERMINATION",
Certificateholders will receive as a
prepayment in respect of the
Certificates as specified in such
Prospectus Supplement. In addition, if
the related Prospectus Supplement
provides that the property of a Trust
will include monies in a Pre-Funding
Account or Collateral Reinvestment
Account that will be used to purchase
additional Contracts after the Closing
Date, one or more classes of the
outstanding Certificates may receive a
partial prepayment of principal at or
immediately following the end of the
Funding Period or Revolving Period, as
applicable, in an amount and in the
manner specified in such Prospectus
Supplement. In the event of such
partial prepayment, the
Certificateholders may be entitled to
receive a prepayment premium from the
Trust, in the amount and to the extent
provided in the related Prospectus
Supplement.
Cross-Collateralization . . . . . . . As described in the related Trust
Agreement or Pooling and Servicing
Agreement, as applicable, and the
related Prospectus Supplement, the
source of payment for Securities of each
series will be the related Trust
Property only.
6
<PAGE>
However, as may be described in the
related Prospectus Supplement, a series
or class of Securities may include the
right to receive monies from a common
pool of credit enhancement which may be
available for more than one series of
Securities, such as a master reserve
fund, master insurance policy or a
master collateral pool consisting of
similar Contracts. Notwithstanding the
foregoing, and as described in the
related Prospectus Supplement, no
payment received on any Contract 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 fund or an
overcollateralization account that
provides credit enhancement for more
than one series of Securities issued
pursuant to the related Trust Agreement
or Pooling and Servicing Agreement, as
applicable).
The Trust Property. . . . . . . . . . The property of each Trust will include
a pool of fixed-rate, simple interest
motorcycle conditional sales contracts
(the "CONTRACTS") relating to new or
used Harley-Davidson motorcycles or, in
certain limited instances and subject to
certain other limitations described
herein, (i) motorcycles manufactured by
an affiliate of Harley-Davidson, Buell
Motorcycle Company ("BUELL") and (ii)
motorcycles manufactured by certain
other manufacturers ("OTHER
MANUFACTURERS") (see "OTHER
MANUFACTURERS" herein) as well as
certain monies due or received
thereunder on and after the applicable
Cutoff Date set forth in the related
Prospectus Supplement, security
interests in the Motorcycles financed
thereby (collectively, the
"MOTORCYCLES"), all of the Trust
Depositor's right, title and interest in
and to the Transfer and Sale Agreement
(as defined herein) pursuant to which
the Trust Depositor will purchase
Contracts from the Seller, any proceeds
from claims under certain insurance
policies related to the Motorcycles, and
all other proceeds of any of the
foregoing. The property of each Trust
will also include amounts on deposit in
certain trust accounts, including the
related Collection Account, any Pre-
Funding Account, any Collateral
Reinvestment Account, any Reserve Fund
(as defined herein) and any other
account identified in the applicable
Prospectus Supplement and such other
property as is specified in such
Prospectus Supplement, including
notes or other securities evidencing
or backed by Contracts. On the
Closing Date specified in the related
Prospectus Supplement with respect to
a Trust, the Trust Depositor will, if
so specified in such Prospectus
Supplement, sell or transfer
Contracts (the "INITIAL CONTRACTS")
having an aggregate principal balance
specified in such Prospectus
Supplement as of the date specified
therein (the "INITIAL CUTOFF DATE")
to such Trust pursuant to either, in
the case of Owner Trusts, a Sale and
Servicing Agreement among the Trust
Depositor, the Servicer, the
Indenture Trustee and the Owner Trust
(a "SALE AND SERVICING AGREEMENT")
or, in the case of Grantor Trusts,
the related Pooling and Servicing
Agreement among the Trust Depositor,
the Servicer and the Trustee.
To the extent provided in the related
Prospectus Supplement, from time to time
(as frequently as daily) during the
period (the "FUNDING PERIOD") specified
in such Prospectus Supplement, the Trust
Depositor will be obligated (subject
only to the availability thereof) to
sell, and the related Trust will be
obligated to purchase (subject to the
satisfaction of certain conditions
described in the applicable Sale and
Servicing Agreement or Pooling and
Servicing Agreement), additional
Contracts (the "SUBSEQUENT CONTRACTS")
having an aggregate principal balance
approximately equal to the amount on
deposit (the
7
<PAGE>
"PRE-FUNDED AMOUNT") in an account (the
"PRE-FUNDING ACCOUNT") on the related
Closing Date. In no event will the Pre-
Funded Amount exceed 40% of the initial
aggregate principal amount of the
Notes and/or Certificates of the
related series of Securities.
In addition, if so provided in the
related Prospectus Supplement, in lieu
of a Funding Period, during the period
(the "REVOLVING PERIOD") from the
Closing Date until the first to occur of
(i) such event or events as are
described in such Prospectus Supplement
(each, an "EARLY AMORTIZATION EVENT") or
(ii) the last day of the Due Period (as
defined herein) preceding a Distribution
Date specified in such Prospectus
Supplement, an account will be
maintained in the name of the related
Trustee or Indenture Trustee (the
"COLLATERAL REINVESTMENT ACCOUNT"). The
amount on deposit in the Collateral
Reinvestment Account on the Closing Date
may, if so specified in the related
Prospectus Supplement, include an amount
to be deposited out of the net proceeds
of the sale of the related Securities.
During the Revolving Period, principal
will not be distributed on the
Securities of the related series.
Instead, principal collections, together
with (if and to the extent described in
the related Prospectus Supplement)
interest collections on the Contracts
that are in excess of amounts required
to be distributed therefrom, will be
deposited from time to time in the
Collateral Reinvestment Account and will
be used to purchase Subsequent
Contracts.
As used in this Prospectus, the term
"CONTRACTS" will include the Initial
Contracts transferred to a Trust on the
Closing Date as well as any Subsequent
Contracts transferred to such Trust
during the related Funding Period or
Revolving Period, if any.
Amounts on deposit in any Pre-Funding
Account during the related Funding
Period or in any Collateral Reinvestment
Account during the related Revolving
Period will be invested by the
Applicable Trustee (as directed by the
Servicer) in Eligible Investments (as
defined herein), and any resultant
investment income, less any related
investment expenses ("INVESTMENT
INCOME"), will be added, on the
Distribution Date (as defined herein)
immediately following the date on which
such Investment Income is paid to the
Trust, to interest collections on the
Contracts for the related Due Period (as
defined herein), or will otherwise be
deposited or applied as specified in the
related Prospectus Supplement and will
be thereafter distributed in the manner
specified in the related Prospectus
Supplement. Any funds remaining in a
Pre-Funding Account at the end of the
related Funding Period or in a
Collateral Reinvestment Account at the
end of the related Revolving Period will
be distributed as a prepayment or early
distribution of principal to holders of
one or more classes of the Notes and/or
Certificates of the related series of
Securities, in the amounts and in
accordance with the payment priorities
specified in the related Prospectus
Supplement. No Funding Period will end
more than ninety (90) days after the
related Closing Date. See "RISK FACTORS
- PRE-FUNDING ACCOUNTS", "- SALES OF
SUBSEQUENT CONTRACTS" and "DESCRIPTION
OF THE SALE AND SERVICING AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS -
ACCOUNTS".
The Seller will acquire the Contracts
from a network of Harley-Davidson
dealers located throughout the United
States (the "DEALERS"). The Contracts
for any given pool of Contracts
comprising a Trust will be sold by the
Seller to a Trust
8
<PAGE>
Depositor pursuant to a related Transfer
and Sale Agreement (the "TRANSFER AND
SALE AGREEMENT"), which Trust Depositor
will in turn convey the Contracts to the
Trust pursuant to the related Sale and
Servicing Agreement or Pooling and
Servicing Agreement, as applicable.
Such Contracts will be selected from the
contracts owned by the Seller based on
the criteria specified in the related
Transfer and Sale Agreement, Sale and
Servicing Agreement or Pooling and
Servicing Agreement, as applicable, and
described herein and in the related
Prospectus Supplement.
Credit and Cash Flow
Enhancement . . . . . . . . . . . . . To the extent specified in the related
Prospectus Supplement, credit
enhancement with respect to a Trust or
any class or classes of Securities may
include any one or more of the
following: subordination of one or more
other classes of Securities, Reserve
Funds (as defined herein), spread
accounts, overcollateralization,
insurance policies, letters of credit,
credit or liquidity facilities, cash
collateral accounts, surety bonds,
guaranteed investment contracts, swaps
or other interest rate protection
agreements, repurchase obligations,
yield supplement agreements, other
agreements with respect to third party
payments or other support, cash deposits
or other arrangements. See "DESCRIPTION
OF THE SALE AND SERVICING AGREEMENTS --
CREDIT AND CASH FLOW ENHANCEMENT"
herein. To the extent specified in the
related Prospectus Supplement, any
particular form of credit enhancement
may be subject to certain limitations
and exclusions from coverage thereunder.
Reserve Fund. . . . . . . . . . . . . If and to the extent specified in the
related Prospectus Supplement, a Reserve
Fund will be created for a Trust with an
initial deposit by the Trust Depositor
of cash or certain investments or other
property (including Contracts) having a
value equal to the amount specified in
such Prospectus Supplement. To the
extent specified in the related
Prospectus Supplement, funds in the
Reserve Fund will thereafter be
supplemented by the deposit of amounts
remaining on any Distribution Date after
making all other distributions required
on such date and any amounts deposited
from time to time in connection with a
purchase of Subsequent Contracts.
Amounts in the Reserve Fund, if any,
will be available to cover shortfalls in
amounts due to the holders of those
classes of Securities specified in the
related Prospectus Supplement in the
manner and under the circumstances
specified therein. The related
Prospectus Supplement will also specify
to whom and the manner and circumstances
under which amounts on deposit in the
Reserve Fund (after giving effect to all
other required distributions to be made
by the applicable Trust) in excess of
the amounts required to be held therein
as of the date of determination (as set
forth in such Prospectus Supplement)
will be distributed.
Sale and Servicing Agreements
and Pooling and Servicing
Agreements. . . . . . . . . . . . . . With respect to each Trust, the Trust
Depositor will sell the related
Contracts and such other Trust Property
as is specified in the related
Prospectus Supplement to such Trust
pursuant to a Sale and Servicing
Agreement or a Pooling and Servicing
Agreement, as applicable. The rights
and benefits of an Owner Trust under any
Sale and Servicing Agreement will, if
such Owner Trust issues Notes, be
assigned to the related Indenture
Trustee as collateral for such Notes
pursuant to the related Indenture. The
Servicer will agree with each Trust to
be responsible for servicing, managing,
maintaining custody of and
9
<PAGE>
making collections on the Contracts.
The Company will undertake certain
administrative duties under an
Administration Agreement (as defined
herein) with respect to each Owner Trust
that is formed pursuant to a Trust
Agreement.
To the extent specified in the related
Prospectus Supplement, the Servicer will
be obligated to advance each month an
amount equal to accrued and unpaid
interest on the Contracts which was
delinquent with respect to the related
Due Period (as defined herein) but only
to the extent that the Servicer believes
that the amount of such advance will be
recoverable from collections on the
Contracts (an "ADVANCE"). The Servicer
will be entitled to reimbursement of
Advances from subsequent payments on or
with respect to the Contracts or from
other sources to the extent described in
the related Prospectus Supplement. The
Servicer will disclose the aggregate
amount of Advances and the amount of
related delinquencies on Contracts as
part of the monthly statement provided
to Securityholders and described in
"CERTAIN INFORMATION REGARDING THE
SECURITIES -- REPORTS TO
SECURITYHOLDERS" herein. The making of
Advances indicates that while interest
payable on a portion of the Contracts in
the overall pool of Contracts held by
the Trust may be delinquent, the
Servicer believes that it will
ultimately be reimbursed for such
Advances from collections on the pool of
Contracts as a whole.
Unless otherwise provided in the related
Prospectus Supplement, under the
respective Sale and Servicing Agreement
or Pooling and Servicing Agreement, the
Trust Depositor has agreed, in the event
of a breach of certain representations
and warranties related to the Contracts
made by the Trust Depositor and
contained therein, to repurchase such
Contract within a certain number of days
as specified in the related Prospectus
Supplement, unless such breach is cured.
Eaglemark, as Seller under the related
Transfer and Sale Agreement(rights in
respect of which will be assigned to a
Trust) is obligated to repurchase the
Contracts from the Trust Depositor
contemporaneously with the Trust
Depositor's purchase of such Contracts
from the Trust. See "CERTAIN
INFORMATION REGARDING THE SECURITIES--
CONVEYANCE OF CONTRACTS" and
"DESCRIPTION OF THE TRANSFER AND SALE
AGREEMENTS."
Security Interests in the
Motorcycles; Consumer
Protection Laws; Repurchase
Obligations . . . . . . . . . . . . . In connection with the sale of the
Contracts, security interests in the
Motorcycles securing the Contracts will
be assigned by the Seller to a Trust
Depositor pursuant to a Transfer and
Sale Agreement, which Trust Depositor
will, in turn, assign such security
interests to the Trust pursuant to
either a Sale and Servicing Agreement or
a Pooling and Servicing Agreement. In
the case of an Owner Trust, such
security interests in turn will be
pledged and assigned to the related
Indenture Trustee as security for any
Notes issued by such Trust. The
certificates of title to the
Motorcycles, however, will not be
amended or reissued to reflect the sale
of the Contracts and assignment of
security interests to either the Trust
Depositor or the Trust or the pledge
pursuant to any Indenture, due to the
administrative burden and expense
inherent in physically revising
notations of security interests on
certificates of title for the numerous
individual Contract obligors in each
applicable state where Contracts were
originated (and paying associated fees
in such states). In the absence of such
amendments, either the related Trust,
the Applicable Trustee or both will not
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have a perfected security interest in
the Motorcycles securing the Contracts
in some states. The Seller will be
obligated to repurchase any Contracts
sold to the related Trust Depositor (and
subsequently sold by such Trust
Depositor to such Trust) as to which
there did not exist on the Closing Date
a first priority perfected security
interest in the name of the Company in
the related Motorcycle, if such failure
materially and adversely affects the
interest of the Trust Depositor or such
Trust in such Contract and if such
failure is not cured in a timely manner.
To the extent their respective security
interests in a Motorcycle are perfected,
the related Trust and the Applicable
Trustee will have a prior claim over
subsequent purchasers of such Motorcycle
and holders of subsequently perfected
security interests therein. However, as
against liens for repairs or storage of
a Motorcycle or for taxes unpaid by the
related obligor with respect to the
Contract (the "OBLIGOR"), or through
fraud or negligence, the related Trust
or the Applicable Trustee could lose its
security interest or the priority of its
security interest in a Motorcycle. The
Seller will not have any obligation to
repurchase a Contract with respect to
which the related Trust or the
Applicable Trustee loses its security
interest or the priority of its security
interest in the related Motorcycle after
the Closing Date due to any such lien
for repairs, storage or taxes or the
negligence or fraud of a third party.
Federal and state consumer protection
laws impose requirements upon creditors
in connection with extensions of credit
and collections of retail installment
loans, and certain of these laws make an
assignee of such a loan liable to the
obligor thereon for any violation by the
lender. The Trust Depositor will be
obligated to repurchase from the
applicable Trust any Contract that fails
to comply with such requirements and
contemporaneously therewith the Seller,
pursuant to the related Transfer and
Sale Agreement, will be obligated to
repurchase such Contract from the Trust
Depositor.
Tax Status. . . . . . . . . . . . . . The federal income tax consequences
applicable to a Trust and to the Notes
and Certificates issued by the Trust
will depend upon whether the Trust is an
Owner Trust, Grantor Trust or, under
1996 legislation effective on September
1, 1997, a FASIT (as each of those terms
is described herein) as specified in the
Prospectus Supplement applicable to such
Trust. See "FEDERAL INCOME TAX
CONSEQUENCES" herein for a fuller
discussion of the following summary of
federal income tax treatment.
For a Trust which is an Owner Trust,
Federal Tax Counsel (as defined herein)
will deliver its opinion that, for
federal income tax purposes, any Notes
issued by such Trust will be
characterized as debt, and the Trust
will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation.
Each holder of a Note (a "NOTEHOLDER"),
by the acceptance of a Note, will agree
to treat the Notes as indebtedness, and
each holder of a Certificate (a
"CERTIFICATEHOLDER") issued by such
Trust, by the acceptance of a
Certificate, will agree to treat the
Trust as a partnership in which the
Certificateholders are partners for
federal income tax purposes.
For a Trust which is a Grantor Trust,
Federal Tax Counsel will deliver its
opinion that the Trust will be
classified as a grantor trust for
federal income tax purposes and not as
an association taxable as a corporation.
Each
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<PAGE>
Certificateholder will be treated as the
owner of an undivided interest in the
assets of the Trust, including the
Contracts. Accordingly, each
Certificateholder must report on its
federal income tax return its share of
income from the Contracts and, subject
to limitations on deductions by
individuals, estates and trusts, may
deduct its share of the reasonable fees
paid by the Trust, as if such
Certificateholder held its share of the
assets of the Trust directly.
Furthermore, the Certificates may
represent interests in "STRIPPED BONDS"
and "STRIPPED COUPONS" within the
meaning of Section 1286 of the Code (as
defined herein).
For a Trust which properly elects to be
a FASIT, Federal Tax Counsel will
deliver its opinion that the Trust will
be treated as a FASIT and the Securities
issued by the FASIT will be
characterized as debt for federal income
tax purposes.
ERISA Considerations. . . . . . . . . Fiduciaries of employee benefit plans
and certain retirement arrangements that
are subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code,
should carefully review with their legal
advisors whether the purchase or holding
of the Securities may give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA
or Section 4975 of the Code. See "ERISA
CONSIDERATIONS" herein and in the
related Prospectus Supplement.
Ratings . . . . . . . . . . . . . . . It is a condition to the issuance of the
Securities to be offered hereunder that
they be rated in one of the four highest
rating categories by at least one
nationally recognized statistical rating
organization (a "RATING AGENCY"). 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. Ratings of
Securities will address the likelihood
of the payment of principal and interest
thereon pursuant to their terms. The
ratings of Securities will not address
the likelihood of an early return of
invested principal. There can be no
assurance that a rating will remain for
a 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. For more detailed information
regarding the ratings assigned to any
class of a particular series of
Securities, see "SUMMARY OF TERMS -
RATINGS" herein and "RISK FACTORS -
RATINGS OF THE SECURITIES" in the
related Prospectus Supplement.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in
the related Prospectus Supplement to be prepared and delivered in connection
with the offering of any series of Securities, prospective investors should
carefully consider the following risk factors before investing in any class or
classes of Securities of any such series. This Prospectus also contains
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks described below.
REINVESTMENT RISK ASSOCIATED WITH PRE-FUNDING ACCOUNTS AND COLLATERAL
REINVESTMENT ACCOUNTS. If so provided in the related Prospectus Supplement, on
the Closing Date the Pre-Funded Amount specified in such Prospectus Supplement
will be deposited into the Pre-Funding Account. In addition, if so specified in
the related Prospectus Supplement, on the Closing Date specified amounts will be
deposited into the Collateral Reinvestment Account. During the Revolving
Period, principal will not be distributed on the Securities of the related
series, and principal collections, together with (if and to the extent described
in the related Prospectus Supplement) interest collections on the Contracts that
are in excess of amounts required to be distributed therefrom, will be deposited
from time to time in the Collateral Reinvestment Account. The Pre-Funded Amount
and the amounts on deposit in the Collateral Reinvestment Account will be used
to purchase Subsequent Contracts from the Trust Depositor (which, concurrently
will acquire such Subsequent Contracts from the Company) from time to time
during the related Funding Period or Revolving Period, as applicable. If the
principal amount of the eligible Subsequent Contracts acquired by the Company
from Dealers during a Funding Period or Revolving Period is less than the Pre-
Funded Amount or the amount on deposit in the Collateral Reinvestment Account,
as the case may be, the Company may have insufficient Subsequent Contracts to
transfer to the Trust Depositor. To the extent that the entire Pre-Funded
Amount or the entire amount on deposit in the Collateral Reinvestment Account
has not been applied to the purchase of Subsequent Contracts by the end of the
related Funding Period or Revolving Period, any amounts remaining in the Pre-
Funding Account or the Collateral Reinvestment Account will be distributed as a
prepayment of principal to Noteholders, if applicable, and Certificateholders
(collectively, the "SECURITYHOLDERS") on the Distribution Date at or immediately
following the end of such Funding Period or Revolving Period, in the amounts and
pursuant to the priorities set forth in the related Prospectus Supplement (the
"MANDATORY SPECIAL REDEMPTION"). To the extent a Securityholder receives such a
prepayment of principal, there may not then exist a comparably favorable
reinvestment opportunity for such Securityholder. The Securityholders will bear
all reinvestment risk resulting from such prepayments. See also "-- PREPAYMENTS
ON CONTRACTS AFFECT YIELD ON SECURITIES" below.
SALES OF SUBSEQUENT CONTRACTS AND EFFECT ON POOL CHARACTERISTICS. Any
conveyance of Subsequent Contracts to a Trust is subject to the satisfaction, on
or before the related transfer date (each, a "SUBSEQUENT TRANSFER DATE"), of the
following conditions precedent, among others: (i) each such Subsequent Contract
must satisfy the eligibility criteria specified in the related Transfer and Sale
Agreement, Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable; (ii) the Company and Trust Depositor shall not have selected such
Subsequent Contracts in a manner that is adverse to the interests of holders of
the related Securities; (iii) as of the respective Cutoff Dates (as such term is
defined in the related Prospectus Supplement) for such Subsequent Contracts, all
of the Contracts in the Trust, including the Subsequent Contracts to be conveyed
to the Trust as of such date, must satisfy the parameters described under "THE
CONTRACTS" herein and "THE CONTRACTS" in such Prospectus Supplement; and (iv)
the Trust Depositor must execute and deliver to such Trust a written assignment
conveying such Subsequent Contracts to such Trust. Except as described herein
and in the related Prospectus Supplement, there will be no other required
characteristics of Subsequent Contracts. It is not anticipated, however, that
the characteristics of the pool of Contracts as a whole will vary significantly
following the addition of Subsequent Contracts.
RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED MOTORCYCLES. Each
Contract is secured by a security interest in a Motorcycle. As part of the sale
and assignment of Contracts to a Trust, security interests in the related
Contracts will be assigned by the Seller to the Trust Depositor and by the Trust
Depositor to such Trust. In most states, such an assignment is an effective
conveyance of a security interest without
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<PAGE>
amendment of any such security interest noted on a Motorcycle's certificate of
title, and the assignee succeeds thereby to the assignor's rights as secured
party. However, in order to perfect such security interest, certain states
require the notation of a secured party's security interest on the vehicle's
certificate of title as filed with the applicable state motor vehicle registrar
or similar state authority. Due to administrative burden and expense, the
certificates of title to the Motorcycles will not be amended to reflect the
conveyance and assignment of Eaglemark's interest therein to the Trust
Depositor, the conveyance and assignment of the Trust Depositor's interest
therein to the Trust and the pledge of the Trust's interest therein to the
Indenture Trustee, as applicable. In the absence of such an amendment, the
Applicable Trustee, in certain cases, will not have a perfected security
interest in the Motorcycles. By not specifying the related Trust as a secured
party on the certificate of title, the security interest of the Trust, the
Indenture Trustee or both could be defeated through fraud or negligence of the
Seller or as a result of the imposition of a lien for repairs or storage of a
Motorcycle or for taxes unpaid by the Obligor under the related Contract.
Pursuant to the Transfer and Sale Agreement, Eaglemark will make certain
representations and warranties relating to the validity, subsistence, perfection
and priority of the security interest in each Motorcycle securing a Contract. A
breach of any such representation and warranty that materially and adversely
affects the Trust's interest in any Contract would create an obligation of the
Trust Depositor in the Sale and Servicing Agreement to repurchase such Contract
from the Trust and a simultaneous obligation of Eaglemark to repurchase such
Contract from the Trust Depositor (which right of the Trust Depositor against
Eaglemark is assigned to the Trust) unless such breach is cured. In the event
that the Trust must rely on repossession and resale of Motorcycles securing
Contracts that are in default to recover principal and interest due thereon,
certain other factors may limit the ability of the Trust to realize upon the
Motorcycle or may limit the amount realized to less than the amount due. See
"CERTAIN LEGAL ASPECTS OF THE CONTRACTS" below.
To the extent that the Trust's and the Applicable Trustee's security
interest in a Motorcycle is perfected, the Trust and the Applicable Trustee will
have a prior claim under applicable state laws over subsequent purchasers of
such Motorcycle and holders of subsequently perfected security interests
therein. However, as against liens for repairs or storage of a Motorcycle or
taxes unpaid by the Obligor on the Contract secured thereby, the Trust and the
Applicable Trustee could lose their respective security interests or the
priority of such security interests in a Motorcycle. In addition, even if the
Seller, the Trust or the Applicable Trustee were to be identified as the secured
party on the certificate of title of a Motorcycle, such secured party's security
interest could be defeated by the fraud or forgery of the vehicle owner or by
administrative errors by applicable state or local agencies responsible for
titling vehicles. The Company will not have any obligation to repurchase a
Contract with respect to which the Trust or the Applicable Trustee loses its
security interest in the related Motorcycle after the Closing Date due to any
such lien for repairs, storage or taxes or due to the negligence or fraud of a
third party.
ADDITIONAL LEGAL LIMITS ON THE APPLICABLE TRUSTEE'S ABILITY TO REALIZE
ON ITS SECURITY INTEREST IN THE MOTORCYCLES - BANKRUPTCY LAWS. Under the United
States Bankruptcy Code, a court in a bankruptcy case with respect to an Obligor
on a Contract may prevent the Applicable Trustee from repossessing a Motorcycle
and may reduce the amount of secured indebtedness or change the amount or timing
of monthly payments or the interest rate applicable to a Contract.
ADDITIONAL LEGAL LIMITS ON THE APPLICABLE TRUSTEE'S ABILITY TO REALIZE
ON ITS SECURITY INTEREST IN THE MOTORCYCLES - CONSUMER PROTECTION LAWS.
Numerous federal and state consumer protection laws impose requirements on
lenders and/or servicers with respect to conditional financing arrangements such
as the Contracts, including requirements regarding the adequate disclosure of
loan terms (including finance charges and deemed finance charges) and
limitations on loan terms (including the permitted finance charge or deemed
finance charge), collection practices and creditor remedies. Failure by Dealers
or Eaglemark to comply with such requirements could have the effect of
subjecting an assignee of the Contracts to the related claims and defenses of
the Obligor on such Contract. This risk would apply to a Trust as assignee, and
with respect to an Owner Trust, the Indenture Trustee as pledgee, of the
Contracts. See also "CERTAIN LEGAL ASPECTS OF THE CONTRACTS -- CONSUMER
PROTECTION LAWS" below.
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<PAGE>
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
Contract (including an Obligor who is a member of the National Guard or is in
reserve status at the time of the origination of the Contract 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 Contracts. In addition, the Relief Act imposes limitations that
would impair the ability of the Servicer to foreclose on an affected Contract
during the Obligor's period of active duty status. Thus, in the event that such
a Contract goes into default, there may be delays and losses occasioned by the
inability of the Servicer to realize upon the Motorcycle in a timely fashion.
The Seller will warrant under the related Transfer and Sale Agreement
that each Contract complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim against the related Trust for
violation of any law and such claim materially and adversely affects such
Trust's interest in a Contract, such violation would constitute a breach of the
warranties of the Seller under the related Transfer and Sale Agreement and would
create an obligation of the Seller to repurchase the Contract from the Trust,
through the Trust Depositor (with the Trust as assignee of the Trust Depositor's
rights against the Seller in this regard), unless the breach were cured. See
"DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND POOLING AND SERVICING
AGREEMENTS - SALE AND ASSIGNMENT OF CONTRACTS".
COMPANY BANKRUPTCY CONSIDERATIONS. Winston & Strawn, counsel to the
Company and the Trust Depositor, will render an opinion to the Applicable
Trustee that in the event the Company became a debtor under the United States
Bankruptcy Code, the transfer of the Contracts from the Company to the Trust
Depositor in accordance with the Transfer and Sale Agreement (and any related
purchase agreement in connection with transfers of Subsequent Contracts;
hereinafter, a "SUBSEQUENT PURCHASE AGREEMENT") would be treated as a sale and
not as a pledge to secure borrowings and that the Trust Depositor would not be
consolidated with the Company as a single entity. If, however, the transfer of
the Contracts from the Company to the Trust Depositor were treated as a pledge
to secure borrowings by the Company or if the Trust Depositor were ordered
consolidated with the Company as a single entity or were to become bankrupt for
any reason, the distribution of proceeds of the Contracts to the Trust might be
subject to the automatic stay provisions of the United States Bankruptcy Code,
which would delay the distribution of such proceeds for an uncertain period of
time. In addition, a bankruptcy trustee would have the power to sell the
Contracts if the proceeds of such sale could satisfy the amount of the debt
deemed owed by the Company, or the bankruptcy trustee could substitute other
collateral in lieu of the Contracts to secure such debt, or such debt could be
subject to adjustment by the bankruptcy court if the Company were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code. A case
decided by the United States Court of Appeals for the Tenth Circuit contains
language to the effect that accounts sold by a debtor under Article 9 of the
Uniform Commercial Code ("UCC") would remain property of the debtor's bankruptcy
estate. Although the Contracts constitute chattel paper under the UCC rather
than accounts, sales of chattel paper are similarly governed by Article 9 of the
UCC. If, following a bankruptcy of the Company, a court were to follow the
reasoning of the Tenth Circuit and apply such reasoning to chattel paper, then
similar reductions or delays in payments of collections on or in respect of the
Contracts could occur. Additionally, because the Company has purchased
Contracts from Dealers located in the Tenth Circuit which could become debtors
in a bankruptcy proceeding, the rationale of such case could be applicable to
such Dealers' sales of Contracts to the Company and the corresponding negative
implications for timing of receipt of payments with respect to such Contracts
may occur.
RISKS ASSOCIATED WITH NON-RECOURSE NATURE OF SECURITIES - NO RECOURSE TO
THE COMPANY, TRUST DEPOSITORS OR THEIR AFFILIATES. None of the Company, any
Trust Depositor or any of their affiliates is generally obligated to make any
payments in respect of any Notes, the Certificates or the Contracts of a given
Trust. However, in connection with the sale of Contracts by the Trust Depositor
to a given Trust, the Trust Depositor will make representations and warranties
with respect to the characteristics of such Contracts and, in certain
circumstances, the Trust Depositor may be required to repurchase Contracts with
respect to which such representations and warranties have been breached. See
"DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS
15
<PAGE>
AND POOLING AND SERVICING AGREEMENTS - SALE AND ASSIGNMENT OF CONTRACTS". The
Company, as Seller, will correspondingly be obligated to the Trust Depositor
under the Transfer and Sale Agreement (which rights of the Trust Depositor
against the Company will be assigned to the Trust) to repurchase the Contracts
from the Trust Depositor contemporaneously with the Trust Depositor's purchase
of the Contract from a Trust. See "DESCRIPTION OF THE TRANSFER AND SALE
AGREEMENT". Moreover, if the Company were to cease acting as Servicer, delays
in processing payments on the Contracts and information in respect thereof could
occur and result in delays in payments to the Securityholders. The related
Prospectus Supplement may set forth certain additional information regarding the
Company and any Trust Depositor.
RISKS ASSOCIATED WITH NON-RECOURSE NATURE OF SECURITIES - TRUSTS HAVE NO
SIGNIFICANT ASSETS OR SOURCES OF FUNDS OTHER THAN THE CONTRACTS. None of the
Trusts will have, nor will any Trust be permitted or expected to have, any
significant assets or sources of funds other than the Contracts and, to the
extent provided in the related Prospectus Supplement, a Pre-Funding Account, a
Collateral Reinvestment Account, a Reserve Fund and any other credit enhancement
or Trust Property. The Notes of any series will represent obligations solely
of, and the Certificates of any series will represent interests solely in, the
related Trust, and neither the Notes nor the Certificates of any series will be
insured or guaranteed by the Trust Depositor, the Servicer, the Applicable
Trustee, or any other person or entity (except as may be described in a
Prospectus Supplement). Consequently, holders of the Securities of any series
must rely for repayment upon payments on the related Contracts and, if and to
the extent available, amounts on deposit in the Pre-Funding Account (if any),
the Collateral Reinvestment Account (if any), the Reserve Fund (if any) and any
other credit enhancement, all as specified in the related Prospectus Supplement.
Any such credit enhancement will not cover all contingencies, and losses in
excess of amounts available pursuant to such credit enhancement will be borne
directly by the Securityholders.
SUBORDINATION OF CERTAIN CLASSES OF SECURITIES. To the extent specified
in the related Prospectus Supplement, distributions of interest and principal on
one or more classes of Notes, if any, or Certificates of a series may be
subordinated in priority of payment to interest and principal due on certain of
the Notes, if any, of such series or one or more classes of Certificates of such
series. As a result of such subordination, in the event that losses with
respect to the Contracts and associated reductions in collections require
application of available collections and credit enhancement to a class of
Securities with priority of payment over another class, there may not be
sufficient assets remaining to pay amounts due on the subordinated Securities.
PREPAYMENTS ON CONTRACTS AFFECT YIELD OF SECURITIES. By their terms,
the Contracts may be prepaid, in whole or in part, at any time and each Contract
contains a provision which permits the Trust Depositor to require full
prepayment in the event of a sale of the Motorcycle securing a Contract. In
addition, repurchases of the Contracts by the Seller through the Trust Depositor
could occur in the event of a breach of a representation and warranty with
respect to the Contracts and upon exercise of the Trust Depositor's option to
repurchase Contracts when the aggregate outstanding principal balances of the
Contracts owned by the Trust (the "POOL BALANCE") has decreased to a certain
level. Any prepayments and repurchases of Contracts will reduce the average
life of the Contracts and the interest received by the Noteholders or
Certificateholders over the life of the Notes or Certificates (for this purpose
the term "PREPAYMENT" includes liquidations due to default, as well as receipt
of proceeds from credit life, credit disability and casualty insurance
policies). In addition, with respect to an Owner Trust the occurrence of a
Mandatory Special Redemption at or before the end of the Funding Period would
have the effect of reducing the interest received by Noteholders over the life
of the Notes.
In light of the above considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes, if any, or the
Certificates of a given series on each Distribution Date since such amount will
depend, in part, on the amount of principal collected on the related pool of
Contracts during the applicable Due Period. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Contracts, or repurchases of
Contracts, as described above, will be borne entirely by the Securityholders of
a given series. The related Prospectus Supplement may set forth certain
additional information with respect to the maturity and prepayment
considerations applicable to the particular pool of Contracts and the related
series of Securities. See "WEIGHTED AVERAGE LIFE OF THE SECURITIES."
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<PAGE>
SOCIAL, ECONOMIC AND OTHER FACTORS AFFECTING THE PERFORMANCE OF THE
CONTRACTS OR GENERATION OF SUBSEQUENT CONTRACTS. Economic conditions in states
or U.S. Territories where Obligors reside may affect the delinquency, loan loss
and repossession experience of a Trust with respect to the related Contracts.
The performance by such Obligors, or the ability of Eaglemark to acquire from
Dealers sufficient Subsequent Contracts for purchase with the Pre-Funded Amount,
may be affected by a variety of social and economic factors including, but are
not limited to, interest rates, unemployment levels, the rate of inflation, and
consumer perception of economic conditions generally. However, neither
Eaglemark nor the Trust Depositor is able to determine and has no basis to
predict whether or to what extent economic or social factors will affect the
performance by any Obligors, or the availability of Subsequent Contracts in
cases where Subsequent Contracts are to be transferred to a Trust as specified
in the related Prospectus Supplement.
RISK OF COMMINGLING. With respect to each Trust, the Servicer will be
obligated to deposit all payments on the Contracts (from whatever source) and
all proceeds of such Contracts collected during each Due Period into the
Collection Account of such Trust within two business days of receipt thereof.
However, if so provided in the related Prospectus Supplement, in the event that
the Company satisfies certain requirements for monthly or less frequent
remittances and the Rating Agencies affirm their ratings of the related
Securities at the initial level, then for so long as the Company is the Servicer
and provided that (i) there exists no Servicer Default (as defined herein) and
(ii) each other condition to making such monthly or less frequent deposits as
may be specified by the Rating Agencies and described in such Prospectus
Supplement is satisfied, the Servicer will not be required to deposit such
amounts into the Collection Account of such Trust until on or before the
business day preceding each Distribution Date. The Servicer will also be
obligated to deposit the aggregate Purchase Amount (as defined herein) of
Contracts purchased by the Servicer into the applicable Collection Account on or
before the business day preceding each Distribution Date. Pending deposit into
such Collection Account, collections may be invested by the Servicer at its own
risk and for its own benefit and will not be segregated from funds of the
Servicer. If the Servicer were unable to remit such funds, the applicable
Securityholders might incur a loss. To the extent set forth in the related
Prospectus Supplement, the Servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit of
the related Trust to secure timely remittances of collections on the related
Contracts and payment of the aggregate Purchase Amount with respect to Contracts
purchased by the Servicer.
NOTEHOLDERS' ABILITY TO REMOVE SERVICER WITHOUT CERTIFICATEHOLDERS'
CONSENT. Unless otherwise provided in the related Prospectus Supplement with
respect to a series of Securities issued by an Owner Trust that includes Notes,
in the event a Servicer Default (as defined herein) occurs, the Indenture
Trustee or the Noteholders with respect to such series, as described under
"DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND POOLING AND SERVICING
AGREEMENTS - RIGHTS UPON SERVICER DEFAULT", may remove the Servicer without the
consent of the Owner Trustee or any of the Certificateholders with respect to
such series. The Owner Trustee or the Certificateholders with respect to such
series will not have the ability, without the concurrence of the Noteholders of
such series, to remove the Servicer if a Servicer Default occurs.
NO ASSURANCES GIVEN AS TO CHANGES IN THE RATINGS OF THE SECURITIES. It
is a condition to the issuance of the Securities to be offered hereunder that
they be rated in one of the four highest rating categories by at least one
nationally recognized statistical rating organization (a "RATING AGENCY"). 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. Ratings of Securities will address the likelihood of the payment of
principal and interest thereon pursuant to their terms. The ratings of
Securities will not address the likelihood of an early return of invested
principal. There can be no assurance that a rating will remain for a 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. For
more detailed information regarding the ratings assigned to any class of a
particular series of Securities, see "SUMMARY OF TERMS - RATINGS" and "RISK
FACTORS - RATINGS OF THE SECURITIES" in the related Prospectus Supplement.
BOOK-ENTRY REGISTRATION - SECURITYHOLDERS LIMITED TO EXERCISING THEIR
RIGHTS THROUGH DTC. Each class of Securities of a given series will be
initially represented by one or more certificates registered in the
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name of Cede & Co. ("CEDE"), or any other nominee for The Depository Trust
Company ("DTC") set forth in such Prospectus Supplement (Cede, or such other
nominee, "DTC'S NOMINEE"), and will not be registered in the names of the
holders of the Securities of such series or their nominees. Because of this,
unless and until Definitive Securities (as defined herein) for such series are
issued, Securityholders will not be recognized by the Applicable Trustee.
Hence, until Definitive Securities are issued, Securityholders will be able to
exercise their rights only indirectly through DTC and its participating
organizations. See "CERTAIN INFORMATION REGARDING THE SECURITIES - BOOK-ENTRY
REGISTRATION" and "- DEFINITIVE SECURITIES".
LIMITED LIQUIDITY. There is currently no secondary market for the
Securities. There can be no assurance that any such market will develop or, if
it does develop, that it will provide Securityholders with liquidity of
investment or will continue for the life of the Securities. The Securities will
not be listed on any securities exchange.
RISKS RELATING TO YEAR 2000 ISSUES. The "YEAR 2000" issue concerns the
potential exposures related to the automated generation of business and
financial misinformation resulting from the application of computer programs
which have been written using two digits to identify a year in the date field
rather than four. These programs could fail or produce erroneous results during
the transition from the Year 1999 to the Year 2000.
Eaglemark Financial, the parent of Eaglemark, is addressing the Year
2000 issue from a corporate perspective. In 1997, Eaglemark established a
corporate Year 2000 compliance program to provide oversight from both a business
and technical perspective. The program coordinates vendors, consultants, local
and regional resources in a focused effort to validate and track Year 2000
compliance. Eaglemark has completed an investigation of the impact of Year 2000
on its internal applications that include PC-based and mid-range platforms and
products. Eaglemark currently does not support mainframe systems in-house.
Eaglemark plans to be fully Year 2000 compliant with its internal, critical
systems by December 31, 1998. As a prerequisite to purchase, all new or
replacement systems acquired by Eaglemark have been certified as Year 2000
compliant by third-party software vendors. As implementation of these products
progresses, technical and user project teams include Year 2000 testing scripts
as part of acceptance testing criteria. Additionally, Eaglemark is tracking the
progress of its third-party processors to meet the December 31, 1998 target for
Year 2000 compliance. Eaglemark has begun the process of developing a
contingency plan to address the possibility that its systems will not be fully
Year 2000 compliant by December 31, 1999.
Eaglemark expects all of its third-party providers to find and correct
Year 2000 deficiencies. To this end, Eaglemark is in the process of accessing
the readiness of its third-party providers whose system disruptions or data
delivery would be problematic to Eaglemark. Eaglemark has sent its third-party
providers a Year 2000 questionnaire to assist in our evaluation of their Year
2000 compliance efforts. Once Eaglemark receives their responses, it will
develop a critical supplier list for additional inquiry and follow up until
their Year 2000 readiness is comfirmed.
Management does not anticipate that the total cost to Eaglemark of these
Year 2000 compliance activities will be material to its financial position or
results of operations in any given year. All costs incurred to date have been
internal. The costs of these activities has been figured into the 1998 and 1999
budgets and none of the costs relating to such activities will be paid out of
the Trust Property.
If Eaglemark, as Servicer, the Owner Trustee or the Indenture Trustee do
not have computerized systems that are Year 2000 compliant by the Year 2000, the
ability to service the Contracts (in the case of the Servicer), to make
distributions to the Noteholders (in the case of the Indenture Trustee) and
Certificateholders (in the case of the Owner Trustee) may be materially and
adversely affected.
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THE TRUSTS
With respect to each series of Securities, the Trust Depositor will
establish a separate Trust pursuant to the respective Trust Agreement or Pooling
and Servicing Agreement, as applicable, for the transactions described herein
and in the related Prospectus Supplement. The property of each Trust will
include a pool of retail installment sales contracts of new and used Harley-
Davidson motorcycles, or in certain limited instances Motorcycles manufactured
by Buell (limited to 2.5% of the principal balance of the Contracts owned by a
Trust) and Motorcycles manufactured by certain Other Manufacturers (see "OTHER
MANUFACTURERS" herein) (limited to 10% of the principal balance of the
Contracts owned by a Trust) as well as all payments due thereunder on and after
the applicable Cutoff Date. Such Contracts will be sold by the Company to the
Trust Depositor but will continue to be serviced by the Company as Servicer. On
the applicable Closing Date, after the issuance of the Certificates and any
Notes of a given series, the Trust Depositor will sell the Initial Contracts to
the Trust to the extent specified in the related Prospectus Supplement. If and
to the extent so provided in the related Prospectus Supplement, Subsequent
Contracts will be conveyed to the Trust as frequently as daily during the
Funding Period. In addition, if so provided in the related Prospectus
Supplement, the property of a Trust may also include monies deposited into the
Collateral Reinvestment Account on the Closing Date. With respect to an Owner
Trust, during the Revolving Period (if applicable), principal will not be
distributed on the Securities of the related series, and principal collections
on the Contracts of such Trust, together with (if and to the extent described in
the related Prospectus Supplement) interest collections on such Contracts that
are in excess of amounts required to be distributed therefrom, will be deposited
from time to time in the Collateral Reinvestment Account and will be used by the
Trust to purchase Subsequent Contracts during such Revolving Period. Any
Subsequent Contracts so conveyed will also be assets of the applicable Trust,
subject, in the case of any Owner Trust that issues Notes, to the prior rights
of the related Indenture Trustee and the Noteholders, if any, in such Subsequent
Contracts. The property of each Trust will also include (i) such amounts as
from time to time may be held in separate trust accounts established and
maintained pursuant to the related Sale and Servicing Agreement or Pooling and
Servicing Agreement and the proceeds of such accounts, as described herein and
in the related Prospectus Supplement; (ii) security interests in the Motorcycles
and any other interest of the Trust Depositor in such Motorcycles; (iii) the
rights to proceeds from claims on certain physical damage, credit life and
disability insurance policies covering the Motorcycles or the Obligors, as the
case may be; (iv) the interest of the Trust Depositor in any proceeds from
recourse to Dealers (as defined herein) or other originators in respect of
Contracts as to which the Servicer has determined that eventual repayment in
full is unlikely; and (v) any and all proceeds of the foregoing. To the extent
specified in the related Prospectus Supplement, a Pre-Funding Account, a
Collateral Reinvestment Account, a Reserve Fund or other form of credit
enhancement or such other property, may be a part of the property of any given
Trust or may be held by the Trustee or an Indenture Trustee for the benefit of
holders of the related Securities.
The Servicer will continue to service the Contracts held by each Trust
and will receive fees for such services. See "DESCRIPTION OF THE SALE AND
SERVICING AGREEMENTS AND POOLING AND SERVICING AGREEMENTS - SERVICING
COMPENSATION AND PAYMENT OF EXPENSES" herein and in the related Prospectus
Supplement. To facilitate the servicing of the Contracts, the Trust Depositor
and the Applicable Trustee will authorize the Servicer to retain physical
possession of the Contracts held by each Trust and other documents relating
thereto as custodian for each such Trust. Due to the administrative burden and
expense, the certificates of title to the Motorcycles will not be amended to
reflect the sale and assignment of the security interest in the Motorcycles to
each Trust. In the absence of such an amendment, the Trust may not have a
perfected security interest in the Motorcycles in all states. See "RISK FACTORS
- -- RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED MOTORCYCLES"; "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS"; and "DESCRIPTION OF THE SALE AND SERVICING
AGREEMENTS AND POOLING AND SERVICING AGREEMENTS - SALE AND ASSIGNMENT OF
CONTRACTS" herein.
If the protection provided to any Noteholders of a given series by the
subordination of the related Certificates and by the Reserve Fund, if any, or
other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Fund or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be, would
have to look principally to the Obligors on the related Contracts, the proceeds
from the repossession and sale of Motorcycles which secure defaulted
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Contracts and the proceeds from any recourse against Dealers or other
originators with respect to such Contracts. In such event, certain factors,
such as the applicable Trust's not having perfected security interests in the
Motorcycles in all states, may affect the Servicer's ability to repossess and
sell the collateral securing the Contracts, and thus may reduce the proceeds to
be distributed to the holders of the Securities of such series. See
"DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND POOLING AND SERVICING
AGREEMENTS - DISTRIBUTIONS", "- CREDIT AND CASH FLOW ENHANCEMENT" and "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS".
The principal offices of each Trust and the related Applicable Trustee
will be specified in the applicable Prospectus Supplement.
THE TRUSTEE AND THE INDENTURE TRUSTEE
The Trustee and the Indenture Trustee, as applicable, for each Trust
will be specified in the related Prospectus Supplement. The Applicable
Trustee's liability in connection with the issuance and sale of the related
Securities will be limited solely to the express obligations of such Applicable
Trustee set forth in the related Trust Agreement and the Sale and Servicing
Agreement or the related Pooling and Servicing Agreement, as applicable. The
Applicable Trustee may resign at any time, in which event the Servicer, or its
successor (or, in the case of an Owner Trust that issues Notes, the
Administrator thereof), will be obligated to appoint a successor trustee. The
Administrator of any Owner Trust that issues Notes and the Servicer in respect
of any Grantor Trust may also remove the Applicable Trustee if such Trustee
ceases to be eligible to continue as Trustee under the related Trust Agreement
or Pooling and Servicing Agreement, as applicable, or if the Applicable Trustee
becomes insolvent. In such circumstances, the Administrator or Servicer, as
applicable, will be obligated to appoint a successor Trustee. Any resignation
or removal of a Trustee or Indenture Trustee, as applicable, and appointment of
a successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.
HARLEY-DAVIDSON MOTORCYCLES
All of the Motorcycles securing Contracts were manufactured by
Harley-Davidson, except that not more than 2.5% of the Contracts (including all
Subsequent Contracts) may relate to, and be secured by, Motorcycles manufactured
by Buell, and not more than 10.0% of the Contracts (including all Subsequent
Contracts) may relate to, and be secured by, Motorcycles manufactured by Other
Manufacturers. See "OTHER MANUFACTURERS." Buell produces "PERFORMANCE"
motorcycles using engines and certain other parts manufactured by
Harley-Davidson.
Harley-Davidson produces and sells premium heavyweight motorcycles.
Within the heavyweight class, Harley-Davidson sells touring motorcycles
(equipped for long-distance touring), as well as custom motorcycles which
emphasize the distinctive styling associated with certain classic
Harley-Davidson motorcycles. Harley-Davidson motorcycles are based on
variations of five basic chassis designs and are powered by one of four air
cooled, twin cylinder engines of "V" configuration which have displacements of
883cc, 1200cc, 1340cc and 1450cc. Harley-Davidson manufactures its own engines
and frames and is the only major manufacturer of motorcycles in the United
States.
Buell produces "PERFORMANCE" motorcycles using Harley-Davidson 1200cc
engines that are further modified in the manufacturing process, as well as
certain other Harley parts. The "PERFORMANCE" aspect of the motorcycles refers
to overall handling characteristics of the motorcycle, including cornering,
acceleration and braking. Buell motorcycles and related products are currently
distributed exclusively through Harley-Davidson dealers. Buell's overall share
of the "PERFORMANCE" market is negligible, but increasing.
OTHER MANUFACTURERS
Except as otherwise specified in the related Prospectus Supplement,
Contracts aggregating not more than 10.0% of the aggregate principal balances of
all Contracts in a Trust (including Subsequent Contracts) may relate to, and be
secured by, Motorcycles manufactured by Honda, Yamaha, Suzuki, Kawasaki as well
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as certain other manufacturers. Such Motorcycles fall within two (2)
categories: "touring cycles" (with displacements typically over 750cc) which are
generally intended for use in long distance travel, and "street legal cycles",
which include all other motorcycles which may be licensed for street use under
applicable state or local law and which are not generally viewed as falling with
the "touring cycle" category.
THE CONTRACTS
GENERAL
The Contracts (including Subsequent Contracts) in each Trust have been
or will be purchased by the Company from a network of Harley-Davidson Dealers
located throughout the United States. The Company's personnel contact Dealers
and explain the Company's available financing plans, terms, prevailing rates and
credit and financing policies. If the Dealer wishes to use the Company's
available customer financing, the Dealer must make an application to the Company
for approval.
Contracts (including Subsequent Contracts) that the Company purchases
are written on forms provided or approved by the Company and are purchased on an
individually approved basis in accordance with the Company's guidelines. The
Dealer submits the customer's credit application and purchase order to the
Company's office where an analysis of the creditworthiness of the proposed buyer
is made. The analysis includes a review of the proposed buyer's paying habits,
length and likelihood of continued employment and certain other procedures. The
Company's current underwriting guidelines for Contracts generally require that
the monthly payment on the Contract, together with the Obligor's other fixed
monthly obligations, not exceed 40% of the Obligor's monthly gross income;
provided, however, the Company may originate a Contract in excess of 40% of an
Obligor's monthly gross income if the Obligor makes a larger down payment or has
an exceptionally good credit rating or other offsetting factors exist. With
respect to Contracts for new Motorcycles, and for used Motorcycles of model year
1990 or later, the Company generally finances up to 90% of the Motorcycle's
sales price. The Company generally finances up to 85% of such amount for used
Motorcycles of a model year earlier than 1990. The Company will also finance
certain Dealer installed accessories, sales tax and title fees as well as
premiums for the term of the contract on optional credit life and accident and
health insurance, premiums for extended warranty insurance and premiums for
required physical damage insurance on the Motorcycle which financed amounts are
part of the principal balance of the respective Contract. If the application
meets the Company's guidelines and the credit is approved, the Company purchases
the Contract when the customer accepts delivery of the Motorcycle.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning the experience of the Company pertaining
to delinquencies, repossessions and net losses with respect to new and used
Motorcycle Contracts will be set forth in each Prospectus Supplement. There can
be no assurance that the delinquency, repossession and net loss experience on
any particular pool of Contracts will be comparable to prior experience or to
such information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates of
any series will generally be influenced by the rate at which the principal
balances of the related Contracts are paid, which payment may be in the form of
scheduled amortization or prepayments. (For this purpose, the term
"PREPAYMENTS" includes prepayments in full, partial prepayments (including those
related to rebates of extended warranty contract costs and insurance premiums),
liquidations due to default, losses caused by the issuance of an order by a
court in any insolvency proceeding reducing the amount owed under a Contract, as
well as receipts of proceeds from physical damage, credit life and disability
insurance policies and from certain purchases or repurchases of Contracts from
the Trust.) All of the Contracts are prepayable at any time without penalty to
the Obligor. The rate of prepayment of Contracts is influenced by a variety of
economic, social and other factors. In addition, under certain circumstances,
the Company, through the Trust Depositor, will be obligated to repurchase
Contracts from a given Trust pursuant to the related Transfer and Sale
Agreement, Sale and
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Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of certain representations and warranties. See "DESCRIPTION OF THE SALE AND
SERVICING AGREEMENTS AND POOLING AND SERVICING AGREEMENTS - SALE AND ASSIGNMENT
OF CONTRACTS" and "- SERVICING PROCEDURES". See also "DESCRIPTION OF THE SALE
AND SERVICING AGREEMENTS AND POOLING AND SERVICING AGREEMENTS - TERMINATION"
regarding the Trust Depositor's option to repurchase the Contracts from a given
Trust (and the Seller's option to concurrently repurchase such Contracts from
the Trust Depositor) and "- INSOLVENCY EVENT" regarding the sale of the
Contracts owned by a Trust if an Insolvency Event with respect to the Trust
Depositor applicable to such Trust occurs.
In light of the above considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes, if any, or the
Certificates of a given series on each Distribution Date since such amount will
depend, in part, on the amount of principal collected on the related pool of
Contracts during the applicable Due Period. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Contracts will be borne
entirely by the Noteholders, if any, and the Certificateholders of a given
series. The related Prospectus Supplement may set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to the particular pool of Contracts and the related series of
Securities.
POOL FACTORS AND TRADING INFORMATION
The "NOTE POOL FACTOR" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal balance of
such class of Notes, as of the applicable Distribution Date (after giving effect
to payments to be made on such Distribution Date), as a fraction of the initial
outstanding principal balance of such class of Notes. The "CERTIFICATE POOL
FACTOR" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool
Factor and each Certificate Pool Factor will initially be 1.0000000 and
thereafter will decline to reflect reductions in the outstanding principal
balance of the applicable class of Notes, or the reduction of the Certificate
Balance of the applicable class of Certificates, as the case may be. A
Noteholder's portion of the aggregate outstanding principal balance of the
related class of Notes is the product of (i) the original denomination of such
Noteholder's Note and (ii) the applicable Note Pool Factor. A
Certificateholder's portion of the aggregate outstanding Certificate Balance for
the related class of Certificates is the product of (a) the original
denomination of such Certificateholder's Certificate and (b) the applicable
Certificate Pool Factor.
Unless otherwise provided in the related Prospectus Supplement, the
Noteholders, if any, and the Certificateholders will receive reports on or about
each Distribution Date concerning, with respect to the Due Period immediately
preceding such Distribution Date, payments received on the Contracts, the Pool
Balance, each Certificate Pool Factor or Note Pool Factor, as applicable, 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. See "CERTAIN
INFORMATION REGARDING THE SECURITIES - REPORTS TO SECURITYHOLDERS".
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the
Trust will use the net proceeds received from the sale of the Securities (i) to
purchase the Initial Contracts and related assets from the Trust Depositor, (ii)
to make the deposit, if any, of the Pre-Funded Amount into the Pre-Funding
Account, if any, and (iii) to make the initial deposit, if any, to the
Collateral Reinvestment Account, if any. The Seller will use the net proceeds
from the Trust Depositor's purchase of the Initial Contracts, as well as
Subsequent Contracts, for the repayment of warehouse lines through which it
finances its Motorcycle conditional sales contracts, and for other corporate
purposes.
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EAGLEMARK FINANCIAL SERVICES, INC.; EAGLEMARK, INC.;
AND THE TRUST DEPOSITORS
EAGLEMARK FINANCIAL SERVICES, INC.
Eaglemark Financial was formed in June 1992 with a capital infusion of
$10,000,000 from Harley-Davidson and an additional $15,000,000 capital
contribution from a major institutional investor in January 1993. In November
1995, Harley-Davidson purchased the equity owned by the major institutional
investor and as a result Eaglemark Financial is a 97.8% owned subsidiary of
Harley-Davidson. The business of Eaglemark Financial, through its 100%
ownership of Eaglemark, has been to provide wholesale and retail financing,
credit card and insurance services to Dealers and customers of Harley-Davidson.
EAGLEMARK, INC.
Eaglemark was incorporated as a Nevada corporation in 1992 and is a
wholly-owned subsidiary of Eaglemark Financial. Eaglemark began operations in
January 1993 when it purchased the $85 million wholesale financing portfolio of
certain Harley-Davidson Dealers from ITT Commercial Finance; subsequently,
Eaglemark entered the retail consumer finance business. Eaglemark provides
financing to Harley-Davidson customers for new and used motorcycles, as well as
certain other recreational products such as single-engine aircraft and marine
products. Harley-Davidson Motorcycles are financed through the Canadian
Harley-Davidson dealers under the trade name "Deeley Credit." Eaglemark also
finances extended service contracts on Motorcycles. Eaglemark's financing,
credit card and insurance programs are designed to work together as a package
that appeals to the needs of Harley-Davidson's customers. The intent of such a
package is to increase Dealer and customer loyalty to Eaglemark while improving
revenue and profits over time. Eaglemark's principal executive offices are
located at 4150 Technology Way, Carson City, Nevada 89706 (telephone
702/886-3200).
THE TRUST DEPOSITORS
With respect to each series of Securities, the Trust Depositor will be a
special-purpose finance subsidiary of the Company. All of the common stock of
the Trust Depositor will be owned by Eaglemark. All of the officers and
directors of each Trust Depositor will be employed by Eaglemark or Eaglemark
Financial, except that at least two directors of each Trust Depositor shall at
all times be independent of Eaglemark, Eaglemark Financial and Harley-Davidson.
DESCRIPTION OF THE NOTES
GENERAL
Each Owner Trust may issue one or more classes of Notes pursuant to an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
Each class of Notes will initially be represented by one or more Notes,
in each case registered in the name of the nominee of DTC (together with any
successor depository selected by the Trust, the "DEPOSITORY"), except as set
forth below. The Notes will be available for purchase in denominations of
$1,000 and integral multiples thereof in book-entry form only. The Company has
been informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Notes of each class. Unless and
until Definitive Notes (as defined herein) are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Noteholder will be entitled to receive a physical certificate representing a
Note. All references herein and in the related Prospectus Supplement to actions
by Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "PARTICIPANTS"), and all references herein and
in the related Prospectus Supplement to distributions, notices, reports and
statements to Noteholders refer to
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distributions, notices, reports and statements to DTC or its nominee, as the
registered holder of the Notes, for distribution to Noteholders in accordance
with DTC's procedures with respect thereto. See "CERTAIN INFORMATION REGARDING
THE SECURITIES -- BOOK-ENTRY REGISTRATION" and "-- DEFINITIVE SECURITIES".
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such series, as
described in the related Prospectus Supplement. Unless otherwise provided in
the related Prospectus Supplement, payments of interest on the Notes of such
series will be made prior to payments of principal thereon. If so provided in
the related Prospectus Supplement, a series may include one or more classes of
Strip Notes entitled to (i) principal payments with disproportionate, nominal or
no interest payments or (ii) interest payments with disproportionate, nominal or
no principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a given series or the method for determining such Interest Rate.
See also "CERTAIN INFORMATION REGARDING THE SECURITIES -- FIXED RATE SECURITIES"
and "-- FLOATING RATE SECURITIES". One or more classes of Notes of a series may
be redeemable in whole or in part under the circumstances specified in the
related Prospectus Supplement, including, if a Pre-Funding Account or Collateral
Reinvestment Account has been established with respect to a related series, from
amounts remaining in the applicable account at the end of the Funding Period or
Revolving Period, as the case may be, or as a result of the Seller through the
Trust Depositor exercising its option to repurchase the related pool of
Contracts.
To the extent specified in any Prospectus Supplement, one or more
classes of Notes of a given series may have fixed principal payment schedules,
as set forth in such Prospectus Supplement; Noteholders of such Notes would be
entitled to receive as payments of principal on any given Distribution Date the
applicable amounts set forth on such schedule with respect to such Notes, in the
manner and to the extent set forth in the related Prospectus Supplement.
Payments to holders of Notes of all classes within a series in respect
of interest will have the same priority. Under certain circumstances, the
amount available for such payments could be less than the amount of interest
payable on the Notes on any of the dates specified for payments in the related
Prospectus Supplement (each, a "DISTRIBUTION DATE"), in which case each class of
Noteholders will receive its ratable share (based upon the aggregate amount of
interest due to the holders of such class of Notes) of the aggregate amount
available to be distributed in respect of interest on the Notes of such series.
See "DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND POOLING AND SERVICING
AGREEMENTS -- DISTRIBUTIONS" and "-- CREDIT AND CASH FLOW ENHANCEMENT".
In the case of a series of Securities which includes two or more classes
of Notes, the sequential order and priority of payment in respect of principal
and interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal of and interest on any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class. One or more classes of Notes of a series may be redeemable in whole
or in part under the circumstances specified in the related Prospectus
Supplement, including, if a Pre-Funding Account or Collateral Reinvestment
Account has been established with respect to the related series, from amounts
remaining in the applicable account at the end of the Funding Period or
Revolving Period, as the case may be, or as a result of the exercise by the
Seller through the Trust Depositor or such other party as may be specified in
the related Prospectus Supplement of its option to repurchase the related pool
of Contracts. See "DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND POOLING
AND SERVICING AGREEMENTS -- TERMINATION".
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CERTAIN PROVISIONS OF THE INDENTURE
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the
Notes of a given series, "EVENTS OF DEFAULT" under the related Indenture will
include the following: (i) a default for five days or more in the payment of any
interest on any such Note; (ii) a default in the payment of the principal, or
any installment of the principal, of any such Note when the same becomes due and
payable; (iii) a default in the observance or performance of any covenant or
agreement of the applicable Trust made in such Indenture and the continuation of
any such default for a period of 30 days after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and such Indenture
Trustee by the holders of at least 25% in principal amount of such Notes then
outstanding; (iv) any representation or warranty made by such Trust in such
Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect in a material respect as of the time made, if
such breach is not cured within 30 days after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and such Indenture
Trustee by the holders of at least 25% in principal amount of such Notes then
outstanding; or (v) certain events of bankruptcy, insolvency, receivership or
liquidation of the applicable Trust. However, the amount of principal required
to be paid to Noteholders of such series under the related Indenture will
generally be limited to amounts available to be deposited in the applicable Note
Distribution Account. Therefore, the failure to pay principal on a class of
Notes generally will not result in the occurrence of an Event of Default until
the final scheduled Distribution Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to
the Notes of any series, the related Indenture Trustee or holders of not less
than 66 2/3% of the principal amount (or a lesser percentage as specified in the
related Prospectus Supplement, but in no case not less than 50%) of such Notes
then outstanding may declare the principal of such Notes to be immediately due
and payable. Such declaration may, under certain circumstances, be rescinded by
the holders not less than 66 2/3% (or a lesser percentage as specified in the
related Prospectus Supplement, but in no case not less than 50%) of the
principal amount of such Notes then outstanding.
If the Notes of any series are declared due and payable following an
Event of Default with respect thereto, the related Indenture Trustee may
institute proceedings to collect amounts due or foreclose on Trust Property,
exercise remedies as a secured party, sell the related Contracts or elect to
have the applicable Trust maintain possession of such Contracts and continue to
apply collections on such Contracts as if there had been no declaration of
acceleration. However, such Indenture Trustee is prohibited from selling such
Contracts following an Event of Default, other than a default in the payment of
any principal of, or a default for five days or more in the payment of any
interest on, any Note of such series, unless (i) the holders of all such
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale or (iii) such Indenture Trustee
determines that the proceeds of the Contracts would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such obligations had not been declared due and payable, and such
Indenture Trustee obtains the consent of the holders of not less than 66 2/3%
(or a lesser percentage as specified in the related Prospectus Supplement, but
in no case not less than 50%) of the aggregate outstanding principal amount of
such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes if such
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to the provisions for indemnification and
certain limitations contained in the related Indenture, the holders of a
majority in principal amount of the outstanding Notes of a given series will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the applicable Indenture Trustee, and the holders of
a majority in principal amount of such Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or
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interest or a default in respect of a covenant or provision of such Indenture
that cannot be modified without the waiver or consent of all the holders of each
such outstanding Note.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in principal
amount of the outstanding Notes of such series have made written request to such
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such holder or holders have offered such Indenture Trustee
reasonable indemnity, (iv) such Indenture Trustee has for 60 days failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to such Indenture Trustee during such 60-day period by
the holders of a majority in principal amount of such outstanding Notes.
In addition each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the Trust Depositor or the applicable Trust any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the related Notes or for the agreements of such Trust contained in the
applicable Indenture.
CERTAIN COVENANTS. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless, among such
other requirements as may be specified in the related Prospectus Supplement,
(i) the entity formed by or surviving such consolidation or merger is organized
under the laws of the United States, any state or the District of Columbia,
(ii) such entity expressly assumes such Trust's obligation to make due and
punctual payments upon the Notes of the related series and to perform or observe
every agreement and covenant of such Trust under the Indenture, (iii) no Event
of Default shall have occurred and be continuing immediately after such merger
or consolidation, (iv) such Trust has been advised that the rating of the Notes
(and, if so provided in such Indenture, the Certificates) of such series then in
effect would not be reduced or withdrawn by the Rating Agencies as a result of
such merger or consolidation, (v) such Trust has received an opinion of counsel
to the effect that such consolidation or merger would have no material adverse
tax consequence to the Trust or to any related Noteholder or Certificateholder
and (vi) any action as is necessary to maintain the lien and security interest
of the Indenture shall have been taken.
No Owner Trust will, among other things, (i) except as expressly
permitted by the applicable Indenture, the applicable Sale and Servicing
Agreement or Pooling and Servicing Agreement or certain related documents with
respect to such Trust (collectively, the "RELATED DOCUMENTS"), sell, transfer,
exchange or otherwise dispose of any of the assets of such Trust, (ii) claim any
credit on or make any deduction from the principal and interest payable in
respect of the Notes of the related series (other than amounts properly withheld
under the Code or applicable state law) or assert any claim against any present
or former holder of such Notes because of the payment of taxes levied or
assessed upon such Trust, (iii) permit the validity or effectiveness of such
Indenture to be impaired or permit any person to be released from any covenants
or obligations with respect to such Notes under such Indenture except as may be
expressly permitted thereby or (iv) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of such Trust or any part thereof,
or any interest therein or the proceeds thereof (other than tax liens,
mechanics' liens and other liens that arise by operation of law, in each case on
a Motorcycle and arising solely as a result of an action or omission of the
related Obligor).
No Trust may engage in any activity other than as described herein or in
the Prospectus Supplement. No Trust will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes and
the related Indenture, pursuant to any Advances made to it by the Servicer or
otherwise in accordance with the Related Documents.
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MODIFICATION OF INDENTURE. Each Owner Trust and the related Indenture
Trustee may, with the consent of the holders of more than 50% (or such higher
percentage as specified in the related Prospectus Supplement) of the outstanding
Notes of the related series, execute a supplemental indenture to add provisions
to, change in any manner or eliminate any provisions of, the related Indenture,
or modify (except as provided below) in any manner the rights of the related
Noteholders.
However, with respect to a series of Notes, without the consent of the
holder of each such outstanding Note affected thereby, no supplemental indenture
will, among other things: (i) change the due date of any installment of
principal of or interest on any such Note or reduce the principal amount
thereof, the interest rate specified thereon or the redemption price with
respect thereto or change any place of payment where or the coin or currency in
which any such Note or any interest thereon is payable; (ii) impair the right to
institute suit for the enforcement of certain provisions of the related
Indenture regarding payment; (iii) reduce the percentage of the aggregate amount
of the outstanding Notes of such series, the consent of the holders of which is
required for any such supplemental indenture or the consent of the holders of
which is required for any waiver of compliance with certain provisions of such
Indenture or of certain defaults thereunder and their consequences as provided
for in such Indenture; (iv) modify or alter the provisions of such Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor on
such Notes, the Trust Depositor or an affiliate of any of them; (v) reduce the
percentage of the aggregate outstanding amount of such Notes, the consent of the
holders of which is required to direct the related Indenture Trustee to sell or
liquidate the Contracts if the proceeds of such sale would be insufficient to
pay the principal amount and accrued but unpaid interest on the outstanding
Notes of such series; (vi) amend the provisions of the Indenture which specify
the percentage of the aggregate principal amount of such Notes required to amend
certain sections of such Indenture or certain other related agreements; or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien of
such Indenture with respect to any of the collateral for such Notes or, except
as otherwise permitted or contemplated in such Indenture, terminate the lien of
such Indenture on any such collateral or deprive the holder of any such Note of
the security afforded by the lien of such Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, an
Owner Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
ANNUAL COMPLIANCE STATEMENT. Each Owner Trust that issues Notes will be
required to file annually with the related Indenture Trustee a written statement
as to the fulfillment of its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee for each Owner
Trust that issues Notes will be required to mail each year to all related
Noteholders a brief report relating to its eligibility and qualification to
continue as Indenture Trustee under the related Indenture, any amounts advanced
by it under the Indenture, the amount, interest rate and maturity date of
certain indebtedness owing by the related Owner Trust to the applicable
Indenture Trustee in its individual capacity, the property and funds physically
held by such Indenture Trustee as such and any action taken by it that
materially affects the related Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An Indenture will be
discharged with respect to the collateral securing the related Notes upon (i)
the delivery to the related Indenture Trustee for cancellation of all such Notes
or, with certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes and (ii) the payment of all
amounts and obligations, if any, which the Owner Trust owes to the Noteholders
or Indenture Trustee on behalf of the Noteholders.
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THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may resign
at any time, in which event the related Administrator will be obligated to
appoint a successor Trustee for such series. The Administrator may also remove
any such Indenture Trustee if such Indenture Trustee ceases to be eligible to
continue as such under the related Indenture or if such Indenture Trustee
becomes insolvent. In such circumstances, such Owner Trust will be obligated to
appoint a successor Trustee for the applicable series of Notes. Any resignation
or removal of the Indenture Trustee and appointment of a successor Trustee for
any series of Notes does not become effective until acceptance of the
appointment by the successor Trustee for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Except for the Certificates, if any, of a given series purchased by the
Trust Depositor, each class of Certificates will initially be represented by one
or more Certificates registered in the name of the Depository, except as set
forth below. Except for the Certificates, if any, of a given series purchased
by the Trust Depositor, the Certificates will be available for purchase in
minimum denominations of $1,000 and integral multiples thereof in book-entry
form only. The Company has been informed by DTC that DTC's nominee will be
Cede, unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the
Certificates of any series that are not purchased by the Trust Depositor.
Unless and until Definitive Certificates (as defined herein) are issued under
the limited circumstances described herein or in the related Prospectus
Supplement, no Certificateholder (other than the Trust Depositor) will be
entitled to receive a physical certificate representing a Certificate. All
references herein and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from the
Participants, and all references herein and in the related Prospectus Supplement
to distributions, notices, reports and statements to Certificateholders refer to
distributions, notices, reports and statements to DTC or its nominee, as the
case may be, as the registered holder of the Certificates, for distribution to
Certificateholders in accordance with DTC's procedures with respect thereto.
See "CERTAIN INFORMATION REGARDING THE SECURITIES -- BOOK-ENTRY REGISTRATION"
and " -- DEFINITIVE SECURITIES". Any Certificates of a given series owned by
the Trust Depositor or its affiliates will be entitled to equal and
proportionate benefits under the applicable Trust Agreement or Pooling and
Servicing Agreement, except that such Certificates will be deemed not to be
outstanding for the purpose of determining whether the requisite percentage of
Certificateholders has given any request, demand, authorization, direction,
notice or consent or taken any other action under the Related Documents (other
than the commencement by the related Trust of a voluntary proceeding in
bankruptcy as described under "DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS
AND POOLING AND SERVICING AGREEMENTS -- INSOLVENCY EVENT").
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of
losses, Pass-Through Rate and amount of or method of determining distributions
with respect to principal of and interest on each class of Certificates of a
given series will be described in the related Prospectus Supplement.
Distributions of interest on such Certificates will be made on the Distribution
Date specified in the related Prospectus Supplement and will be made prior to
distributions with respect to principal of such Certificates. To the extent
provided in the related Prospectus Supplement, a series may include one or more
classes of Strip Certificates entitled to (i) distributions in respect of
principal with disproportionate, nominal or no interest distributions or (ii)
interest distributions with disproportionate, nominal or no distributions in
respect of principal. Each class of Certificates
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may have a different Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate (and which may be zero for certain classes of Strip
Certificates) or any combination of the foregoing. The related Prospectus
Supplement will specify the Pass-Through Rate for each class of Certificates of
a given series or the method for determining such Pass-Through Rate. See also
"CERTAIN INFORMATION REGARDING THE SECURITIES -- FIXED RATE SECURITIES" and
"-- FLOATING RATE SECURITIES". Unless otherwise provided in the related
Prospectus Supplement, distributions in respect of the Certificates of a given
series that includes Notes may be subordinated to payments in respect of the
Notes of such series as more fully described in such Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, distributions in
respect of interest on and principal of any class of Certificates will be made
on a pro rata basis among all the Certificateholders of such class.
In the case of a series of Certificates which includes two or more
classes of Certificates, the timing, sequential order, priority of payment or
amount of distributions in respect of interest and principal, and any
schedule or formula or other provisions applicable to the determination thereof,
of each such class shall be as set forth in the related Prospectus Supplement.
One or more classes of Certificates of a series may be redeemable in whole or in
part under the circumstances specified in the related Prospectus Supplement,
including, if a Pre-Funding Account or Collateral Reinvestment Account has been
established with respect to the related series, from amounts remaining in the
applicable account at the end of the Funding Period or Revolving Period, as the
case may be, or as a result of the exercise by the Seller through the Trust
Depositor or such other party as may be specified in such Prospectus Supplement
of its option to repurchase the related pool of Contracts. See "DESCRIPTION OF
THE SALE AND SERVICING AGREEMENTS AND POOLING AND SERVICING AGREEMENTS
- -- TERMINATION".
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("FIXED RATE
SECURITIES") or at a variable or adjustable rate per annum ("FLOATING RATE
SECURITIES"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass-Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. Unless otherwise set forth
in the applicable Prospectus Supplement, interest on each class of Fixed Rate
Securities will be computed on the basis of a 360-day year of twelve 30-day
months. See "DESCRIPTION OF THE NOTES -- PRINCIPAL AND INTEREST ON THE NOTES"
and "DESCRIPTION OF THE CERTIFICATES -- DISTRIBUTIONS OF PRINCIPAL AND
INTEREST".
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable "INTEREST RESET PERIOD" (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities) at a
rate per annum determined by reference to an interest rate basis (the "BASE
RATE"), plus or minus the Spread, if any, or multiplied by the Spread
Multiplier, if any, in each case as specified in such Prospectus Supplement.
The "SPREAD" is the number of basis points (one basis point equals one
one-hundredth of a percentage point) that may be specified in the applicable
Prospectus Supplement as being applicable to such class, and the "SPREAD
MULTIPLIER" is the percentage that may be specified in the applicable Prospectus
Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) LIBOR (a "LIBOR
SECURITY"), (ii) the Commercial Paper Rate (a "COMMERCIAL PAPER RATE SECURITY"),
(iii) the Treasury Rate (a "TREASURY RATE SECURITY"), (iv) the Federal Funds
Rate (a "FEDERAL FUNDS RATE SECURITY"), (v) the CD Rate (a "CD RATE SECURITY")
or (vi) such other Base Rate as is set forth in such Prospectus Supplement. The
"INDEX MATURITY" for any class of Floating Rate Securities is the period of
maturity of the instrument or obligation from which the Base Rate is calculated.
"H.15(519)" means the publication entitled "STATISTICAL RELEASE H.15(519),
SELECTED INTEREST RATES", or any successor
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publication, published by the Board of Governors of the Federal Reserve System.
"COMPOSITE QUOTATIONS" means the daily statistical release entitled "COMPOSITE
3:30 P.M. QUOTATIONS FOR U.S. GOVERNMENT SECURITIES" published by the Federal
Reserve Bank of New York. "INTEREST RESET DATE" will be the first day of the
applicable Interest Reset Period, or such other day as may be specified in the
related Prospectus Supplement with respect to a class of Floating Rate
Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities
will be issued will appoint, and enter into agreements with, a calculation agent
(each, a "CALCULATION AGENT") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given series, which may be either the
related Trustee or Indenture Trustee with respect to such series. All
determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Securities of a given class. All percentages resulting from any
calculation of the rate of interest on a Floating Rate Security will be rounded,
if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
CD RATE SECURITIES. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate (as defined herein) and the Spread or Spread Multiplier, if any, specified
in such Security and in the applicable Prospectus Supplement.
The "CD RATE" for each Interest Reset Period shall be the rate as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "CD RATE DETERMINATION DATE") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement as
published in H.15(519) under the heading "CDS (SECONDARY MARKET)". In the event
that such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such CD Rate Determination
Date, then the "CD RATE" for such Interest Reset Period will be the rate on such
CD Rate Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Prospectus Supplement as published in
Composite Quotations under the heading "CERTIFICATES OF DEPOSIT". If by
3:00 p.m., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the "CD RATE" for
such Interest Reset Period will be calculated by the Calculation Agent for such
CD Rate Security and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Determination Date,
of three leading nonbank dealers in negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent for such
CD Rate Security for negotiable certificates of deposit of major United States
money center banks of the highest credit standing (in the market for negotiable
certificates of deposit) with a remaining maturity closest to the Index Maturity
designated in the related Prospectus Supplement in a denomination of $5,000,000;
PROVIDED, HOWEVER, that if the dealers selected as aforesaid by such Calculation
Agent are not quoting offered rates as mentioned in this sentence, the "CD RATE"
for such Interest Reset Period will be the same as the CD Rate for the
immediately preceding Interest Reset Period.
The "CALCULATION DATE" pertaining to any CD Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset Date.
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COMMERCIAL PAPER RATE SECURITIES. Each Commercial Paper Rate Security
will bear interest for each Interest Reset Period at the interest rate
calculated with reference to the Commercial Paper Rate (as defined herein) and
the Spread or Spread Multiplier, if any, specified in such Security and in the
applicable Prospectus Supplement.
The "COMMERCIAL PAPER RATE" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate Security as
of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "COMMERCIAL PAPER RATE DETERMINATION DATE") and shall be the
Money Market Yield (as defined below) on such Commercial Paper Rate
Determination Date of the rate for commercial paper having the Index Maturity
specified in the applicable Prospectus Supplement, as such rate shall be
published in H.15(519) under the heading "COMMERCIAL PAPER". In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Commercial Paper Rate
Determination Date, then the "COMMERCIAL PAPER RATE" for such Interest Reset
Period shall be the Money Market Yield on such Commercial Paper Rate
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "COMMERCIAL
PAPER". If by 3:00 p.m., New York City time, on such Calculation Date such rate
is not yet published in either H.15(519) or Composite Quotations, then the
"COMMERCIAL PAPER RATE" for such Interest Reset Period shall be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
City time, on such Commercial Paper Rate Determination Date of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent for such Commercial Paper Rate Security for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bonds are rated
"AA" or the equivalent by a nationally recognized rating agency; PROVIDED,
HOWEVER, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "COMMERCIAL PAPER
RATE" for such Interest Reset Period will be the same as the Commercial Paper
Rate for the immediately preceding Interest Reset Period.
"MONEY MARKET YIELD" shall be a yield calculated in accordance with the
following formula:
D x 360
Money Market Yield = ---------------------- X 100
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "CALCULATION DATE" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period following
the applicable Interest Reset Date.
FEDERAL FUNDS RATE SECURITIES. Each Federal Funds Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Federal Funds Rate (as defined herein) and the Spread or
Spread Multiplier, if any, specified in such Security and in the applicable
Prospectus Supplement.
The "FEDERAL FUNDS RATE" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"FEDERAL FUNDS RATE DETERMINATION DATE") for Federal Funds as published in
H.15(519) under the heading "FEDERAL FUNDS (EFFECTIVE)". In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such Federal Funds Rate Determination
Date, the "FEDERAL FUNDS RATE" for such Interest Reset Period shall be the rate
on such Federal Funds Rate Determination Date as published in Composite
Quotations under the heading "FEDERAL FUNDS/EFFECTIVE RATE". If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published in
either H.15(519) or Composite Quotations, then the "FEDERAL FUNDS RATE" for such
Interest Reset Period shall be the rate on such Federal Funds Rate Determination
Date made publicly
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available by the Federal Reserve Bank of New York which is equivalent to the
rate which appears in H.15(519) under the heading "FEDERAL FUNDS (EFFECTIVE)";
PROVIDED, HOWEVER, that if such rate is not made publicly available by the
Federal Reserve Bank of New York by 3:00 p.m., New York City time, on such
Calculation Date, the "FEDERAL FUNDS RATE" for such Interest Reset Period will
be the same as the Federal Funds Rate in effect for the immediately preceding
Interest Reset Period. In the case of a Federal Funds Rate Security that resets
daily, the interest rate on such Security for the period from and including a
Monday to but excluding the succeeding Monday will be reset by the Calculation
Agent for such Security on such second Monday (or, if not a business day, on the
next succeeding business day) to a rate equal to the average of the Federal
Funds Rates in effect with respect to each such day in such week.
The "CALCULATION DATE" pertaining to any Federal Funds Rate
Determination Date shall be the next succeeding business day.
LIBOR SECURITIES. Each LIBOR Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to LIBOR
(as defined herein) and the Spread or Spread Multiplier, if any, specified in
such Security and in the applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, "LIBOR" for each Interest Reset Period will be established by the
Calculation Agent for any LIBOR Security and will equal the offered rate for
United States dollar deposits for one month that appears on Telerate Page 3750
as of 11:00 a.m., London time, on the second LIBOR Business Day (as defined
herein) prior to the Interest Reset Date for such Interest Reset Period (the
"LIBOR DETERMINATION DATE"). "TELERATE PAGE 3750" means the display page so
designated on the Dow Jones Telerate Service (or such other page as may replace
that page on that service or such other service as may be nominated by the
information vendor for the purpose of displaying London interbank offered rates
of major banks). If such rate appears on Telerate Page 3750 on a LIBOR
Determination Date, LIBOR for the related Interest Reset Period will be such
rate. If on any LIBOR Determination Date such offered rate does not appear on
Telerate Page 3750, the Calculation Agent will request each of the reference
banks (which will be major banks that are engaged in transactions in the London
interbank market selected by the Calculation Agent) to provide the Calculation
Agent with its offered quotation for United States dollar deposits for one month
to prime banks in the London interbank market as of 11:00 a.m., London time, on
such date. If at least two reference banks provide the Calculation Agent with
such offered quotations, LIBOR with respect to 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 Calculation Agent with such offered quotations,
LIBOR with respect to 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 that one or more leading banks in The City of New York selected by the
Calculation Agent 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
with respect to such date will be LIBOR applicable to the immediately preceding
Interest Reset Period. "LIBOR BUSINESS DAY" as used herein means 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.
TREASURY RATE SECURITIES. Each Treasury Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Treasury Rate (as defined herein) and the Spread or Spread
Multiplier, if any, specified in such Security and in the applicable Prospectus
Supplement.
The "TREASURY RATE" for each Interest Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for such
Interest Reset Period of direct obligations of the United States ("TREASURY
BILLS") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading "U.S.
GOVERNMENT SECURITIES -- TREASURY BILLS -- AUCTION AVERAGE (INVESTMENT)" or, in
the event that such rate is not published prior to 3:00 p.m., New York City
time, on the Calculation Date (as defined below) pertaining to such Treasury
Rate Determination Date (as defined herein), the auction average rate (expressed
as a bond equivalent on the basis of a year of 365 or 366 days,
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as applicable, and applied on a daily basis) on such Treasury Rate Determination
Date as otherwise announced by the United States Department of the Treasury. In
the event that the results of the auction of Treasury bills having the specified
Index Maturity are not published or reported as provided above by 3:00 p.m.,
New York City time, on such Calculation Date, or if no such auction is held on
such Treasury Rate Determination Date, then the "TREASURY RATE" for such
Interest Reset Period shall be calculated by the Calculation Agent for such
Treasury Rate Security and shall be the yield to maturity (expressed as a
bond equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 p.m., New York City time, on such Treasury
Rate Determination Date, of three leading primary United States government
securities dealers selected by such Calculation Agent for the issue of
Treasury bills with a remaining maturity closest to the specified Index
Maturity; PROVIDED, HOWEVER, that if the dealers selected as aforesaid by
such Calculation Agent are not quoting bid rates as mentioned in this
sentence, then the "TREASURY RATE" for such Interest Reset Period will be the
same as the Treasury Rate for the immediately preceding Interest Reset Period.
The "TREASURY RATE DETERMINATION DATE" for each Interest Reset Period
will be the day of the week in which the Interest Reset Date for such Interest
Reset Period falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding Friday.
If, as the result of a legal holiday, an auction is so held on the preceding
Friday, such Friday will be the Treasury Rate Determination Date pertaining to
the Interest Reset Period commencing in the next succeeding week. If an auction
date shall fall on any day that would otherwise be an Interest Reset Date for a
Treasury Rate Security, then such Interest Reset Date shall instead be the
business day immediately following such auction date.
The "CALCULATION DATE" pertaining to any Treasury Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Treasury Rate Determination Date or, if such a day is not a business day, the
next succeeding business day or (b) the second business day preceding the date
any payment is required to be made for any period following the applicable
Interest Reset Date.
BOOK-ENTRY REGISTRATION
DTC will act as securities depository for each class of Securities
offered hereby. Each class of Securities initially will be represented by one
or more certificates registered in the name of Cede, the nominee of DTC. As
such, it is anticipated that the only "NOTEHOLDER" and/or "CERTIFICATEHOLDER"
with respect to a series of Securities will be Cede, as nominee of DTC.
Beneficial owners of the Securities ("SECURITY OWNERS") will not be recognized
by the related Indenture Trustee as "NOTEHOLDERS", as such term is used in each
Indenture, or by the related Trustee as "CERTIFICATEHOLDERS", as such term is
used in each Trust Agreement and Pooling and Servicing Agreement, and Security
Owners will be permitted to exercise the rights of Noteholders or
Certificateholders only indirectly through DTC and its Participants.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a "BANKING ORGANIZATION" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "CLEARING CORPORATION"
within the meaning of the Uniform Commercial Code as in effect in the State of
New York, and a "CLEARING AGENCY" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for the
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 certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("INDIRECT
PARTICIPANTS").
Security Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
the Securities may do so only through Participants and Indirect Participants.
In addition, all Security Owners will receive all distributions of principal and
interest from
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the related Indenture Trustee or the related Trustee, as applicable, through
Participants. Under a book-entry format, Security Owners may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Applicable Trustee to DTC's nominee. DTC will then forward such payments to the
Participants, which thereafter will forward them to Indirect Participants or
Security Owners.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "RULES"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and to
receive and transmit distributions of principal of and interest on the
Securities. Participants and Indirect Participants with which Security Owners
have accounts with respect to the Securities similarly are required to make
book-entry transfers and to receive and transmit such payments on behalf of
their respective Security Owners. Accordingly, although Security Owners will
not possess physical certificates representing the Securities, the Rules provide
a mechanism by which Participants and Indirect Participants will receive
payments and transfer interests, directly or indirectly, on behalf of Security
Owners.
Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a Security
Owner to pledge Securities to persons or entities that do not participate in the
DTC system, or otherwise take actions with respect to such Securities, may be
limited due to the lack of a physical certificate representing such Securities.
DTC has advised the Company that it will take any action permitted to be
taken by a Security Owner under the Indenture, Trust Agreement or Pooling and
Servicing Agreement, as applicable, only at the direction of one or more
Participants to whose account with DTC the Securities 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.
Except as required by law, none of the Trust Depositor, the Servicer,
the related Administrator or the Applicable Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of Securities of any series held by DTC's nominee, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE SECURITIES
The Notes, if any, and the Certificates of a given series will be issued
in fully registered, certificated form ("DEFINITIVE NOTES" and "DEFINITIVE
CERTIFICATES", respectively, and collectively referred to herein as "DEFINITIVE
SECURITIES") to Noteholders or Certificateholders or their respective nominees,
rather than to DTC or its nominee, only if (i) the related Administrator of an
Owner Trust or Trustee of a Grantor Trust, as applicable, determines that DTC is
no longer willing or able to discharge properly its responsibilities as
depository with respect to such Securities and such Administrator or Trustee is
unable to locate a qualified successor (and if it is an Administrator that has
made such determination, such Administrator so notifies the Applicable Trustee
in writing), (ii) the Administrator or Trustee, as applicable, at its option,
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Default or a Servicer Default with respect to such
Securities, Security Owners representing at least a majority of the outstanding
principal amount of the Notes or the Certificates, as the case may be, of such
series advise the Applicable Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) with
respect to such Notes or Certificates is no longer in the best interest of the
related Security Owners.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC or the Applicable Trustee will be required to notify all
applicable Security Owners of a given series through Participants of the
availability of Definitive Securities. Upon surrender by DTC of the definitive
certificates representing the corresponding Securities and receipt of
instructions for re-registration, the Applicable Trustee will reissue such
Securities as Definitive Securities to such Security Owners.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the Applicable Trustee in accordance with
the procedures set forth in the related Indenture or the related Trust
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Agreement or Pooling and Servicing Agreement, as applicable, directly to holders
of Definitive Securities in whose names the Definitive Securities were
registered at the close of business on the applicable Record Date specified for
such Securities in the related Prospectus Supplement. Such distributions will
be made by check mailed to the address of such holder as it appears on the
register maintained by the Applicable Trustee. The final payment on any such
Definitive Security, however, will be made only upon presentation and surrender
of such Definitive Security at the office or agency specified in the notice of
final distribution to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the Applicable Trustee or of a registrar named in a notice delivered
to holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities that includes Notes, on or
prior to each Distribution Date, the Servicer will prepare and provide to the
related Indenture Trustee a statement to be delivered to the related Noteholders
on such Distribution Date, and on or prior to each Distribution Date, the
Servicer will prepare and provide to the related Trustee a statement to be
delivered to the related Certificateholders. With respect to each series of
Securities, each such statement to be delivered to Noteholders will include (to
the extent applicable) the following information (and any other information so
specified in the related Prospectus Supplement) as to the Notes of such series
with respect to such Distribution Date or the period since the previous
Distribution Date, as applicable, and each such statement to be delivered to
Certificateholders will include (to the extent applicable) the following
information (and any other information so specified in such Prospectus
Supplement) as to the Certificates of such series with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) the amount of the distribution allocable to principal of
each class of such Notes and to the Certificate Balance of each class of
such Certificates;
(ii) the amount of the distribution allocable to interest on
or with respect to each class of Securities of such series;
(iii) the Pool Balance as of the close of business on the last
day of the preceding Due Period;
(iv) the aggregate outstanding principal balance and the Note
Pool Factor for each class of such Notes, and the Certificate Balance
and the Certificate Pool Factor for each class of such Certificates,
each as of the related record date;
(v) the amount of the Servicing Fee paid to the Servicer
with respect to the related Due Period or Due Periods, as the case may
be;
(vi) the Interest Rate or Pass-Through Rate for the next
period for any class of Notes or Certificates of such series with
variable or adjustable rates;
(vii) the amount of the aggregate realized losses, if any, for
the related Due Period;
(viii) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall (each such term, if applicable, as defined in the
related Prospectus Supplement), if any, in each case as applicable to
each class of Securities, and the change in such amounts from the
preceding statement;
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(ix) the aggregate Purchase Amounts for Contracts, if any,
that were repurchased in the related Due Period;
(x) the balance of the Reserve Fund (if any) on such date,
after giving effect to changes therein on such date;
(xi) for each such date during the Funding Period (if any),
the remaining Pre-Funded Amount;
(xii) for the first such date that is on or immediately
following the end of the Funding Period (if any), the amount of any
remaining Pre-Funded Amount that has not been used to fund the purchase
of Subsequent Contracts and is being passed through as payments of
principal on the Securities of such series;
(xiii) for each such date during the Revolving Period (if any),
the remaining amount in the Collateral Reinvestment Account; and
(xiv) for the first such date that is on or immediately
following the end of the Revolving Period (if any), the amount remaining
in the Collateral Reinvestment Account that has not been used to fund
the purchase of Subsequent Contracts and is being passed through as
payments of principal on the Securities of such series.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each Trust, the Applicable
Trustee will mail to each person who at any time during such calendar year has
been a registered Securityholder with respect to such Trust and received any
payment thereon a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "FEDERAL
INCOME TAX CONSEQUENCES".
LIST OF SECURITYHOLDERS
With respect to the Notes of any series, three or more holders of the
Notes of such series may, by written request to the related Indenture Trustee,
obtain access to the list of all Noteholders maintained by such Indenture
Trustee for the purpose of communicating with other Noteholders with respect to
their rights under the related Indenture or under such Notes. Such Indenture
Trustee may elect not to afford the requesting Noteholders access to the list of
Noteholders if it agrees to mail the desired communication or proxy, on behalf
of and at the expense of the requesting Noteholders, to all Noteholders of such
series.
With respect to the Certificates of any series, three or more holders of
the Certificates of such series or one or more holders of such Certificates
evidencing not less than 25% of the Certificate Balance of such Certificates
may, by written request to the related Trustee, obtain access to the list of all
Certificateholders maintained by such Trustee for the purpose of communicating
with other Certificateholders with respect to their rights under the related
Trust Agreement or Pooling and Servicing Agreement or under such Certificates.
DESCRIPTION OF THE TRANSFER AND SALE AGREEMENTS
On the Closing Date specified with respect to any given Trust in the
related Prospectus Supplement, the Company as Seller will transfer and assign to
the applicable Trust, pursuant to a Transfer and Sale Agreement, its entire
interest in the Initial Contracts, including its security interests in the
related Motorcycles. Each such Contract will be identified in a
schedule appearing as an exhibit to such Transfer and Sale Agreement (a
"SCHEDULE OF CONTRACTS"). The Seller will make certain representations and
warranties in the Transfer and Sale Agreement with respect to each Contract,
including that (references to the Closing Date below being deemed, in respect of
Subsequent Contracts, to refer to the related Subsequent Transfer Date): (a) as
of the related Cutoff Date the most recent scheduled payment was made or was not
delinquent more than 30 days and, to the best of the Seller's knowledge, all
payments on the Contract were made by the Obligor of the Contract; (b) as of the
Closing Date no provision of a Contract has been waived, altered or
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modified in any respect, except by instruments or documents relating to the
Contract and contained in the files maintained in connection therewith; (c) each
Contract is a genuine, legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) as of the Closing Date no Contract
is subject to any right of rescission, set-off, counterclaim or defense; (e) as
of the Closing Date each Motorcycle securing a Contract is covered by certain
insurance policies described under "-- INDIVIDUAL MOTORCYCLE INSURANCE" below;
(f) each Contract was originated by a Dealer in the ordinary course of such
Dealer's business which Dealer had all necessary licenses and permits to
originate the Contracts in the state where such Dealer was located, was fully
and properly executed by the parties thereto and was sold by such Dealer to the
Seller without any fraud or misrepresentation on the part of such Dealer; (g) no
Contract was originated in or is subject to the laws of any jurisdiction whose
laws would make the transfer, sale and assignment of the Contract unlawful, void
or voidable; (h) each Contract and each sale of the related Motorcycle complies
with all requirements of any applicable federal, state or local law and
regulations thereunder, including, without limitation, usury, truth in lending,
motor vehicle installment loan and equal credit opportunity laws, with such
compliance not being affected by the Trust Depositor's conveyance and assignment
of the Contracts to the Trust, or the Trust's pledge of the Contracts to the
Indenture Trustee, as applicable, and the Seller will maintain in its
possession, available for inspection by or delivery to the Trust Depositor and
the Applicable Trustee, evidence of compliance with all such requirements; (i)
as of the Closing Date no Contract has been satisfied, subordinated in whole or
in part or rescinded and the Motorcycle securing the Contract has not been
released from the lien of the Contract in whole or in part; (j) each Contract
creates a valid, subsisting and enforceable first priority security interest in
favor of the Seller in the Motorcycle covered thereby; such security interest
has been conveyed and assigned by the Seller to the Trust Depositor and by the
Trust Depositor to the Trust and, if applicable, pledged by the Trust to the
Indenture Trustee; the Seller's lien is recorded on the original certificate of
title, certificate of lien or other notification (the "LIEN CERTIFICATE") issued
by the body responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens thereon (the
"REGISTRAR OF TITLES") of the applicable state to a secured party which
indicates the lien of the secured party on the Motorcycle; and the original
certificate of title for each Motorcycle shows, or if a new or replacement Lien
Certificate is being applied for with respect to such Motorcycle the Lien
Certificate will be received within 180 days of the Closing Date and will show,
the Seller as original secured party under each Contract and as the holder of a
first priority security interest in such Motorcycle (and with respect to each
Contract for which the Lien Certificate has not yet been returned from the
Registrar of Titles, the Seller has received written evidence from the related
dealer that such Lien Certificate showing the Seller as lienholder has been
applied for) and the Seller's security interest has been validly assigned by the
Seller to the Trust Depositor and by the Trust Depositor to the Trust and (if
applicable) pledged by the Trust to the Indenture Trustee, in order that
immediately after the sale, each Contract will be secured by an enforceable and
perfected first priority security interest in the Motorcycle in favor of the
Applicable Trustee as secured party, which security interest is prior to all
other liens upon and security interests in such Motorcycle which now exist or
may hereafter arise or be created (except, as to priority, for any lien for
taxes, labor, materials or any state law enforcement agency affecting a
Motorcycle which may arise after such sale); (k) all parties to each Contract
had capacity to execute such Contract; (l) no Contract has been sold, conveyed
and assigned or pledged to any other person other than the Trust Depositor, as
transferee of the Seller, the Trust as transferee of the Trust Depositor or the
Indenture Trustee as pledgee of the Trust, and prior to the transfer of the
Contract to the Trust Depositor the Seller has good and marketable title to each
Contract free and clear of any encumbrance, equity, loan, pledge, charge, claim
or security interest, and as of the Closing Date the Applicable Trustee will
have a first priority perfected security interest therein; (m) as of the related
Cutoff Date there was no default, breach, violation or event permitting
acceleration under any Contract (except for payment delinquencies permitted by
clause (a) above), no event which with notice and the expiration of any grace or
cure period would constitute a default, breach, violation or event permitting
acceleration under such Contract, and the Seller has not waived any of the
foregoing; (n) as of the Closing Date there are, to the best of the Seller's
knowledge, no liens or claims which have been filed for work, labor or materials
affecting a motorcycle securing a Contract, which are or may be liens prior or
equal to the lien of the Contract; (o) each Contract has a fixed rate of
interest and provides for monthly payments of principal and interest which, if
timely made, would fully amortize the loan on a simple interest basis over its
term; (p) each Contract contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for realization
against the collateral of the
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benefits of the security; (q) the description of each Contract set forth in the
list delivered to the Applicable Trustee, is true and correct, and (r) there is
only one original of each Contract. The Seller will also make certain
representations and warranties with respect to the Contracts in the aggregate,
including that (i) the aggregate principal amount payable by the Obligors as of
the Initial Cutoff Date (plus the Pre-Funded Amount as of the Closing Date)
equals the sum of the initial principal amount of the Notes and the Initial
Certificate Principal Balance, and each Initial Contract has a minimum
contractual rate of interest, (ii) all Motorcycles securing the Contracts are
Harley-Davidson or Buell Motorcycles or Motorcycles of Other Manufacturers,
(iii) a minimum percentage of the aggregate principal balance of the Initial
Contracts is attributable to loans to purchase new Motorcycles and a maximum
percentage of the aggregate Principal Balance of the Initial Contracts is
attributable to loans to purchase used Motorcycles, (iv) no Initial Contract has
a remaining maturity of more than 72 months, and (v) no adverse selection
procedures were or will be employed in selecting the Contracts from the Seller's
portfolio.
Under the Transfer and Sale Agreements, the Seller will agree that in
the event of a breach of any such representations and warranties made by the
Seller that materially and adversely affects the Applicable Trustees' interest
in any Contract the Seller will repurchase such Contract not later than two days
prior to the first Determination Date (as defined herein) after the Seller
becomes aware of such breach at a price (the "PURCHASE AMOUNT") equal to the
outstanding principal balance on such Contract, plus accrued interest thereon
through the most recently ended Due Period, unless such breach is cured. Under
either the Sale and Servicing Agreements or the Pooling and Servicing
Agreements, as applicable, the Trust Depositor will assign all of its right,
title and interest in such representations and warranties (including the
Seller's repurchase obligations) to the Trustee or the Owner Trust, as
applicable. Under the Indenture, if any, the Trust will pledge its right, title
and interest in such representations and warranties to the Indenture Trustee.
The Seller is selling the Contracts without recourse and, accordingly, will have
no obligation with respect to the Contracts other than pursuant to such
representations, warranties and repurchase obligations. The repurchase
obligations of the Seller described above will constitute the sole remedy
against the Seller by the Trust and the Securityholders for a breach of any such
representations and warranties made by the Seller.
DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS
The following summary describes certain terms of (i) each Sale and
Servicing Agreement or Pooling and Servicing Agreement pursuant to which a Trust
will purchase Contracts and other Trust Property from the Trust Depositor and
the Servicer will agree to service such Contracts, (ii) each Trust Agreement or
Pooling and Servicing Agreement, as applicable, pursuant to which a Trust will
be created and Certificates will be issued and (iii) each Administration
Agreement pursuant to which the Company will undertake certain administrative
duties with respect to an Owner Trust that issues Notes (collectively, the "SALE
AND SERVICING AGREEMENTS AND POOLING AND SERVICING AGREEMENTS"). Forms of the
Sale and Servicing Agreements and Pooling and Servicing Agreements have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
SALE AND ASSIGNMENT OF CONTRACTS
The Applicable Trustee will, concurrently with such transfer and
assignment, execute and deliver the related Notes and/or Certificates. Unless
otherwise provided in the related Prospectus Supplement, the net proceeds
received from the sale of the Certificates and the Notes of a given series will
be applied to the purchase of the related Initial Contracts and other Trust
Property from the Trust Depositor and, to the extent specified in such
Prospectus Supplement, to the deposit of the Pre-Funded Amount into the
Pre-Funding Account and the initial deposit into the Collateral Reinvestment
Account. The related Prospectus Supplement for a given Trust will specify
whether, and the terms, conditions and manner under which, Subsequent Contracts
will be sold by the Trust Depositor to the applicable Trust from time to time
during any Funding Period or Revolving Period on each Subsequent Transfer Date
as specified in the related Prospectus Supplement.
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In each Sale and Servicing Agreement or Pooling and Servicing Agreement,
the Trust Depositor will represent and warrant to the applicable Trust, among
other things, that: (i) the information provided in the related Schedule of
Contracts is correct in all material respects as of the applicable Cutoff Date;
(ii) the Obligor on each related Contract is required to maintain physical
damage insurance covering the Motorcycle in accordance with the Trust
Depositor's normal requirements; (iii) as of the applicable Closing Date or the
applicable Subsequent Transfer Date, if any, to the best of its knowledge, the
related Contracts are free and clear of all security interests, liens, charges
and encumbrances and no offsets, defenses or counterclaims have been asserted or
threatened; (iv) as of the Closing Date or the applicable Subsequent Transfer
Date, if any, each of such Contracts is or will be secured by a first priority
perfected security interest in favor of the Trust Depositor in the Motorcycle;
and (v) each related Contract, at the time it was originated, complied and, as
of the Closing Date or the applicable Subsequent Transfer Date, if any, complies
in all material respects with applicable federal and state laws, including,
without limitation, consumer credit, truth in lending, equal credit opportunity
and disclosure laws; and the Trust Depositor will make any other representations
and warranties that may be set forth in the related Prospectus Supplement. Such
representations and warranties will be concurrently made by the Seller under the
related Transfer and Sale Agreement, and the Seller has agreed to repurchase
Contracts adversely affected by the incorrectness of such representations and
warranties, in the manner described in "Description of the Transfer and Sale
Agreement" above.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, to assure uniform quality in servicing the Contracts and to reduce
administrative costs, the Trust Depositor and each Trust will designate the
Servicer as custodian to maintain possession, as such Trust's agent, of the
related motor vehicle retail installment sale contracts and installment loans
and any other documents relating to the Contracts. The Trust Depositor's and
the Servicer's accounting records and computer systems will reflect the sale and
assignment of the related Contracts to the applicable Trust, and UCC financing
statements reflecting such sale and assignment will be filed.
ACCOUNTS
With respect to Owner Trusts that issue Notes, the Servicer will
establish and maintain with the related Indenture Trustee one or more accounts,
in the name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Contracts will be deposited (the "COLLECTION ACCOUNT"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, Collateral
Reinvestment Account, Reserve Fund or other credit enhancement for payment to
such Noteholders will be deposited and from which all distributions to such
Noteholders will be made (the "NOTE DISTRIBUTION ACCOUNT"). With respect to
each Owner Trust or Grantor Trust, the Servicer will establish and maintain with
the related Trustee an account, in the name of such Trustee on behalf of the
Certificateholders of such Trust, into which amounts released from the
Collection Account and any Pre-Funding Account, any Collateral Reinvestment
Account, Reserve Fund or other credit or cash flow enhancement for distribution
to such Certificateholders will be deposited and from which all distributions to
such Certificateholders will be made (the "CERTIFICATE DISTRIBUTION ACCOUNT").
With respect to each Grantor Trust or each Owner Trust that does not issue
Notes, the Servicer will also establish and maintain the Collection Account and
any other Trust Account (as defined herein) in the name of the related Trustee
on behalf of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Trust Depositor
will establish and maintain a Pre-Funding Account, in the name of the related
Indenture Trustee on behalf of the related Securityholders, into which the Trust
Depositor will deposit the Pre-Funded Amount on the related Closing Date. The
Pre-Funded Amount will not exceed 40% of the initial aggregate principal amount
of the Notes and Certificates of the related series. In addition, if so
provided in the related Prospectus Supplement, the Trust Depositor will
establish and maintain a Collateral Reinvestment Account, in the name of the
related Indenture Trustee on behalf of the related Securityholders, into which
the Trust Depositor will deposit the amount, if any, specified in such
Prospectus Supplement. During the Revolving Period, principal will not be
distributed on the Securities of the related series, and principal collections,
together with (if and to the extent described in the
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related Prospectus Supplement) interest collections on the Contracts that are in
excess of amounts required to be distributed therefrom, will be deposited from
time to time in the Collateral Reinvestment Account. The Pre-Funded Amount and
the amounts on deposit in the Collateral Reinvestment Account will be used by
the related Indenture Trustee to purchase Subsequent Contracts from the Trust
Depositor from time to time during the Funding Period and Revolving Period,
respectively. See "THE CONTRACTS -- GENERAL" and "RISK FACTORS -- SALES OF
SUBSEQUENT CONTRACTS AND EFFECT ON POOL CHARACTERISTICS." The amounts on
deposit in the Pre-Funding Account during the Funding Period and the amount on
deposit in the Collateral Reinvestment Account will be invested by the Indenture
Trustee in Eligible Investments. Any Investment Income received on the Eligible
Investments during a Due Period will be included in the interest distribution
amount on the following Distribution Date. The Funding Period or Revolving
Period, if any, for a Trust will begin on the related Closing Date and will end
on the date specified in the related Prospectus Supplement, which, in the case
of the Funding Period, in no event will be later than the date that is one year
after such Closing Date. Any amounts remaining in the Pre-Funding Account at
the end of the Funding Period or in the Collateral Reinvestment Account at the
end of the Revolving Period will be distributed to the related Securityholders
in the manner and priority specified in the related Prospectus Supplement, as a
prepayment of principal of the related Securities.
Any other accounts to be established with respect to a Trust, including
any Reserve Fund, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account, if any, any Pre-Funding Account, any Collateral
Reinvestment Account, any Reserve Fund and other accounts identified as such in
the related Prospectus Supplement (collectively, the "TRUST ACCOUNTS") and the
Certificate Distribution Account will be invested as provided in the related
Sale and Servicing Agreement or Pooling and Servicing Agreement in Eligible
Investments. "ELIGIBLE INVESTMENTS" means any one or more of the following
types of investments: (a)(i) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of principal and
interest by, the United States or any agency or instrumentality of the United
States the obligations of which are backed by the full faith and credit of the
United States; and (ii) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of principal and
interest by, the Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation, but only if, at the time of investment, such obligations
are assigned the highest credit rating by each Rating Agency; and (b) demand or
time deposits in, certificates of deposit of, or bankers' acceptances issued by
any depositary institution or trust company organized under the laws of the
United States or any State and subject to supervision and examination by federal
and/or State banking authorities (including, if applicable, the Trustee or any
agent of the Trustee acting in their respective commercial capacities); PROVIDED
that the short-term unsecured debt obligations of such depositary institution or
trust company at the time of such investment, or contractual commitment
providing for such investment, are assigned the highest credit rating by each
Rating Agency. Except as described below or in the related Prospectus
Supplement, Eligible Investments are limited to obligations or securities that
mature on or before the date of the next distribution for such series. However,
to the extent permitted by the Rating Agencies, funds in any Reserve Fund may be
invested in securities that will not mature prior to the date of the next
distribution with respect to such Certificates or Notes and will not be sold to
meet any shortfalls. Thus, the amount of cash in any Reserve Fund at any time
may be less than the balance of the Reserve Fund. If the amount required to be
withdrawn from any Reserve Fund to cover shortfalls in collections on the
related Contracts (as provided in the related Prospectus Supplement) exceeds the
amount of cash in the Reserve Fund, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result, which
could, in turn, increase the average life of the Notes or the Certificates of
such series. Except as otherwise specified in the related Prospectus
Supplement, investment earnings on funds deposited in the Trust Accounts, net of
losses and investment expenses (collectively, "INVESTMENT EARNINGS"), shall be
deposited in the applicable Collection Account on each Distribution Date and
shall be treated as collections of interest on the related Contracts.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"ELIGIBLE DEPOSIT ACCOUNT" means a segregated direct deposit account maintained
with a depository institution or trust company organized under the laws of the
United States of America or any one of the states thereof or the District of
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Columbia having a certificate of deposit, short-term deposit or commercial paper
rating of at least A-1+ by Standard & Poor's Ratings Services and P-1 by Moody's
Investors Service, Inc.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due
with respect to the Contracts held by any Trust and will, consistent with the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, follow
such collection procedures as it follows with respect to comparable motor
vehicle retail installment sale contracts and installment loans it services for
itself or others. The Servicer's collection efforts include having personnel
call a delinquent Obligor every third day in the event such Obligor is twelve to
less than sixty days delinquent, every other day in the event the Obligor is
greater than sixty days delinquent and every day in the event the Obligor is
greater than ninety days delinquent. The Servicer's general approach is to
restructure a delinquent loan as opposed to repossessing the associated
Motorcycle; however, the Servicer's approach with respect to a specific Obligor
is affected by the Obligor's responsiveness and attitude. Consistent with this
approach, the Servicer may, in its discretion, arrange with the Obligor on a
Contract to extend or modify the payment schedule, but no such arrangement will,
for purposes of any Sale and Servicing Agreement or Pooling and Servicing
Agreement, modify the original due dates or the amount of the scheduled payments
or extend the final payment date of any Contract beyond the last day of the Due
Period relating to the latest maturity date (as specified with respect to the
pool of Contracts in the related Prospectus Supplement). Some of such
arrangements may result in the Servicer purchasing the Contract for the Purchase
Amount, while others may result in the Servicer making Advances. The Servicer
may sell the Motorcycle securing the respective Contract at public or private
sale, or take any other action permitted by applicable law. See "CERTAIN LEGAL
ASPECTS OF THE CONTRACTS".
If so specified in the related Prospectus Supplement, a "BACKUP
SERVICER" may be appointed and assigned certain oversight servicing
responsibilities with respect to the Contracts. The identity of any backup
servicer, as well as a description of its responsibilities, of any fees payable
to such backup servicer and the source of payment of such fees, will be included
in the related Prospectus Supplement.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on
the related Contracts (from whatever source) and all proceeds of such Contracts
collected during each collection period specified in the related Prospectus
Supplement (each, a "DUE PERIOD") into the related Collection Account within two
business days after receipt thereof.
ADVANCES
The Servicer is obligated to advance each month an amount equal to
accrued and unpaid interest on the Contracts which was delinquent with respect
to the related Due Period, but only to the extent that the Servicer believes
that the amount of such Advance will be recoverable from collections on the
Contracts. The Servicer will deposit any Advances in the Collection Account no
later than the day preceding the Distribution Date. The Servicer will be
entitled to recoup Advances on a Contract by means of a high priority withdrawal
from the sum of the interest and principal available for distribution as
provided in the related Prospectus Supplement on any Distribution Date.
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the Prospectus Supplement with respect to
any Trust, the Servicer will be entitled to receive a servicing fee for each Due
Period in an amount equal to specified percentage per annum (as set forth in the
related Prospectus Supplement, the "SERVICING FEE RATE") of the Pool Balance as
of the first day of the related Due Period (the "SERVICING FEE"). The Servicing
Fee (together with any portion of the Servicing Fee that remains unpaid from
prior Distribution Dates) will be paid solely to the extent of the Available
Interest (as defined in the related Prospectus Supplement). However, the
Servicing Fee will be paid prior to the distribution of any portion of the
Available Interest to the Noteholders or the Certificateholders of the given
series.
Unless otherwise provided in the related Prospectus Supplement with
respect to a given Trust, the Servicer will also collect and retain any late
fees, prepayment charges and other administrative fees or similar charges
allowed by applicable law with respect to the related Contracts and will be
entitled to reimbursement from such Trust for certain liabilities. Payments by
or on behalf of Obligors will be allocated to scheduled payments and late fees
and other charges in accordance with the Servicer's normal practices and
procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of motorcycle Contracts as an agent for
their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the Contracts, investigating
delinquencies, sending payment coupons to Obligors, reporting tax information to
Obligors, paying costs of collections and disposition of defaults and policing
the collateral. The Servicing Fee also will compensate the Servicer for
performing additional administrative services on behalf of a given Trust,
including making Advances, accounting for collections and furnishing monthly and
annual statements to the related Trustee and Indenture Trustee with respect to
distributions and generating federal income tax information for such Trust and
for the related Noteholders and Certificateholders. The Servicing Fee also will
reimburse the Servicer for certain taxes, the fees of the related Trustee and
Indenture Trustee, if any, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Contracts relating to such Trust.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Distribution
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 Trustee to
the Noteholders and the Certificateholders of such series. The timing,
calculation, allocation, order, source and priorities of, and the requirements
for, all payments to the holders of each class of Notes, if any, and all
distributions to the holders of each class of Certificates of such series will
be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Distribution Date, collections on
the related Contracts will be transferred from the Collection Account to the
Note Distribution Account, if any, and the Certificate Distribution Account for
distribution to Noteholders, if any, and Certificateholders to the extent
provided in the related Prospectus Supplement. Credit enhancement, such as a
Reserve Fund, will be available to cover any shortfalls in the amount available
for distribution on such date to the extent specified in the related Prospectus
Supplement. As more fully described in the related Prospectus Supplement, and
unless otherwise specified therein, distributions in respect of principal of a
class of Securities of a given series will be subordinated to distributions in
respect of interest on such class, and distributions in respect of one or more
classes of Certificates of such series may be subordinated to payments in
respect of Notes, if any, of such series or to distributions in respect of other
classes of Certificates of such series. Distributions of principal on the
Securities of a series may be based on the amount of principal collected or due,
or the amount of realized losses incurred, in a Due Period.
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CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow 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 and cash flow enhancement may be in the form of subordination of one or
more classes of Securities, Reserve Funds, spread accounts,
overcollateralization, letters of credit, credit or liquidity facilities, surety
bonds, insurance policies, guaranteed investment contracts, swaps or other
interest rate protection agreements, repurchase obligations, yield supplement
agreements, other agreements with respect to third party payments or other
support, cash deposits or such other arrangements as may be described in such
Prospectus Supplement, or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, credit or cash flow
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit or cash flow enhancement for a series
of Securities may cover one or more other series of Securities.
The presence of a Reserve Fund and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. The credit enhancement for a class
or series of Securities will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance and interest
thereon. If losses occur which exceed the amount covered by any credit
enhancement or which are not covered by any credit enhancement, Securityholders
of any class or series will bear their allocable share of deficiencies, as
described in the related Prospectus Supplement. In addition, if a form of
credit enhancement covers more than one series of Securities, Securityholders of
any such series will be subject to the risk that such credit enhancement will be
exhausted by the claims of Securityholders of other series.
RESERVE FUND. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Trust Depositor will establish for a series or class of
Securities an account, as specified in such Prospectus Supplement (the "RESERVE
FUND"), which will be maintained with the related Trustee or Indenture Trustee,
as applicable. Unless otherwise provided in the related Prospectus Supplement,
the Reserve Fund will be funded by an initial deposit by the Trust Depositor on
the Closing Date in the amount set forth in such Prospectus Supplement and, if
the related series has a Funding Period, will also be further funded on each
Subsequent Transfer Date to the extent described in such Prospectus Supplement.
As further described in the related Prospectus Supplement, the amount on deposit
in the Reserve Fund will be increased on each Distribution Date thereafter up to
the Specified Reserve Fund Balance (as defined in such Prospectus Supplement) by
the deposit therein of the amount of collections on the related Contracts
remaining on each such Distribution Date after the payment of all other required
payments and distributions on such date. The related Prospectus Supplement will
describe the circumstances and the manner under which distributions may be made
out of the Reserve Fund, either to holders of the Securities covered thereby or
to the Trust Depositor or to any other entity.
NET DEPOSITS
If so specified in the related Prospectus Supplement as an
administrative convenience, unless the Servicer is required to remit collections
daily (see "-- COLLECTIONS" above), the Servicer will be permitted to make the
deposit of collections, aggregate Advances and Purchase Amounts for any Trust
for or with respect to the related Due Period net of distributions to be made to
the Servicer for such Trust with respect to such Due Period. The Servicer,
however, will account to the Applicable Trustee, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits,
distributions and transfers were made individually. With respect to any Trust
that issues both Certificates and Notes, if the related Distribution Dates do
not coincide with Distribution Dates, all distributions, deposits or other
remittances made on a Distribution Date will be treated as having been
distributed, deposited or remitted on the Distribution Date for the applicable
Due Period for purposes of determining other amounts required to be distributed,
deposited or otherwise remitted on such Distribution Date.
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STATEMENTS TO THE APPLICABLE TRUSTEE
Prior to each Distribution Date with respect to each series of
Securities, the Servicer will provide to the applicable Indenture Trustee, if
any, and the applicable Trustee as of the close of business on the last day of
the preceding Due Period a statement setting forth substantially the same
information as is required to be provided in the periodic reports provided to
Securityholders of such series described under "CERTAIN INFORMATION REGARDING
THE SECURITIES -- REPORTS TO SECURITYHOLDERS".
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that a firm of independent public accountants will furnish annually
to the related Trust and Applicable Trustee a statement to the effect that such
firm has audited the financial statements of Eaglemark Financial and issued its
report thereon and that such audit: (i) included an examination of selected
documents and records relating to the servicing of Contracts, (ii) included an
examination of delinquency and loss statistics relating to Eaglemark's portfolio
of Contracts and (iii) except as described in the statement, disclosed no
exceptions or errors in the records relating to the Contracts serviced.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will also provide for delivery to the related Trust and the Applicable Trustee,
substantially simultaneously with the delivery of such accountants' statement
referred to above, of a certificate signed by an officer of the Servicer stating
that the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, throughout the
preceding twelve months (or, in the case of the first such certificate, from the
applicable Closing Date) or, if there has been a default in the fulfillment of
any such obligation, describing each such default. The Servicer has agreed to
give each Applicable Trustee notice of certain Servicer Defaults under the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer will exercise that degree of skill and care
consistent with the skill and care that the Servicer exercises with respect to
similar contracts serviced by the Servicer, and, in any event no less degree of
skill and care than would be exercised by a prudent servicer of motorcycle
conditional sales contracts. The Servicer is under no obligation to appear in,
prosecute or defend any legal action that is not incidental to the Servicer's
servicing responsibilities under such Sale and Servicing Agreement or Pooling
and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement
and Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to the business of
the Servicer or, with respect to its obligations as Servicer, any corporation
50% or more of the voting stock of which is owned, directly or indirectly, by
the Company, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under such Sale and Servicing Agreement or Pooling and Servicing Agreement.
Under each Sale and Servicing Agreement and Pooling and Servicing
Agreement, the Servicer may appoint a subservicer to perform all or any portion
of its obligations as Servicer; however, in the event that the Servicer does
appoint any such subservicer, the Servicer will remain obligated and liable to
the related Applicable Trustee and Securityholders for servicing and
administering the Contracts and will also be responsible for any fees and
expenses of the subservicer.
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SERVICER DEFAULT
A "SERVICER DEFAULT" under each Sale and Servicing Agreement and Pooling
and Servicing Agreement will include: (i) any failure by the Servicer to make
any payment or deposit required to be made under the Sale and Servicing
Agreement or Pooling and Servicing Agreement or Transfer and Sale Agreement,
which failure continues to be unremedied for four business days after the date
on which such payment or deposit was due; (ii) any failure by the Servicer duly
to observe or perform in any material respect any other covenant or agreement in
such Sale and Servicing Agreement or Pooling and Servicing Agreement or Transfer
and Sale Agreement, which failure materially and adversely affects the rights of
the Noteholders or the Certificateholders of the related series and which
continues unremedied for 30 days after the date on which such failure commences;
and (iii) the occurrence of an Insolvency Event with respect to the Servicer.
"INSOLVENCY EVENT" means, with respect to any person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such person and certain actions by such person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of Owner Trusts that issue Notes, unless otherwise provided
in the related Prospectus Supplement, as long as a Servicer Default under a Sale
and Servicing Agreement and Pooling and Servicing Agreement remains unremedied,
(i) the related Indenture Trustee or (ii) the holders of Notes of the related
series evidencing more than 50% of the principal amount of the Notes then
outstanding and Certificateholders with aggregate fractional interests
representing more than 50% of the Trust may terminate all the rights and
obligations of the Servicer under such Sale and Servicing Agreement and Pooling
and Servicing Agreement, whereupon such Indenture Trustee or a successor
servicer appointed by such Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Sale and
Servicing Agreement and Pooling and Servicing Agreement and will be entitled to
similar compensation arrangements. In the case of any Grantor Trust or any
Owner Trust that does not issue Notes, unless otherwise provided in the related
Prospectus Supplement, as long as a Servicer Default under the related Pooling
and Servicing Agreement remains unremedied, the related Trustee or holders of
Certificates of the related series evidencing not less than 25% of the principal
amount of such Certificates then outstanding may terminate all the rights and
obligations of the Servicer under such Pooling and Servicing Agreement,
whereupon such Trustee or a successor servicer appointed by such Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Pooling and Servicing Agreement and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such trustee or official may have the power to
prevent any such Indenture Trustee, Noteholders, Trustee or Certificateholders
from effecting a transfer of servicing. In the event that such Indenture
Trustee or Trustee is unwilling or unable to so act, it may appoint, or petition
a court of competent jurisdiction for the appointment of, a successor with a net
worth of at least $100,000,000 (or such other amount as is specified in the
related Prospectus Supplement) and whose regular business includes the servicing
of motor vehicle contracts. Such Indenture Trustee or Trustee may make such
arrangements for compensation to be paid, which in no event may be greater than
the servicing compensation to the Servicer under such Sale and Servicing
Agreement or Pooling and Servicing Agreement.
AMENDMENT
Each of the Sale and Servicing Agreement and Pooling and Servicing
Agreement may be amended by the parties thereto, without the consent of the
related Noteholders or Certificateholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Sale and Servicing Agreement and Pooling and Servicing Agreement or of
modifying in any manner the rights of such Noteholders or Certificateholders;
PROVIDED that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder.
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The Sale and Servicing Agreement and Pooling and Servicing Agreement may
also be amended by the Trust Depositor, the Servicer, the related Trustee and
any related Indenture Trustee with the consent of the holders of Notes
evidencing at least a majority in principal amount of then outstanding Notes, if
any, of the related series and the holders of the Certificates of such series
evidencing at least a majority of the principal amount of such Certificates then
outstanding, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Sale and Servicing Agreement
and Pooling and Servicing Agreements or of modifying in any manner the rights of
such Noteholders or Certificateholders; PROVIDED, HOWEVER, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments on the related Contracts or
distributions that are required to be made for the benefit of such Noteholders
or Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such series.
Each of the Sale and Servicing Agreement and Pooling and Servicing
Agreement may be amended by the parties thereto at the direction of the Company
or Servicer without the consent of any of the Securityholders to add, modify or
eliminate such provisions as may be necessary or advisable in order to enable
all or a portion of a Trust to qualify as, and to permit an election to be made
to cause all or a portion of a Trust to be treated as, a "FINANCIAL ASSET
SECURITIZATION INVESTMENT TRUST" as described in the provisions of the "SMALL
BUSINESS JOB PROTECTION ACT OF 1996," H.R. 3448, and in connection with any such
election, to modify or eliminate existing provisions of a Sale and Servicing
Agreement or Pooling and Servicing Agreement relating to the intended federal
income tax treatment of the Securities and the related Trust in the absence of
the election. See "FEDERAL INCOME TAX CONSEQUENCES--TAX TREATMENT OF A FASIT."
It is a condition to any such amendment that each Rating Agency will have
notified the Company, the Servicer and the Applicable Trustee in writing that
the amendment will not result in a reduction or withdrawal of the rating of any
outstanding Securities with respect to which it is a Rating Agency and that the
Company obtain a legal opinion from nationally recognized counsel that there are
no adverse tax consequences for the Securityholders.
Additionally, each of the Sale and Servicing Agreement and Pooling and
Servicing Agreement may be amended by the parties thereto at the direction of
the Seller or Servicer without the consent of any of the Securityholders to
add, modify or eliminate such provisions as may be necessary or advisable in
order to enable (a) the transfer to the Trust of all or any portion of the
Contracts to be derecognized under generally accepted accounting principles
("GAAP") by the Seller to the applicable Trust, (b) the applicable Trust to
avoid becoming a member of the Seller's consolidated group under GAAP, or (c)
the Seller or any of its affiliates to otherwise comply with or obtain more
favorable treatment under any law or regulation or any accounting rule or
principle; provided, however, that it is a condition to any such amendment that
(x) the Seller delivers an officer's certificate to the related Trustee to the
effect that such amendment meets the requirements set forth in this paragraph
(y) such amendment will not result in a withdrawal or reduction of the rating of
any outstanding series of Securities under the related Trust and (z) a legal
opinion is obtained from nationally recognized counsel that such modification is
in conformity with either the Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable.
INSOLVENCY EVENT
With respect to any Owner Trust that issues Notes, if an Insolvency
Event (as defined in the related Sale and Servicing Agreement) occurs with
respect to the Trust Depositor, the related Contracts of such Trust will be
liquidated and the Trust will be terminated 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the related
Trustee shall have received written instructions from (i) holders of each class
of Certificates (excluding any Certificates held by the Trust Depositor) with
respect to such Trust representing more than 50% of the aggregate unpaid
principal amount of each such class (not including the principal amount of such
Certificates held by the Trust Depositor) and (ii) holders of each class of
Notes, if any, with respect to such Trust representing more than 50% of the
aggregate unpaid principal amount of each such class, to the effect that each
such party disapproves of the liquidation of such Contracts and termination of
such Trust. Promptly after the occurrence of an Insolvency Event with respect
to the Trust Depositor, notice thereof is required to be given to the related
Securityholders; PROVIDED that any failure to give
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such required notice will not prevent or delay termination of such Trust. Upon
termination of any Trust, the related Trustee shall, or shall direct the related
Indenture Trustee to, promptly sell the assets of such Trust (other than the
Trust Accounts and the Certificate Distribution Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from any
such sale, disposition or liquidation of the Contracts of such Trust will be
treated as collections on such Contracts and deposited in the related Collection
Account. With respect to any Trust, if the proceeds from the liquidation of the
related Contracts and any amounts on deposit in the Reserve Fund (if any), the
Note Distribution Account (if any) and the Certificate Distribution Account are
not sufficient to pay in full the Notes, if any, and the Certificates of the
related series, the amount of principal returned to Noteholders and
Certificateholders thereof will be reduced and some or all of such Noteholders
and Certificateholders will incur a loss.
Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
the related Trust without the unanimous prior approval of all Certificateholders
(including the Trust Depositor) of such Trust and the delivery to such Trustee
by each such Certificateholder (including the Trust Depositor) of a certificate
certifying that such Certificateholder reasonably believes that such Trust is
insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and
the satisfaction and discharge of the related Indenture, the related Trustee
will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, except as otherwise provided therein.
TRUST DEPOSITOR LIABILITY
In the case of each Owner Trust that issues Notes, under each Trust
Agreement, the Trust Depositor will agree to be liable directly to an injured
party for the entire amount of any losses, claims, damages or liabilities (other
than those incurred by a Noteholder or a Certificateholder in the capacity of an
investor with respect to such Owner Trust) arising out of or based on the
arrangement created by such Trust Agreement as though such arrangement created a
partnership under the Delaware Revised Uniform Limited Partnership Act in which
the Trust Depositor was a general partner.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Trust
Depositor, the related Trustee and the related Indenture Trustee, if any,
pursuant to the Sale and Servicing Agreements and Pooling and Servicing
Agreements will terminate upon the earliest to occur of (i) the maturity or
other liquidation of the last related Contract and the disposition of any
amounts received upon liquidation of any such remaining Contracts, (ii) the
payment to Noteholders, if any, and Certificateholders of the related series of
all amounts required to be paid to them pursuant to the Sale and Servicing
Agreements and Pooling and Servicing Agreements and (iii) the occurrence of the
event described in the immediately following paragraph.
Unless otherwise provided in the related Prospectus Supplement, in order
to avoid excessive administrative expense, the Seller through the Trust
Depositor will be permitted at its option to purchase from each Trust, as of the
end of any applicable Due Period, if the then outstanding Pool Balance with
respect to the Contracts held by such Trust is 10% or less of the Initial Pool
Balance (as defined in such Prospectus Supplement, the "INITIAL POOL BALANCE"),
all remaining related Contracts at a price equal to the aggregate of the
Purchase Amounts thereof as of the end of such Due Period.
As and to the extent in the related Prospectus Supplement, outstanding
Notes (or any class of Notes) of the related series may be redeemed concurrently
with the event specified above, and the subsequent
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distribution to the related Securityholders of all amounts required to be
distributed to them pursuant to the applicable Trust Agreement or Indenture will
effect early retirement of the Securities of such series.
ADMINISTRATION AGREEMENT
The Company, in its capacity as administrator (in such capacity, the
"ADMINISTRATOR"), will enter into an agreement (an "ADMINISTRATION AGREEMENT")
with each Owner Trust that issues Notes and the related Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture. As compensation
for the performance of the Administrator's obligations under the applicable
Administration Agreement and as reimbursement for its expenses related thereto,
the Administrator will be entitled to a monthly administration fee (the
"ADMINISTRATION FEE"), which fee will be paid by the Trust Depositor.
INDIVIDUAL MOTORCYCLE INSURANCE
The terms of each Contract require that for the life of the Contract,
each Motorcycle is to be covered by a collision and comprehensive or equivalent
insurance policy which covers physical damage risks, provides limited insurance
coverage for damage to the Motorcycle, and names the Seller as a loss payee.
The amount of insurance coverage is limited to the value of the Motorcycle.
In the related Transfer and Sale Agreement, the Seller will warrant that all
premium payments on such insurance have been paid in full for one year from the
date of the Contracts' origination. Pursuant to the Contract terms, the
Servicer may "FORCE PLACE" (i.e., purchase on its own, with a corresponding
claim for reimbursement against the Obligor to the extent provided in the
applicable Contract) collision and comprehensive insurance with respect to the
related Motorcycle in those situations in which the Obligor has not maintained
the required insurance. Currently, the Servicer utilizes Recreational Products
Insurance Division, a division of Universal Underwriters Insurance Company, to
"FORCE PLACE" comprehensive and collision insurance in 31 states in which
Obligors reside. As conveyee and assignee of the Contracts, the Trust will be
entitled to the benefits of such insurance. Following repossession of a
Motorcycle by the Servicer, the Servicer does not maintain such insurance.
In the event the Servicer repossesses a Motorcycle on behalf of the Trust, the
Servicer will act as self-insurer for any damage to such motorcycle until it is
resold.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
SECURITY INTEREST IN MOTORCYCLES
The Contracts in general evidence the credit sale of new and used
motorcycles by Dealers to Obligors and also constitute personal property
security agreements granting the holder of such Contract a security interest in
the Motorcycles under the applicable UCC. Perfection of security interests in
the Motorcycles is generally governed by the motor vehicle registration laws of
the state in which a Motorcycle is located. In almost all states in which the
Contracts have been originated, a security interest in motorcycles, automobiles,
light duty trucks, vans and minivans is perfected by notation of the secured
party's lien on the vehicle's certificate of title.
All of the Contracts purchased by the Company name the Company as
obligee (by assignment or otherwise) and as the secured party. The Company also
takes all actions necessary under the laws of the state in which the Motorcycle
is located to perfect the Company's security interest in the Motorcycle,
including, where applicable, having a notation of its lien recorded on such
vehicle's certificate of title.
The Company will sell its interests in Contracts and assign its security
interests in the Motorcycles securing the Contracts to a Trust Depositor
pursuant to a Transfer and Sale Agreement, which Trust Depositor will, in turn,
sell such interests and assign such security interests to the Trust pursuant to
either a Sale and Servicing Agreements or a Pooling and Servicing Agreement.
However, because of the administrative burden and expense, the certificates of
title to the Motorcycles will not be amended to reflect any Trust Depositor or
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the Trust as the new secured party on the certificate of title relating to the
Motorcycles. Each Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, provides that the Servicer, as custodian, will hold
any certificates of title and the documents and other items relating to the
Motorcycles in its possession on behalf of the Trust and the Indenture Trustee.
With respect to certain limitations on the enforceability of the
Applicable Trustees' security interest, see "RISK FACTORS -- SECURITY INTERESTS
AND OTHER ASPECTS OF THE CONTRACTS".
Under the laws of most states, the perfected security interest in a
Motorcycle would continue for four months after such vehicle is moved to a state
other than the state in which it is initially registered, and thereafter until
the owner of the Motorcycle re-registers it in the new state. A majority of
states generally require surrender of a certificate of title in connection with
the re-registration of a vehicle; accordingly, a secured party must surrender
possession if it holds the certificate of title to the vehicle, or, in the case
of a vehicle registered in a state providing for the notation of a lien on the
certificate of title but not possession by the secured party, assuming no fraud
or negligence, the secured party noted on the certificate of title would receive
notice of surrender if the security interest is noted on the certificate of
title. Thus, the secured party would have the opportunity to re-perfect its
security interest in the vehicle in the state of relocation. In states that do
not require a certificate of title for registration of a motor vehicle, a
re-registration could defeat perfection. In the ordinary course of servicing
Contracts, the Company takes 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 Motorcycle, the Company must surrender
possession of the certificate of title or will receive notice as a result of its
lien noted thereon and, accordingly, will have an opportunity to require
satisfaction of the related Contract before release of the lien. Under each
Sale and Servicing Agreement or Pooling and Servicing Agreement, as applicable,
the Company as Servicer is obligated to take appropriate steps, at its own
expense, to maintain perfection of security interests in such Motorcycle and is
obligated to repurchase the related Contract if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle, liens for unpaid storage fees and liens for unpaid taxes take priority
over even a perfected security interest in a Motorcycle. The Company will
represent that, as of the date of issuance of the Securities, each security
interest in a Motorcycle is prior to all other present liens upon and security
interests in such Motorcycle. However, liens for repairs, unpaid storage fees
or taxes could arise at any time during the term of a Contract. No notice will
be given to the Applicable Trustee or the Securityholders in the event such a
lien arises nor will the Company be obligated to repurchase the related Contract
if such a lien arises after the Closing Date.
REPOSSESSION
In the event of default by a Motorcycle purchaser, a holder of a retail
installment sale contract or installment loan has all the remedies of a secured
party under the UCC, except where specifically limited by other state laws.
Among its UCC remedies, the secured party has the right to perform self-help
repossession unless such act would constitute a breach of the peace. Self-help
is the method employed by the Company in most cases and is accomplished simply
by retaking possession of the Motorcycle. In the event of default by the
Obligor, some jurisdictions require that the Obligor be notified of the default
and be given a time period within which he or she may cure the default prior to
repossession. Generally, the right to cure a default may be exercised on a
limited number of occasions in any one-year period. In cases where the Obligor
objects or raises a defense to repossession, if a Motorcycle cannot be retaken
without a breach of the peace, or if otherwise required by applicable state law,
a court order must be obtained from an appropriate court, and the Motorcycle
must then be repossessed in accordance with that order.
NOTICE OF SALES; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale or
the date after which any private sale or other intended disposition of the
collateral may be held. All aspects of the disposition of the collateral,
including the method,
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manner, time, place and terms must be commercially reasonable. The Obligor has
the right to redeem the collateral prior to actual sale by paying the secured
party the unpaid principal balance of the obligation plus reasonable expenses
for repossessing, holding, and preparing the collateral for disposition and
arranging for its sale plus, in some jurisdictions, reasonable attorneys' fees.
In some states the Obligor may have a post-repossession right to reinstate the
terms of the contract or loan and redeem the collateral by the payment of
delinquent installments and expenses incurred by the secured party in
repossessing the collateral.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds obtained upon repossession and resale of the Motorcycles
generally will be applied first to the expenses of resale and repossession and
then to the satisfaction of the indebtedness. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale do not cover the full amount of the indebtedness, a deficiency judgment
can be sought in those states that do not prohibit or limit such judgments,
provided that certain procedures are followed. However, the deficiency judgment
would be a personal judgment against the Obligor for the shortfall, and a
defaulting Obligor can be expected to have very little capital or sources of
income available following repossession. Therefore, in many cases, it may not
be useful to seek a deficiency judgment or, if one is obtained, it may be
settled at a significant discount.
Occasionally, after resale of collateral and payment of all expenses and
all indebtedness, there is a surplus of funds. In that case, the UCC requires
the secured party to remit the surplus to any holder of a lien with respect to
the collateral or, if no such lienholder exists or there are remaining funds,
the UCC requires the secured party to remit the surplus to the former owner of
the collateral. Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws, may limit or delay the ability of a lender to
repossess and resell collateral or enforce a deficiency judgment.
CONSUMER PROTECTION LAWS
Courts have applied general equitable principles to limit and restrict
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.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protection provided under the 14th Amendment of the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance, including requirements regarding the adequate disclosure of
loan terms (including finance charges and deemed finance charges) and
limitations on loan terms (including the permitted finance charge or deemed
finance charge), collection practices and creditor remedies. The application of
these laws to particular circumstances is not always certain and some courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of such laws. 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 Credit Billing Act, the Fair Debt Collection Procedures Act, the
Moss-Magnuson Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Civil Relief Act, state adaptations of the Uniform
Consumer Credit Code and state motor vehicle retail installment sales acts,
retail installment sales acts, and other similar laws. State laws generally
impose finance charge ceilings and other restrictions on consumer transactions
and often require contract disclosure 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 an assignee's ability to enforce consumer finance
contracts or loans such as the Contracts.
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Under the laws of certain states, finance charges with respect to motor
vehicle retail installment contracts may include the additional amount, if any,
that a purchaser pays as part of the purchase price for a motorcycle solely
because the purchaser is buying on credit rather than for cash (a "CASH SALE
DIFFERENTIAL"). If a Dealer charges such a cash sale differential, applicable
finance charge ceilings could be exceeded.
The so-called "HOLDER-IN-DUE-COURSE" Rule of the Federal Trade
Commission (the "FTC RULE"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code and other state laws, has the effect of
subjecting an assignee of a seller of goods (and certain related creditors) to
all claims and defenses that the obligor in the transaction could assert against
the seller of the goods.
All of the Contracts will be subject to the requirements of the FTC
Rule. Accordingly, the Trust, as holder of the Contracts, will be subject to
any claims or defenses that the purchaser of the related Motorcycle may assert
against the Dealer. Such claims are limited to a maximum liability equal to the
amounts actually paid by the Obligor on the Contract. If an Obligor were
successful in asserting any such claim or defense, such claim or defense would
constitute a breach of the Company's representations and warranties under the
related Transfer and Sale Agreement and would create an obligation of the
Company to repurchase the related Contract unless the breach were cured. The
Trust Depositor will assign its rights under the related Transfer and Sale
Agreement, including its right to cause the Company to repurchase Contracts with
respect to which it is in breach of its representations and warranties, to the
Trust pursuant to either the related Sale and Servicing Agreement or Pooling and
Servicing Agreement. See "DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS -- SALE AND ASSIGNMENT OF CONTRACTS".
Under most state vehicle dealer licensing laws, dealers of motorcycles
are required to be licensed to sell motorcycles at retail sale. In addition,
with respect to used motorcycles, the Federal Trade Commission's Rule on Sale of
Used Motorcycles requires that all dealers of used motorcycles prepare, complete
and display a "BUYER'S GUIDE" which explains the warranty coverage for such
motorcycles. 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 dealers of used motorcycles furnish a written
statement signed by the dealer certifying the accuracy of the odometer reading.
If a Dealer is not properly licensed or if either a Buyer's Guide or Odometer
Disclosure Statement was not provided to the purchaser of a Motorcycle, the
Obligor may be able to assert a defense against the Dealer. If an Obligor on a
Contract were successful in asserting any such claim or defense, the Servicer
would pursue on behalf of the Trust any reasonable remedies against the Dealer
or the manufacturer of the Motorcycle, subject to certain limitations as to the
expense of any such action to be specified in the Sale and Servicing Agreement
and Pooling and Servicing Agreement.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy code, a court may prevent a
secured party from repossessing a Motorcycle and, as part of the rehabilitation
plan, may reduce the amount of the secured indebtedness to the market value of
the Motorcycle 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.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes and the Certificates. This discussion is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "CODE"),
Treasury Regulations promulgated thereunder, current administrative rulings,
judicial decisions and other applicable authorities in effect as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
There are no cases or Internal Revenue Service ("IRS") rulings on similar
transactions involving a trust and instruments issued by that trust with terms
similar to those of the Trust, and the Notes and the Certificates. As a result,
there can be no assurance that the IRS will not challenge the conclusions set
forth in the following summary, and no ruling from the IRS has been or will be
sought on any of the issues discussed below. Furthermore, legislative, judicial
or administrative changes may occur, perhaps with retroactive effect, which
could affect the accuracy of the statements and conclusions set forth herein as
well as the tax consequences to holders of the Notes and the Certificates.
This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to all holders of Notes and Certificates in
light of their personal investment or tax circumstances nor to certain types of
holders who may be subject to special treatment under the federal income tax
laws (including, without limitation, financial institutions, broker-dealers,
insurance companies, foreign persons, tax-exempt organizations and persons who
hold the Notes or Certificates as part of a straddle, hedging or conversion
transaction). This information is generally directed to prospective purchasers
who purchase Notes or Certificates at the time of original issue, who are
citizens or residents of the United States, and who hold the Notes or
Certificates as "CAPITAL ASSETS" within the meaning of Section 1221 of the Code.
Taxpayers and preparers of tax returns (including those filed by any partnership
or other issuer) 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, taxpayers 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. PROSPECTIVE INVESTORS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER
TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES
AND CERTIFICATES.
Each Trust will be provided with an opinion of Winston & Strawn special
federal income tax counsel to each Trust, as specified in the related Prospectus
Supplement ("FEDERAL TAX COUNSEL"), regarding certain federal income tax matters
discussed below. An opinion of Federal Tax Counsel, however, is not binding on
the IRS or the courts. Such opinions will be filed by the Servicer, together
with the final documentation for the respective Trust transaction, with the
Commission under Form 8-K under the Exchange Act. 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 is an Owner Trust, treated as a partnership under
the Code or a Grantor Trust treated as a grantor trust under the Code. Pursuant
to legislation enacted in 1996, as an alternative to those two types of trusts,
effective September 1, 1997 the Trust could elect to be treated as a financial
asset securitization investment trust ("FASIT"). A summary of the federal
income tax consequences pertaining to each type of trust is set forth below.
The Prospectus Supplement for each series of Securities will specify the
treatment of the Trust for federal income tax purposes. To the extent any given
series of Notes or Certificates differs from the assumptions or conditions set
forth in the following discussion, any additional tax considerations will be
disclosed in the applicable Prospectus Supplement.
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OWNER TRUSTS
TAX CHARACTERIZATION OF OWNER TRUSTS
OPINIONS
Federal Tax Counsel will deliver its opinion that a Trust characterized
as an Owner Trust will not be an association (or a publicly traded partnership)
taxable as a corporation for federal income tax purposes. This opinion will be
based on the assumptions that the terms of the Trust Agreement and related
documents will be complied with and that the Certificateholders will take all
action necessary, if any, or refrain from taking any inconsistent action so as
to ensure the Trust is a partnership under the Check the Box regulations
(defined below) and on Federal Tax Counsel's conclusions that (i) the Trust will
constitute a business entity and will have two or more members, (ii) the nature
of the income of the Trust will exempt it from the rule that certain publicly
traded partnerships are taxable as corporations, and (iii) the Trust, if a
corporation, would not constitute a regulated investment company under Code
Section 851.
If the Trust were taxable as a corporation for federal income tax
purposes, it would be subject to corporate income tax on its taxable income.
The Trust's taxable income would include all its income on the related Contracts
and other assets, which may be reduced by its interest expense on the Notes if
the Notes are respected as debt of such corporation. 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.
Federal Tax Counsel will also render an opinion that the Notes will be
classified as debt for federal income tax purposes.
TAX CONSEQUENCES TO HOLDERS OF NOTES ISSUED BY AN OWNER TRUST
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Trust Depositor and the
Certificateholders will agree, and the Noteholders will agree by their purchase
of Notes, to treat the Notes as debt for federal income tax purposes.
Additionally, Federal Tax Counsel will render an opinion that the Notes will be
classified as debt for federal income tax purposes. The discussion below
assumes that characterization of the Notes is correct.
OID. The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars. Moreover, the discussion assumes that the interest
formula for the Notes meets the requirements for "QUALIFIED STATED INTEREST"
under Treasury regulations relating to original issue discount ("OID"), and that
any OID on the Notes (I.E., any excess of the stated redemption price at
maturity of the Notes over their issue price) does not exceed a DE MINIMIS
amount (I.E., 1/4% of their stated redemption price at maturity multiplied by
the number of full years included in their term), all within the meaning of such
OID regulations.
If the interest formula for the Notes does not meet the requirements for
"QUALIFIED STATED INTEREST" because it may not satisfy the "UNCONDITIONALLY
PAYABLE" test of the OID regulations or the Notes otherwise have more than a DE
MINIMIS amount of OID, the Notes will have OID and a Noteholder will be
required to include such OID in income as it accrues under a constant yield
method in advance of receipt of cash payments, regardless of the Noteholder's
regular method of tax accounting. In general, the amount of OID included in
income is the sum of the "DAILY PORTIONS" of the OID with respect to the Note
for each day during the taxable year the Noteholder held the Note. The daily
portion generally is determined by allocating to each day in an accrual period a
ratable portion of the OID allocable to such accrual period. The amount of OID
allocable to an accrual period is generally equal to the difference between (i)
the product of the Note's adjusted issue price and its yield to maturity and
(ii) the amount of qualified stated interest payments allocable to such accrual
period. The "ADJUSTED ISSUE PRICE" of an OID Note at the beginning of any
accrual period is the sum of its issue price plus the amount of OID allocable to
prior accrual periods minus the amount of prior payments that were not qualified
stated interest. Alternatively, because the payments on the Notes may be
accelerated by reason of prepayments on the Contracts, OID, other than DE
MINIMIS OID, on the Notes, if any, may have
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to be accrued under Code section 1272(a)(6), which allocates OID to each day in
an accrual period by taking the ratable portion of the excess of (i) the sum of
the present value of the remaining payments on a Note as of the close of the
accrual period and the payments made during the accrual period that were
included in stated redemption price at maturity, over (ii) the adjusted issue
price of the Note at the beginning of the accrual period. No regulations have
been issued under Code section 1272(a)(6) so it is not clear if such section
would apply to the Notes if they are treated as having OID. The Clinton
Administration has proposed legislation which if enacted, would require OID on
the Notes to be computed in accordance with Section 1272(a)(6) and certain
prepayment assumptions.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, the Notes
should not be considered to be issued with OID. The stated interest thereon
will be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's method of tax accounting. Under
the OID regulations, a holder of a Note issued with a DE MINIMIS amount of OID
must include such OID in income, on a pro rata basis, as principal payments are
made on the Note. 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.
ACQUISITION PREMIUM. A U.S. Holder that purchases a Note for an amount
less than or equal to the sum of all amounts payable on the Note after the
purchase date other than payments of qualified stated interest but in excess of
its adjusted issue price (any such excess being "ACQUISITION PREMIUM") and that
does not make the election described below under "ELECTION TO TREAT ALL INTEREST
AS ORIGINAL ISSUE DISCOUNT" is permitted to reduce the daily portions of OID, if
any, by a fraction, the numerator of which is the excess of the U.S. Holder's
adjusted basis in the Note immediately after its purchase over the adjusted
issue price of the Note, and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date, other than payments
of qualified stated interest, over the Note's adjusted issue price.
MARKET DISCOUNT. The Notes, whether or not issued with original issue
discount, will be subject to the "MARKET DISCOUNT RULES" of section 1276 of the
Code. In general, these rules provide that if the holder of a Note purchases
the Note at a market discount (I.E., a discount from its original issue price
plus any accrued original issue discount that exceeds a DE MINIMIS amount
specified in the Code) and thereafter recognizes gain upon a disposition, the
lesser of (i) such gain or (ii) the accrued market discount will be taxed as
ordinary income. Generally, the accrued market discount will be the total
market discount on the Note multiplied by a fraction, the numerator of which is
the number of days the holder held the Note and the denominator of which is the
number of days from the date the holder acquired the Note until its maturity
date. The holder may elect, however, to determine accrued market discount under
the constant-yield method. Holders should consult with their own tax advisors
as to the effect of making this election.
Limitations imposed by the Code which are intended to match deductions
with the taxation of income defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder who elects to include market
discount in gross income as it accrues is exempt from this rule. The adjusted
basis of a Note subject to such election will be increased to reflect market
discount included in gross income, thereby reducing any gain or increasing any
loss on a sale or taxable disposition.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. A U.S.
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "ORIGINAL
ISSUE DISCOUNT," with modifications described below. For purposes of this
election, interest includes stated interest, OID, DE MINIMIS OID, market
discount, DE MINIMIS market discount and unstated interest, as adjusted by any
amortizable bond premium (described below under "AMORTIZABLE BOND PREMIUM") or
acquisition premium.
In applying the constant-yield method to a Note with respect to which
this election has been made, the issue price of the Note will equal the electing
U.S. Holder's adjusted basis in the Note immediately after its acquisition, the
issue date of the Note will be the date of its acquisition by the electing U.S.
Holder, and no
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payments on the Note will be treated as payments of qualified stated interest.
This election, if made, may not be revoked without the consent of the IRS.
U.S. Holders should consult with their own tax advisors as to the effect in
their circumstances of making this election.
AMORTIZABLE BOND PREMIUM. In general, if a Noteholder purchases a Note
at a premium (I.E., an amount in excess of the amount payable upon the maturity
thereof), such Noteholder will be considered to have purchased such Note with
"AMORTIZABLE BOND PREMIUM" equal to the amount of such excess. Such Noteholder
may elect to deduct the amortizable bond premium as it accrues under a
constant-yield method over the remaining term of the Note. Under proposed
regulations, if finalized, accrued amortized bond premium may only be used as an
offset against qualified stated interest when such interest is included in the
holder's gross income under the holder's normal accounting system.
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 basis for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Noteholder with respect to such Note. Any such gain or loss will be
capital gain or loss if the Note was held as a capital asset, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used only to offset capital
gains. The IRS Restructuring and Reform Act of 1998, which was signed into law
on July 22, 1998, generally reduces from 18 months to one year the period of
time that an individual must hold a capital asset in order to receive long-term
capital gains treatment upon disposition of such asset. This change is
retroactive in effect and generally applies to sales of capital assets occurring
on or after January 1, 1998.
BACK-UP WITHHOLDING. Each holder of 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 penalty 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 Back-up withholding. Should a nonexempt Noteholder
fail to provide the required certification, the Trust will be required to
withhold 31% 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.
NEW WITHHOLDING REGULATIONS. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the backup withholding and information reporting rules
described above. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New Regulations will generally
be effective for payments made after December 31, 1999, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-U. S. person (a
"FOREIGN PERSON") generally will be considered "PORTFOLIO INTEREST," and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 PERCENT SHAREHOLDER"
of the Trust (including a holder of 10% of the outstanding Certificates) or a
"CONTROLLED FOREIGN CORPORATION" with respect to which the Trust 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), signed under penalties of
perjury, certifying that the beneficial owner of the Note is a foreign person
and providing the foreign person's name and address. If a Note is held through
a securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement
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must be accompanied by a Form W-8 or substitute form provided by the foreign
person that owns the Note. If such interest is not portfolio interest, then it
will be subject to United States federal income and withholding tax at a rate of
30 percent, unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
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 resulting taxable corporation would not be able to reduce its taxable
income by deductions for interest expense on Notes recharacterized as equity).
Alternatively, it is possible that the Trust might be treated as 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) could constitute "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, individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses, and income from the Trust's assets would be taxable to Noteholders
regardless if cash distributions are made from the Trust.
TAX CONSEQUENCES TO HOLDERS OF CERTIFICATES ISSUED BY AN OWNER TRUST
TREATMENT OF TRUST AS A PARTNERSHIP. The Trust Depositor and the
Servicer will agree, and the related 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 Trust
Depositor and the Servicer is not certain because there is no authority on
transactions closely comparable to that contemplated herein. The Trust, the
Trust Depositor, and the Certificateholders will take all necessary actions, if
any, and refrain from taking any inconsistent actions, so as to ensure that the
Trust will be treated as a partnership under the final Treasury Regulations
which allow an entity to elect status as a partnership (the "CHECK THE BOX"
regulations).
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Depositor or the Trust. 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, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership and that all payments on the Certificates are denominated in U.S.
dollars.
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. The Trust's income will consist
primarily of interest and finance charges earned on the related Contacts
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of such Contracts. 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 Contracts.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(I.E., the Trust Agreement and related documents). The Trust
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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 related
Contracts 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 Contracts that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust will be allocated
to the Trust Depositor. Based on the economic arrangement of the parties, this
approach for allocating Trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to Certificateholders.
Moreover, even under the foregoing method of allocation, Certificateholders 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 the taxable income allocated to a Certificateholder that is a
tax-exempt entity (including an individual retirement account) will constitute
"UNRELATED BUSINESS TAXABLE INCOME" generally taxable to such a holder under the
Code.
With respect to any Certificateholder who is an individual, 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.
The Trust will 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 Contract, 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 Contracts 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 related Contracts may be greater or
less than the remaining principal balance of the Contracts at the time of
purchase. If so, the Contracts 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
Contract-by-Contract basis.
If the Trust acquires the Contracts at a market discount or premium, it
will elect to include any such discount in income currently as it accrues over
the life of such Contracts or to offset any such premium against interest income
on such Contracts. As indicated above, a portion of such market discount income
or premium deduction may be allocated to Certificateholders.
DISTRIBUTIONS TO CERTIFICATEHOLDERS. Certificateholders generally will
not recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the Certificateholder's adjusted basis in the Certificates
(as described below "DISPOSITION OF CERTIFICATES") immediately before the
distribution. A Certificateholder will recognize loss upon the termination of
the Trust or termination of the Certificateholder's interest in the Trust if the
Trust only
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distributes money to the Certificateholder and the amount distributed is less
than the Certificateholder's adjusted basis in the Certificates. Any gain or
loss will generally be long-term gain or loss if the holding period of the
Certificate is more than one year.
SECTION 708 TERMINATION. Under Section 708 of the Code, if 50% or more
of the outstanding interests in the Trust are sold or exchanged within any
12-month period, the Trust will be deemed to terminate and then be reconstituted
for federal income tax purposes. If such a termination occurs, the assets of
the terminated Trust (the "Old Trust") are deemed to be constructively
contributed to a reconstituted Trust (the "New Trust") in exchange for interests
in the New Trust. Such interests would be deemed distributed to the partners,
or Certificateholders, of the Old Trust in liquidation thereof, which would not
constitute a sale or exchange. Accordingly, if the sale of the Trust's
interests terminated the partnership under Section 708 of the Code, the
Certificateholder's basis in its ownership interest would not change. The
Trust's taxable year would also terminate as a result of a constructive
termination and, if the Certificateholder was on a different taxable year than
the Trust, the termination could result in the "bunching" of more than twelve
months of the Trust's income or loss in the Certificateholder's income tax
return for the year in which the Trust was deemed to terminate.
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 Trust Depositor'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 (that was includible in the Certificateholder's income) and decreased by
any distributions received with respect to such Certificate. In addition, both
the tax basis in the Certificates and the amount realized on a sale of a
Certificate would include the holder's share of the Notes and other liabilities
of the Trust. A holder acquiring Certificates at different prices may be
required to maintain a single aggregate adjusted tax basis in such Certificates,
and, upon sale or other disposition of some of the Certificates, allocate a
portion of such aggregate tax basis to the Certificates sold (rather than
maintaining a separate tax basis in each Certificate for purposes of computing
gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the related Contracts 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 transaction.
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 Trust
Depositor will be authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the
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administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the Trust will not make such election. As a result,
Certificateholders might be allocated a greater or lesser amount of Trust income
than would be appropriate based on their own purchase price for Certificates.
ADMINISTRATIVE MATTERS. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The 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-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (a) the name, address and identification number of such person,
(b) whether such person is a United States person, a tax-exempt entity, a
foreign government or an international organization, or any wholly owned agency
or instrumentality of either of the foregoing, and (c) 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 Trust Depositor will be designated as the tax matters partner for
the Trust in the Trust Agreement and, as such, will be responsible for
representing the Certificateholders in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations
for partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may be
precluded from separately litigating a proposed adjustment to the 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.
BACK-UP WITHHOLDING. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "BACK-UP"
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.
The New Regulations make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Nevertheless, the Trust will
withhold as if it were so engaged
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in order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. Subsequent adoption of Treasury regulations or
the issuance of other administrative pronouncements may require the Trust to
change its withholding procedures. In determining a holder's withholding
status, the Trust may generally rely on IRS Form W-8, IRS Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. 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. Each foreign holder must
obtain a taxpayer identification number from the IRS and submit that number to
the Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business (although no assurance can be given as to the prospects for
success of the refund claim). However, even if such a position is successful,
interest payments made (or accrued) to a Certificateholder who is a foreign
person may be considered to be guaranteed payments, but only to the extent such
payments are determined without regard to the income of the Trust. It is
unclear whether the IRS would agree with that characterization. If these
interest payments are properly characterized as guaranteed payments, then the
interest will not constitute "PORTFOLIO INTEREST." As a result,
Certificateholders will be subject to 30 percent U.S. withholding tax, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a foreign
holder would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
GRANTOR TRUSTS
TAX CHARACTERIZATION OF GRANTOR TRUSTS
OPINION
Federal Tax Counsel will deliver its opinion that a Trust characterized
as a Grantor Trust will be classified as a grantor trust and not as an
association taxable as a corporation and that, subject to the discussion below
under "STRIPPED BOND TREATMENT", each Certificateholder will be treated for
federal income tax purposes as the owner of a pro rata undivided interest in the
income and assets of the Trust.
GENERAL
For federal income tax purposes, the Trust will be deemed to have
acquired the following assets: (i) the principal portion of each Contract, plus
a portion of the interest due on each Contract (the "TRUST STRIPPED BONDS"),
(ii) the portion of the interest due on each such Contract not allocable to the
Trust Stripped Bonds or retained by the Seller (the "TRUST STRIPPED COUPONS"),
(iii) the proceeds of certain insurance policies on the motorcycles, (iv) rights
under the Trust Deposit Agreement and (v) rights under the Security Agreement in
favor of the Trust securing the Trust Depositor's obligation to purchase
Subsequent Contracts and deliver them to the Trust. Although the Trust will
have certain rights with respect to the Reserve Fund, the Pre-Funding Account
and the Interest Reserve Account, such accounts are not assets of the Trust.
Each Certificateholder will have a taxable event when an asset of the
Trust (including any Contract) is disposed of (whether by sale, exchange,
redemption or payment at maturity) or when the Certificateholder's Certificate
is redeemed or sold. A Certificateholder must allocate the cost of its
Certificates among its allocable share of the assets of the Trust, including the
Contracts (in accordance with the proportion of the relative fair market values
of such assets as of the date such Certificateholder acquired its Certificate)
in order to determine its initial tax basis for its pro rata portion of each
asset held by the Trust, including the Contracts. For this purpose, a
Certificateholder may treat the Trust's rights in the security interests, the
individual
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insurance contracts on the motorcycles, and other rights the Trust may have
which provide credit enhancement as part of the Contracts such that no separate
allocation of the Certificate cost and determination of basis must be made to
these rights. Such tax basis is adjusted upward by the amount of original issue
discount ("OID"), if applicable (see the discussion below under "STRIPPED BOND
TREATMENT", and downward by the amount of all payments previously received by
such Certificateholder (assuming OID treatment applies) under "STRIPPED BOND
TREATMENT" below.
The Trust Stripped Bonds will be treated as "STRIPPED BONDS" and the
Trust Stripped Coupons will be treated as "STRIPPED COUPONS," both within the
meaning of Section 1286 of the Code.
INCOME OF HOLDERS OF CERTIFICATES ISSUED BY A GRANTOR TRUST
Subject to the discussion below under "STRIPPED BOND TREATMENT", each
Certificateholder will be required to report on its federal income tax return,
in a manner consistent with its method of accounting, its pro rata allocable
share of the entire gross income of the Trust, including interest or finance
charges earned on the Contracts, and any gain or loss upon collection or
disposition of the Contracts. In computing its federal income tax liability, a
Certificateholder will be entitled to deduct, consistent with its method of
accounting, its pro rata allocable share of reasonable fees payable to the
Servicer that are paid or incurred by the Trust as provided in Sections 162 or
212 of the Code. If a Certificateholder is an individual, estate or trust, the
deduction for its pro rata share of such fees will be allowed only to the extent
that all of its miscellaneous itemized deductions, including its share of such
fees, exceed 2% of its adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer whose adjusted gross income exceeds a specified amount will
be reduced by the lesser of (i) 3% of the excess, if any, of adjusted gross
income over such amount, or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. As a result, such investors holding
Certificates, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Certificates with respect to interest at the related Pass-Through Rate on
such Certificates.
STRIPPED BOND TREATMENT
Although the federal income tax treatment of stripped bonds is not
entirely clear, since only limited regulations have been issued by the IRS,
based on guidance by the IRS it is believed that the Contracts should be treated
as "STRIPPED BONDS" and the interest thereon payable to the Certificateholders
as "STRIPPED COUPONS." The Contracts would, therefore, be treated as subject to
the OID provisions and stripped bond provisions of the Code. Each
Certificateholder would be treated as owning stripped bonds (represented by its
portion of the Class A Percentage or Class B Percentage of principal payments on
each Contract) and stripped coupons (equal to that Certificateholder's
proportionate part of the interest on the Trust Stripped Bonds). Furthermore,
each Class B Certificateholder will own a proportionate part of the stripped
coupons represented by the Trust Stripped Coupons. Each stripped bond and
coupon should generally be treated as a single debt instrument. As a result of
this characterization, each Certificateholder will be allocated interest from
the Contracts equal to its respective share of the Class A Pass-Through Rate or
the Class B Pass-Through Rate and principal on the Contracts equal to its Class
A Percentage or Class B Percentage of such principal.
In general, under the stripped bond and OID provisions of the Code, each
initial Certificateholder would report OID (other than certain de minimis
amounts) in each taxable year computed on a constant yield method based on the
yield to maturity of the Contracts held by the Trust. Such yield would be
computed with respect to each Certificateholder by taking into account such
Certificateholder's purchase price for its interest in the Contracts and the
payments to be made in respect of the Certificateholder's interest in such
Contracts. Thus, it is believed that the effect of the stripped bond rules and
the OID provisions would be to treat each Contract as a bond originally issued
on the date it is purchased (I.E., the date that a holder purchases its
Certificate), and having OID equal to the excess of (a) the Certificateholder's
share of the sum of all payments that are part of each Contract over (b) the
portion of the Certificateholder's purchase price for the Certificate
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that is properly allocable to each Contract. As a consequence, each
Certificateholder, regardless of its method of tax accounting, would be required
to include in its ordinary gross income the sum of the "DAILY PORTIONS" of the
OID determined with respect to such Certificateholder's pro rata interest in
such Contracts for all days during the taxable year on which the
Certificateholder owns the Certificate.
The method of calculating yield to maturity is not clear, and in
particular it is not clear under the Code whether prepayments on the underlying
Contracts should be taken into account in determining such yield. The Clinton
Administration has proposed legislation which if enacted, may require the yield
on the Contracts to be determined based on the prepayment assumptions.
Based on the preamble to certain stripped bond regulations, although the
matter is not entirely clear, the interest income on the Class A Certificates
and the Class B Certificates and the portion of the Monthly Servicing Fee
allocable to each such Certificate may be treated, in whole or in part, as
so-called "QUALIFIED STATED INTEREST." In that case, the income reportable by
the initial holder of a Certificate in each monthly accrual period under the OID
provisions should be approximately the same as its pro rata share of the
aggregate interest accruing with respect to the Certificate in accordance with
its terms, plus the Certificate's pro rata share of the portion of the Monthly
Servicing Fee and any allocable fees and expenses.
Under the foregoing analysis, the bond premium and market discount rules
of the Code would not apply to the initial holder of a Certificate.
The OID provisions of the Code and the regulations thereunder are
complex, are unclear in many respects, and do not address many issues raised by
the Contracts. Moreover, only limited guidance has been issued with respect to
stripped bonds and final regulations under the stripped bond provisions of the
Code may provide for different treatment, perhaps with retroactive effect.
Holders of Certificates issued by a Grantor Trust should consult their tax
advisors to determine the proper method of reporting taxable income from the
Certificates.
SALE OF CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale allocable to each of the
Contracts and the Certificateholder's adjusted basis in each of the Contracts.
A Certificateholder's adjusted basis will equal the Certificateholder's cost for
the Certificate, increased by any OID previously included in income, and
decreased by the amount of payments previously received on the Contracts,
however denominated (other than qualified stated interest payments). Any gain
or loss will be capital gain or loss if the Certificate was held as a capital
asset. A capital gain or loss will be long-term or short-term depending on
whether or not the Certificates have been owned for more than one year.
FOREIGN CERTIFICATEHOLDERS
Income attributable to Contracts which is received by a foreign
Certificateholder will generally not be subject to the normal 30% withholding
tax imposed with respect to such payments, provided that (i) the foreign
Certificateholder does not own, directly or indirectly, 10% or more of, and is
not a controlled foreign corporation related to , the Seller and (ii) such
holder fulfills certain certification requirements. Under such requirements,
the holder must certify, under penalty of perjury, that it is not a "UNITED
STATES PERSON" and provide its name and address on Form W-8. For this purpose,
"UNITED STATES PERSON" generally means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof or an
estate or trust the income of which is includable in gross income for United
States federal income tax purposes, regardless of its source or which is subject
to the supervision or authority of a U.S. court or U.S. fiduciary. Gain
realized upon the sale of a Certificate by a foreign Certificateholder generally
will not be subject to United States withholding tax. If, however, such
interest or gain is effectively connected to the conduct of a trade or business
within the United States by such foreign Certificateholder (or in the case of
gain the Certificateholder is an individual who is
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present in the United States for a total of 183 days or more during the taxable
year in which such gain is realized), such holder will be subject to United
States federal income tax thereon at either the regular rates or a special 30%
withholding tax rate. Potential investors who are not United States persons
should consult their own tax advisors regarding the specific tax consequences to
them of owning a Certificate issued by a Grantor Trust.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will furnish or make available, within the prescribed period
of time for tax reporting purposes after the end of each calendar year, to each
Certificateholder or each person holding a Certificate on behalf of a
Certificateholder at any time during such year, such information as the Trustee
deems necessary or desirable to assist Certificateholders in preparing their
federal income tax returns. Payments made on the Certificates and proceeds from
the sale of the Certificates will not be subject to a "BACKUP" withholding tax
of 31% unless, in general, a Certificateholder fails to comply with certain
reporting procedures and is not an exempt recipient under applicable provisions
of the Code.
The New Regulations make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
TAX TREATMENT OF A FASIT
The "SMALL BUSINESS JOB PROTECTION ACT OF 1996" (the "ACT") creates a
new type of entity for federal income tax purposes called a "FINANCIAL ASSET
SECURITIZATION INVESTMENT TRUST" or "FASIT" effective on and after September 1,
1997. The Act enables certain arrangements similar to a Trust to elect to be
treated as a FASIT. Under the FASIT provisions of the Act, a FASIT generally
would avoid federal income taxation and could issue securities substantially
similar to the Certificates and Notes, and those securities would be treated as
debt for federal income tax purposes. If so specified in the related Prospectus
Supplement, a Trust may make an election to be treated as a FASIT. The
applicable Pooling and Servicing Agreement or Sale and Servicing Agreement for
such a Trust may contain such terms and provide for the issuance of Notes or
Certificates on such terms and conditions as are permitted for a FASIT. In
addition, upon satisfying certain conditions set forth in the Pooling and
Servicing Agreements or Sale and Servicing Agreements in existence on September
1, 1997, the Seller and Servicer will be permitted to amend any such Pooling and
Servicing Agreements or Sale and Servicing Agreements so as to enable all or a
portion of a Trust to qualify as a FASIT and to permit a FASIT election to be
made with respect thereto, and to make such modifications to a Pooling and
Servicing Agreement or Sale and Servicing Agreement as may be permitted by
reason of the making of such an election. See "DESCRIPTION OF THE POOLING AND
SERVICING AGREEMENTS--AMENDMENT." However, there can be no assurance that the
Seller will or will not cause any permissible FASIT election to be made with
respect to an existing Trust or amend a Pooling and Servicing Agreement or Sale
and Servicing Agreement in connection with any election. In addition, if such
an election is made, it may cause a holder to recognize gain (but not loss) with
respect to any Notes or Certificates held by it, even though Federal Tax Counsel
previously delivered its opinion that the Notes or Certificates will be treated
as debt for federal income tax purposes without regard to the election and the
Notes or Certificates would be treated as debt following the election.
Additionally, any such election and amendments to a Pooling and Servicing
Agreement or Sale and Servicing Agreement may have other tax and non-tax
consequences to Securityholders. Such consequences, together with a detailed
discussion of the tax aspects of a FASIT, will be set forth in the Prospectus
Supplement applicable thereto.
63
<PAGE>
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability to
different investors, it is not possible to summarize the potential state tax
consequences of holding the Certificates. ACCORDINGLY, PURCHASERS OF
CERTIFICATES OR NOTES SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE STATE
TAX CONSEQUENCES OF PURCHASING ANY CERTIFICATES OR NOTES.
* * *
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
OR CERTIFICATE OWNER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and Keogh Plans (each a "PLAN"), from engaging in certain transactions
with persons that are "PARTIES IN INTEREST" under ERISA or "DISQUALIFIED
PERSONS" under the Code with respect to such Plan. A violation of these
"PROHIBITED TRANSACTION" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan that
purchased Certificates if assets of the Trust were deemed to be assets of the
Plan. Under a regulation issued by the United States Department of Labor (the
"PLAN ASSETS REGULATION"), the assets of a Trust would be treated as assets of a
Plan for the purposes of ERISA and the Code only if the Plan acquired an "EQUITY
INTEREST" in the Trust and none of the exceptions contained in the Plan Assets
Regulation was applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A Plan fiduciary considering the purchase of Securities of a given
series should consult its tax and/or legal advisors regarding whether the assets
of the related Trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
THE NOTES
Unless otherwise specified in the Prospectus Supplement, the Notes of
each series may be purchased by a Plan if the fiduciary of the Plan determines
that the purchase of a Note is consistent with its fiduciary duties and does not
result in a nonexempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code.
SENIOR CERTIFICATES
The following discussion applies only to nonsubordinate Certificates
(referred to herein as "SENIOR CERTIFICATES") issued by a Grantor Trust.
64
<PAGE>
The U.S. Department of Labor has granted to the lead Underwriter named
in the Prospectus Supplement an exemption (the "EXEMPTION") from certain of the
prohibited transaction rules of ERISA with respect to the initial purchase, the
holding and the subsequent resale by Plans of certificates representing
interests in asset-backed pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The contracts covered by the Exemption include
motor vehicle retail installment sales contracts and installment loans such as
the Contracts. The Exemption should apply to the acquisition, holding and
resale in the secondary market of the Senior Certificates by a Plan, provided
that certain conditions (certain of which are described in the related
Prospectus Supplement) are met. It should be noted, however, that in issuing
the Exemption the Department may not have considered interests in pools of the
exact nature of some of the offered Certificates.
Unless otherwise specified in the Prospectus Supplement, the Company
believes that, after the expiration of any applicable Funding Period, the
Exemption will apply to the acquisition and holding by Plans of Senior
Certificates sold by the Underwriter or Underwriters named in the Prospectus
Supplement and that all conditions of the Exemption other than those within the
control of the investors will have been met.
SUBORDINATE CERTIFICATES
Unless otherwise specified in the Prospectus Supplement, the
Certificates issued by Owner Trusts that also issue Notes and Subordinate
Certificates issued by Grantor Trusts may not be purchased by a Plan or by any
entity whose underlying assets include Plan assets by reason of a Plan's
investment in the entity. By its acceptance of such Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not a Plan.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given series and an underwriting agreement
with respect to the Certificates of such series (collectively, the "UNDERWRITING
AGREEMENTS"), the Trust Depositor will agree to cause the related Trust to sell
to the underwriters named therein and in the related Prospectus Supplement, and
each of such underwriters will severally agree to purchase, the principal amount
of each class of Notes and Certificates, as the case may be, of the related
series set forth in such underwriting agreements and in such Prospectus
Supplement.
In each of the Underwriting Agreements with respect to any given series
of Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
broker-dealers participating in the offering of such Notes and Certificates or
(ii) specify that the related Notes and Certificates, as the case may be, are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Notes and Certificates, such public offering prices and such concessions
may be changed.
Each Underwriting Agreement will provide that the Trust Depositor will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust
Accounts in Eligible Investments acquired from such underwriters or from the
Trust Depositor.
65
<PAGE>
Pursuant to each Underwriting Agreement with respect to a given series
of Securities, the closing of the sale of any class of Securities subject to
such Underwriting Agreement will be conditioned on the closing of the sale of
all other such classes of Securities of that series.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Trust Depositor, the Servicer and the
Administrator by Winston & Strawn, Chicago, Illinois including providing an
unqualified opinion with respect to the legality of the Securities issued by a
Trust, and for the underwriters for such series by Brown & Wood LLP, New York,
New York.
66
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Applicable Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Base Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Buell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Calculation Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-29
CD Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
CD Rate Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . 26
CD Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Certificate Distribution Account . . . . . . . . . . . . . . . . . . . . . . 35
Certificate Pool Factor. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Certificateholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Collateral Reinvestment Account. . . . . . . . . . . . . . . . . . . . . . . 6
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Collection Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Commercial Paper Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Commercial Paper Rate Determination Date . . . . . . . . . . . . . . . . . . 27
Commercial Paper Rate Security . . . . . . . . . . . . . . . . . . . . . . . 26
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Composite Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6, 7
Cutoff Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Definitive Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Definitive Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Eaglemark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Eaglemark Financial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Early Amortization Event . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Eligible Deposit Account . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
FASIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 47, 48
Federal Funds Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Federal Funds Rate Determination Date. . . . . . . . . . . . . . . . . . . . 27
Federal Funds Rate Security. . . . . . . . . . . . . . . . . . . . . . . . . 26
Federal Tax Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Fixed Rate Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
Floating Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
FTC Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
H.15(519). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Index Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Indirect Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Initial Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Initial Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Initial Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Interest Reset Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Interest Reset Period. . . . . . . . . . . . . . . . . . . . . . . . . . .25, 26
Investment Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46, 47
LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LIBOR Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LIBOR Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Lien Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Mandatory Special Redemption . . . . . . . . . . . . . . . . . . . . . . . . 11
Money Market Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Motorcycles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 46
Note Distribution Account. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Note Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Obligor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 12, 14
OID. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Other Manufacturers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 46
Owner Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 25
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14, 19
Pooling and Servicing Agreement. . . . . . . . . . . . . . . . . . . . . . . 3
Pre-Funded Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Pre-Funding Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Purchase Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Rating Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10, 15
Registrar of Titles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Related Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Revolving Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sale and Servicing Agreements. . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Security Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Spread Multiplier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Strip Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Strip Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Subsequent Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subsequent Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . 13
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Telerate Page 3750 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Transfer and Sale Agreement. . . . . . . . . . . . . . . . . . . . . . . . 6, 7
Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Treasury Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Treasury Rate Determination Date . . . . . . . . . . . . . . . . . . . . . . 29
Treasury Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 13, 29
Underwriting Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
69
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Expenses in connection with the offering of the Securities being
registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . $ 354,000
Legal fees and expenses. . . . . . . . . . . . . . . . . . . $ 150,000
Accounting fees and expenses . . . . . . . . . . . . . . . . $ 30,000
Blue sky fees and expenses . . . . . . . . . . . . . . . . . $ 8,000
Rating agency fees . . . . . . . . . . . . . . . . . . . . . $ 30,000
Trustee's fees and expenses. . . . . . . . . . . . . . . . . $ 12,500
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . $ 30,000
Total. . . . . . . . . . . . . . . . . . . . . . . $ 659,000
</TABLE>
___________________
* All amounts except the SEC Registration Fee are estimates of expenses
incurred or to be incurred in connection with the issuance and
distribution of a Series of Securities in an aggregate principal amount
assumed for these purposes to be equal to $1,200,000,000 of Securities
registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Eaglemark, Inc. has undertaken in its certificate of incorporation and
bylaws to indemnify, to the maximum extent permitted by the Nevada General
Corporation Law as from time to time amended, any currently acting or former
director, officer, employee and agent of Eaglemark, Inc. against any and all
liabilities incurred in connection with their services in such capacities.
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Registration Statement on Form S-3 (File No. 333-21793) and
incorporated herein by reference)
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Registration
Statement on Form S-3 (File No. 333-21793) and incorporated herein by
reference)
4.1 Form of Trust Agreement (including form of Certificates)*
4.2 Form of Pooling and Servicing Agreement (including form of
Certificates)*
4.3 Form of Indenture (including form of Notes)*
5.1 Opinion of Winston & Strawn with respect to legality*
8.1 Opinion of Winston & Strawn with respect to tax matters*
10.1 Form of Sale and Servicing Agreement*
10.2 Form of Administration Agreement*
10.3 Form of Transfer and Sale Agreement*
23.1 Consent of Winston & Strawn (included in Exhibits 5.1 and 8.1)*
24.1 Power of Attorney (included on signature page)*
25.1 Statement of Eligibility and Qualification of Indenture Trustee*
99.1 Form of Agreement to Deposit Contracts*
99.2 Form of Security Agreement*
</TABLE>
_________________________
* Previously filed as an exhibit to this Registration Statement.
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned 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. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "CALCULATION OF REGISTRATION
FEE" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(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 this 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.
<PAGE>
(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.
The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
the State of Illinois, on November 10, 1998.
EAGLEMARK, INC.
By:/s/ Michael E. Sulentic
----------------------------
Name: Michael E. Sulentic
Title: Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** President and Chief Operating Officer November 10, 1998
- ------------------------ (Principal Executive Officer)
Donna F. Zarcone
/s/ Michael E. Sulentic Vice President and Chief Financial Officer November 10, 1998
- ------------------------ (Principal Financial and Accounting Officer)
Michael E. Sulentic
/s/ Perry A. Glassgow Treasurer and Assistant Secretary November 10, 1998
- ------------------------
Perry A. Glassgow
** Director November 10, 1998
- ------------------------
Steven F. Deli
</TABLE>
**By /s/ Michael E. Sulentic
-------------------------
Michael E. Sulentic
as Attorney-in-Fact
<PAGE>
Registration No. 333 -62849
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
HARLEY-DAVIDSON EAGLEMARK MOTORCYCLE TRUSTS
(Issuer with respect to the Securities)
EAGLEMARK, INC.
(Sponsor of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
_____________________
EXHIBIT VOLUME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Registration Statement on Form S-3 (File No. 333-21793) and
incorporated herein by reference)
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Registration
Statement on Form S-3 (File No. 333-21793) and incorporated herein by
reference)
4.1 Form of Trust Agreement (including form of Certificates)*
4.2 Form of Pooling and Servicing Agreement (including form of
Certificates)*
4.3 Form of Indenture (including form of Notes)*
5.1 Opinion of Winston & Strawn with respect to legality*
8.1 Opinion of Winston & Strawn with respect to tax matters*
10.1 Form of Sale and Servicing Agreement*
10.2 Form of Administration Agreement*
10.3 Form of Transfer and Sale Agreement*
23.1 Consent of Winston & Strawn (included in Exhibits 5.1 and 8.1)*
24.1 Power of Attorney (included on signature page)*
25.1 Statement of Eligibility and Qualification of Indenture Trustee*
99.1 Form of Agreement to Deposit Contracts*
99.2 Form of Security Agreement*
</TABLE>
_________________________
* Previously filed as an exhibit to this Registration Statement
