<PAGE>
THIS PROSPECTUS AND PROSPECTUS SUPPLEMENT RELATE TO THE REGISTRATION
STATEMENT UNDER FILE NO. 333-21793 AND ARE BEING FILED PURSUANT TO
RULE 424(B)(5) OF THE SECURITIES ACT OF 1933.
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 9, 1997)
$160,000,000
HARLEY-DAVIDSON EAGLEMARK MOTORCYCLE TRUST 1998-1
$100,000,000 5.81% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$49,600,000 5.94% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$10,400,000 6.42% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES
EAGLEMARK, INC.
SELLER AND SERVICER
EAGLEMARK CUSTOMER FUNDING CORPORATION-IV
TRUST DEPOSITOR
---------------------
The Harley-Davidson Eaglemark Motorcycle Trust 1998-1 Harley-Davidson
Motorcycle 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 May
15, 1998. Distributions on the Certificates will be subordinated to payments due
on the Notes to the extent described herein. Each Class of Notes and the
Certificates will be payable in full on the Final Distribution Dates (as defined
herein) 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 NEXT PAGE)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE POTENTIAL RISK FACTORS
SET FORTH UNDER "RISK FACTORS" ON PAGE S-16 HEREOF AND ON PAGE 11 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
$159,487,074.59 before deducting other offering expenses payable by the Seller
of approximately $250,000.
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 April 28, 1998.
--------------------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY SECURITIES LLC
The date of this Prospectus Supplement is April 21, 1998.
<PAGE>
(cover page continued)
The Harley-Davidson Eaglemark Motorcycle Trust 1998-1 (the "TRUST") will be
formed pursuant to a Trust Agreement dated as of April 1, 1998 (the "TRUST
AGREEMENT") entered into by and between Eaglemark Customer Funding
Corporation-IV (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 April 1, 1998
(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 April 2, 1998 (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 $114,449,218.84 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
April 1, 1998 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 April 1, 1998 (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 5.81% per
annum (the "CLASS A-1 RATE") , the Class A-2 Notes of 5.94% per annum (the
"CLASS A-2 RATE"), and the Certificates of 6.42% 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 May 2002,
February 2004 and January 2005, 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 Pool Balance has declined to less than 10% of 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
BBB by S&P and Baa2 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-IV 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 Underwriter expects, but is 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 the 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
1998-1 (the "TRUST").
Trust Depositor . . . . . . . . Eaglemark Customer Funding Corporation-IV,
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 April 28, 1998
Securities Offered. . . . . . . The securities offered are as follows:
A. General. . . . . . . . The Harley-Davidson Eaglemark Motorcycle
Trust 1998-1 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 1998-1 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 April 1, 1998 (the
"INDENTURE"), between the Trust and the
Indenture Trustee, as follows: (i)
$100,000,000 aggregate principal
amount (the "INITIAL CLASS
A-1 NOTE BALANCE") of Class A-1 5.81%
Harley-Davidson Motorcycle Contract
Backed Notes (the "CLASS A-1 NOTES")
and (ii) $49,600,000 aggregate
principal amount (the "INITIAL
CLASS A-2 NOTE BALANCE") of
Class A-2 5.94%
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 "SUMMARY OF TERMS
-- 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 $10,400,000 aggregate
principal amount of 6.42%
Certificates pursuant to a Trust
Agreement to be dated as of April 1,
1998 (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 May 15, 1998.
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
calendar month in which such
Distribution Date occurs (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 May 2002 (the
"CLASS A-1 FINAL DISTRIBUTION
DATE") and (ii) the Class A-2 Notes
will be payable on the Distribution
Date occurring in February 2004 (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 January 2005 (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 5.81% per annum (the
"CLASS A-1 RATE") and the Class A-2
Notes will bear interest at the
rate of 5.94% per annum (the "CLASS
A-2 RATE" and, together with the
Class A-1 Rate, the "INTEREST
RATES").
S-6
<PAGE>
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."
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 "THE NOTES -- EVENTS OF DEFAULT".
F. Mandatory Special
Redemption . . . . . . The holders of Class A-1 Notes ("CLASS A-1
NOTEHOLDER") 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 solely to the Class A-1
Noteholders, pro rata.
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 Certificate-
holders of record as of the related
Record Date accrued interest at the rate
of 6.42% 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
$10,400,000 (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 "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
$114,449,218.84 as of April 2, 1998,
(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 $45,550,781.16, 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 and the District of
Columbia. As of the Initial Cutoff
Date, the annual percentage rate of
interest on the Initial Contracts
ranges from 8.75% to 23.99% with a
weighted average of approximately
13.15%. The Initial Contracts had a
weighted average term to scheduled
maturity, as of origination, of
approximately 67.28 months, and a
weighted average term to scheduled
maturity, as of the Initial Cutoff
Date, of approximately 64.95 months.
The final scheduled Distribution Date
on the Initial Contract with the
latest maturity is no later than
April 2004. No Contract (including
any Subsequent Contract) will have a
scheduled maturity later than July
2004. 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 $572,246.09 (the
"RESERVE FUND INITIAL DEPOSIT") 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 (as defined herein)
(such Excess Amounts, Subsequent
Reserve Fund Amounts and Subsequent
Certificate Reserve Amounts, together
with the Reserve Fund Initial Deposit
and the 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 0.50% of the
aggregate balance of the Subsequent
Contracts conveyed to the Trust. 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 (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 $515,021.49 (as further defined
herein 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 0.45% of the aggregate balance
of the Subsequent Contracts conveyed to
the Trust on such date (the "Subsequent
Certificate Reserve Amount"). If funds
in the Reserve Fund (other than the
Certificate Reserve Amount (as defined
herein) 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.
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".
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 $150,000, (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 $45,550,781.16 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 $150,000 by the
Distribution Date occurring in
July 1998. Any Pre-Funded Amount
remaining at the end of the Funding
Period will be payable to the
Noteholders as described above in
"SUMMARY OF TERMS -- MANDATORY
SPECIAL REDEMPTION".
S-11
<PAGE>
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 Collection 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.
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 "CERTAIN INFORMATION
REGARDING THE SECURITIES
--TERMINATION."
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 each be rated at least
BBB by S&P and Baa2 by Moody's. See
"RATINGS OF THE SECURITIES".
S-12
<PAGE>
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."
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-13
<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,
though 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-14
<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 1% 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-15
<PAGE>
RISK FACTORS
The CONTRACTS AND REINVESTMENT RISK ASSOCIATED WITH THE PRE-FUNDING
ACCOUNT. On the Closing Date, the Trust Depositor will transfer
$114,449,218.84 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
$45,550,781.16 (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 July 2004;
(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
[qs]
[ci]
S-16
<PAGE>
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 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."
S-17
<PAGE>
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 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.
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 . . . . . . $100,000,000
Class A-2 Notes . . . . . . $ 49,600,000
Certificates. . . . . . . . $ 10,400,000
-----------
Total . . . . $160,000,000
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-18
<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 April 2004, 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 July 2004, and (d) with respect to the Initial Contracts, has
its first scheduled payment due no later than May 1998. 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 64.61% 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 35.39% is attributable to loans to purchase
Motorcycles which were used at the time the related Contract was originated.
All Initial Contracts have a
S-19
<PAGE>
contractual rate of interest of at least 8.75% per annum and not more than
23.99% per annum and the weighted average contractual rate of interest of the
Initial Contracts as of the Initial Cutoff Date is approximately 13.15% per
annum (see Table 2 below). The Initial Contracts have remaining maturities as
of the Initial Cutoff Date of at least 4 months but not more than 72 months
and original maturities of at least 12 months but not more than 72 months.
The Initial Contracts had a weighted average term to scheduled maturity, as
of origination, of approximately 67.28 months, and a weighted average term to
scheduled maturity as of the Initial Cutoff Date of approximately 64.95
months (see Tables 3 and 4 below). The average principal balance per Initial
Contract as of the Initial Cutoff Date was approximately $11,560.53 and the
principal balances on the Initial Contracts as of the Initial Cutoff Date
ranged from $687.56 to $33,606.50 (see Table 5 below). The Contracts arise
(or will arise) from loans to Obligors located in 50 states and the District
of Columbia 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:
13.24% in the state of California, 9.19% in Texas, 8.73% in Florida, 5.83% in
Pennsylvania and 4.02% in North Carolina (see Table 6 below). No other state
represented more than 4.00% 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)
Aggregate Principal Balance . . . . . . . . . . . . . $114,449,218.84
Number of Contracts . . . . . . . . . . . . . . . . . 9,900
Average Principal Balance . . . . . . . . . . . . . . $11,560.53
Weighted Average Annual Percentage
Rate (APR). . . . . . . . . . . . . . . . . . . . 13.15%
(Range). . . . . . . . . . . . . . . . . . . . . 8.75%-23.99%
Weighted Average Original Term. . . . . . . . . . . . 67.28
(Range). . . . . . . . . . . . . . . . . . . . . 12 to 72
Weighted Average Calculated Remaining Term. . . . . . 64.95
(Range). . . . . . . . . . . . . . . . . . . . . 4 to 72
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<PAGE>
TABLE 2
DISTRIBUTION BY APR OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
RATE CONTRACTS CONTRACTS PRINCIPAL BALANCE BALANCE(1)
8.750-9.000% 301 3.04% $ 4,411,917.74 3.85%
9.001-10.000 405 4.09 5,322,164.89 4.65
10.001-11.000 1,017 10.27 13,592,171.26 11.88
11.001-12.000 1,383 13.97 16,682,468.59 14.58
12.001-13.000 2,368 23.92 28,339,194.87 24.76
13.001-14.000 1,886 19.05 20,775,406.12 18.15
14.001-15.000 1,129 11.40 11,612,237.54 10.15
15.001-16.000 489 4.94 4,677,462.30 4.09
16.001-17.000 143 1.44 1,234,627.63 1.08
17.001-18.000 214 2.16 2,079,274.55 1.82
18.001-19.000 80 0.81 963,463.11 0.84
19.001-20.000 275 2.78 2,743,258.66 2.40
20.001-21.000 79 0.80 778,652.97 0.68
21.001-22.000 129 1.30 1,222,520.79 1.07
22.001-23.000 1 0.01 7,057.54 0.01
23.001-23.990 1 0.01 7,340.28 0.01
----- ------ --------------- -------
Totals: 9,900 100.00% $114,449,218.84 100.00%
(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)
PERCENT PERCENT OF
CALCULATED REMAINING NUMBER OF NUMBER OF TOTAL OUTSTANDING POOL
TERM (MONTHS) CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
0 - 12 94 0.95% $ 209,442.22 0.18%
13 - 24 438 4.42 1,801,241.02 1.57
25 - 36 358 3.62 2,525,504.11 2.21
37 - 48 623 6.29 5,400,747.15 4.72
49 - 60 2,309 23.32 24,612,330.71 21.51
61 - 72 6,078 61.39 79,899,953.63 69.81
----- ------ --------------- -------
TOTALS: 9,900 100.00% $114,449,218.84 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-21
<PAGE>
TABLE 4
DISTRIBUTION BY ORIGINAL TERM TO MATURITY
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT PERCENT OF
ORIGINAL NUMBER OF NUMBER OF TOTAL OUTSTANDING POOL
TERM (MONTHS) CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
0 - 12 6 0.06% $ 25,281.28 0.02%
13 - 24 142 1.43 754,666.90 0.66
25 - 36 302 3.05 2,098,586.00 1.83
37 - 48 585 5.91 5,047,559.59 4.41
49 - 60 2,627 26.54 25,323,100.08 22.13
61 - 72 6,238 63.01 81,200,024.99 70.95
----- ------ --------------- -------
TOTALS: 9,900 100.00% $114,449,218.84 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-22
<PAGE>
TABLE 5
DISTRIBUTION BY CURRENT BALANCE OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF TOTAL OUTSTANDING PERCENT OF
CURRENT NUMBER OF NUMBER OF PRINCIPAL POOL
BALANCE CONTRACTS CONTRACTS(1) BALANCE BALANCE(1)
$ 0.01 - 1,000.00 9 0.09% $ 7,582.83 0.01%
$ 1,000.01 - 2,000.00 91 0.92 147,931.70 0.13
$ 2,000.01 - 3,000.00 188 1.90 483,060.84 0.42
$ 3,000.01 - 4,000.00 250 2.53 883,416.91 0.77
$ 4,000.01 - 5,000.00 387 3.91 1,766,795.97 1.54
$ 5,000.01 - 6,000.00 504 5.09 2,813,175.43 2.46
$ 6,000.01 - 7,000.00 603 6.09 3,929,513.10 3.43
$ 7,000.01 - 8,000.00 606 6.12 4,551,773.05 3.98
$ 8,000.01 - 9,000.00 659 6.66 5,609,377.56 4.90
$ 9,000.01 - 10,000.00 705 7.12 6,718,624.28 5.87
$ 10,000.01 - 11,000.00 570 5.76 5,992,047.60 5.24
$ 11,000.01 - 12,000.00 561 5.67 6,467,960.95 5.65
$ 12,000.01 - 13,000.00 567 5.73 7,097,710.22 6.20
$ 13,000.01 - 14,000.00 656 6.63 8,869,078.24 7.75
$ 14,000.01 - 15,000.00 802 8.10 11,654,114.85 10.18
$ 15,000.01 - 16,000.00 803 8.11 12,448,662.56 10.88
$ 16,000.01 - 17,000.00 655 6.62 10,800,645.55 9.44
$ 17,000.01 - 18,000.00 508 5.13 8,886,695.93 7.76
$ 18,000.01 - 19,000.00 337 3.40 6,221,756.85 5.44
$ 19,000.01 - 20,000.00 203 2.05 3,954,772.52 3.46
$ 20,000.01 - 21,000.00 101 1.02 2,066,842.10 1.81
$ 21,000.01 - 22,000.00 71 0.72 1,522,904.78 1.33
$ 22,000.01 - 23,000.00 27 0.27 605,824.70 0.53
$ 23,000.01 - 24,000.00 13 0.13 306,537.82 0.27
$ 24,000.01 - 25,000.00 8 0.08 197,592.33 0.17
$ 25,000.01 - 26,000.00 6 0.06 152,372.61 0.13
$ 26,000.01 - 27,000.00 3 0.03 80,341.08 0.07
$ 27,000.01 - 28,000.00 2 0.02 55,625.35 0.05
$ 29,000.01 - 30,000.00 1 0.01 29,444.34 0.03
$ 30,000.01 - 31,000.00 1 0.01 30,550.66 0.03
$ 31,000.01 - 32,000.00 2 0.02 62,879.63 0.05
$ 33,000.01 - 34,000.00 1 0.01 33,606.50 0.03
----- ------ -------------- -------
TOTALS: 9,900 100.00% $114,449,218.84 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-23
<PAGE>
TABLE 6
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF TOTAL OUTSTANDING PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL POOL
STATE CONTRACTS CONTRACTS(1) BALANCE BALANCE(1)
ALABAMA 115 1.16% $1,298,819.16 1.13%
ALASKA 30 0.30 348,064.36 0.30
ARIZONA 280 2.83 3,361,150.62 2.94
ARKANSAS 34 0.34 423,628.09 0.37
CALIFORNIA 1,281 12.94 15,155,417.79 13.24
COLORADO 121 1.22 1,507,765.75 1.32
CONNECTICUT 202 2.04 2,099,905.73 1.83
DELAWARE 42 0.42 486,779.27 0.43
DISTRICT OF COLUMBIA 5 0.05 55,199.87 0.05
FLORIDA 819 8.27 9,986,345.44 8.73
GEORGIA 250 2.53 3,126,575.47 2.73
HAWAII 97 0.98 1,121,658.08 0.98
IDAHO 10 0.10 120,156.36 0.10
ILLINOIS 366 3.70 4,140,705.04 3.62
INDIANA 154 1.56 1,720,875.54 1.50
IOWA 67 0.68 821,483.51 0.72
KANSAS 62 0.63 664,614.56 0.58
KENTUCKY 79 0.80 786,454.16 0.69
LOUISIANA 108 1.09 1,375,924.33 1.20
MAINE 48 0.48 447,092.00 0.39
MARYLAND 291 2.94 3,418,952.87 2.99
MASSACHUSETTS 233 2.35 2,488,970.86 2.17
MICHIGAN 117 1.18 1,384,032.45 1.21
MINNESOTA 96 0.97 1,072,454.59 0.94
MISSISSIPPI 28 0.28 331,123.49 0.29
MISSOURI 100 1.01 1,010,905.50 0.88
MONTANA 37 0.37 421,558.01 0.37
NEBRASKA 26 0.26 281,967.96 0.25
NEVADA 135 1.36 1,629,552.50 1.42
NEW HAMPSHIRE 130 1.31 1,344,674.58 1.17
NEW JERSEY 374 3.78 3,924,443.06 3.43
NEW MEXICO 84 0.85 1,092,649.17 0.95
S-24
<PAGE>
TABLE 6
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(CONTINUED)
PERCENT OF TOTAL OUTSTANDING PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL POOL
STATE CONTRACTS CONTRACTS(1) BALANCE BALANCE(1)
NEW YORK 332 3.35% $3,387,126.19 2.96%
NORTH CAROLINA 395 3.99 4,604,666.82 4.02
NORTH DAKOTA 6 0.06 62,909.13 0.05
OHIO 429 4.33 4,501,073.11 3.93
OKLAHOMA 85 0.86 1,041,463.64 0.91
OREGON 161 1.63 1,963,020.81 1.72
PENNSYLVANIA 624 6.30 6,669,599.11 5.83
RHODE ISLAND 24 0.24 261,685.29 0.23
SOUTH CAROLINA 135 1.36 1,710,558.06 1.49
SOUTH DAKOTA 16 0.16 170,848.57 0.15
TENNESSEE 235 2.37 2,739,719.03 2.39
TEXAS 830 8.38 10,515,015.24 9.19
UTAH 28 0.28 349,937.07 0.31
VERMONT 18 0.18 171,066.40 0.15
VIRGINIA 250 2.53 2,929,743.93 2.56
WASHINGTON 291 2.94 3,499,009.87 3.06
WEST VIRGINIA 34 0.34 418,513.64 0.37
WISCONSIN 172 1.74 1,857,836.33 1.62
WYOMING 14 0.14 145,526.43 0.13
----- ------ --------------- -------
TOTALS: 9,900 100.00% $114,449,218.84 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-25
<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-26
<PAGE>
DELINQUENCY EXPERIENCE(1)/
(DOLLARS IN THOUSANDS)
AT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
NUMBER OF
CONTRACTS AND
ASSOCIATED
OUTSTANDING
PRINCIPAL DOLLAR
BALANCES. . . . . . 20,590 $184,054.0 32,574 $303,682.4 45,258 $434,890.7 35,452 $334,396.9 47,751 $457,400.6
PERIOD OF
DELINQUENCY AND
ASSOCIATED
OUTSTANDING
PRINCIPAL
BALANCES(2)/ . . . .
30-59 DAYS . . . . . 477 $4,043.3 904 $8,002.9 1,264 $11,454.6 891 $7,770.4 923 $8,392.4
60-89 DAYS . . . . . 157 $1,298.7 374 $3,170.7 559 $5,112.1 271 $2,300.2 258 $2,260.6
90 DAYS OR MORE . . . 140 $1,120.2 213 $1,880.6 269 $2,196.5 127 $1,183.1 106 $1,020.0
TOTAL NUMBER OF
DELINQUENT
CONTRACTS . . . . . . 774 1,491 2,092 1,289 1,287
DELINQUENT
CONTRACTS AS A % OF
TOTAL NUMBER OF
CONTRACTS . . . . . . 3.76% 4.58% 4.62% 3.64% 2.70%
AGGREGATE PRINCIPAL
BALANCE OF
DELINQUENT
CONTRACTS . . . . . . $6,462.2 $13,054.2 $18,763.2 $11,253.7 $11,673.0
</TABLE>
S-27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31.
1995 1996 1997 1997 1998
AGGREGATE PRINCIPAL
BALANCE OF
DELINQUENT
CONTRACTS AS A
PERCENTAGE OF THE
AGGREGATE
OUTSTANDING
PRINCIPAL BALANCE OF
CONTRACTS . . . . . . 3.51% 4.30% 4.31% 3.37% 2.55%
</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. OBLIGORS DO NOT RECEIVE INITIAL STATEMENTS UNTIL
60 DAYS AFTER THE ORIGINATION OF THEIR CONTRACTS; THEREFORE, THE OBLIGORS'
ASSOCIATED NONPAYMENT IS NOT CONSIDERED FOR DELINQUENCY EXPERIENCE UNTIL
AFTER THE END OF SUCH 60-DAY PERIOD.
S-28
<PAGE>
LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TWELVE TWELVE TWELVE THREE THREE
MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
PRINCIPAL BALANCE OF
ALL CONTRACTS
SERVICED(1)/ . . . . . $184,548.7 $304,730.9 $436,771.0 $335,755.2 $459,616.7
CONTRACT
LIQUIDATIONS(2)/ . . . 0.76% 0.74% 1.42% 1.07% 1.39%
NET LOSSES:
DOLLARS(3)/ . . . . . $866.4 $1,639.5 $3,781.1 $ 741.8 $696.0
PERCENTAGE(4)/ . . . . 0.47% 0.54% 0.87% 0.88% 0.61%
</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. Harley-Davidson, as of December 31,
1997, owned 49% of the voting equity of Buell.
Harley-Davidson produces and sells premium superheavyweight motorcycles.
Within the superheavyweight class, Harley-Davidson sells touring motorcycles
(equipped for long-distance touring), as well as 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 three air cooled, twin cylinder engines of "V"
configuration which have displacements of 883cc, 1200cc, and 1340cc.
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.
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 April 2004. 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 July 2004.
S-30
<PAGE>
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 and Harley-Davidson
branded products including accessories through its private-label "HARLEY CARD,"
as well as a range of motorcycle insurance products through a wholly-owned
subsidiary. 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 702/885-1200). As of December 31, 1997, Eaglemark had total assets
of $551.8 million, and stockholder's equity of $68.1 million.
During the third quarter of 1994, Eaglemark began providing retail
consumer financing for other product lines. Initially, Eaglemark provided
financing for marine boat dealers under the trade names "MASTERCRAFT CREDIT,"
"WETJET CREDIT," "SKEETER CREDIT," "BOSTON WHALER FINANCIAL SERVICES," and
"MARIAH FINANCIAL SERVICES." Eaglemark has since added new lines of consumer
financing including (i) recreational vehicle financing through RV dealers under
the trade name of "HOLIDAY RAMBLER CREDIT"; (ii) Motorcycle financing through
the Canadian Harley-Davidson dealers transacted under the trade name "DEELEY
CREDIT"; and (iii) single-engine aircraft financing provided directly through
Mooney Aircraft under the trade name "MOONEY FINANCIAL SERVICES" or through a
broker (Sterling Air) under the Eaglemark name. Eaglemark also provides other
forms of consumer financing through various Dealers on a case-by-case basis. As
of December 31, 1997, accounts receivable related to these new product lines
represented less than 21.2% of total retail receivables serviced by Eaglemark.
EAGLEMARK CUSTOMER FUNDING CORPORATION-IV
The Trust Depositor is a special purpose corporation incorporated in the
State of Nevada in October 1996. 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 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).
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DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture. Citations to the
relevant Sections of the Indenture appear below and under "CERTAIN INFORMATION
REGARDING THE SECURITIES" in parentheses.
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 ACCOUNTS;
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 Percentage of
the related Note Principal Distributable Amount, in each case calculated as
described under "CERTAIN INFORMATION REGARDING THE SECURITIES -- DISTRIBUTIONS
ON THE SECURITIES -- DEPOSITS TO THE DISTRIBUTION ACCOUNTS; PRIORITY OF
PAYMENTS." Principal payments on the Notes will be made from Available Monies
after all Trust Fees and Expenses 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
ACCOUNTS, 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 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 "CERTAIN
INFORMATION REGARDING THE SECURITIES -- 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.
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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 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 at least 66_% 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 66 2/3% of the voting interests thereof,
voting together as a single class, consent to such sale or liquidation.
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.
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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
ACCOUNTS; 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 ACCOUNTS; 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 ACCOUNTS; 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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<PAGE>
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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<PAGE>
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 July 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 BBB by S&P and Baa2 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
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perfected security interest in the Motorcycles. See "RISK FACTORS -- RISK OF
UNPERFECTED SECURITY INTERESTS IN FINANCED 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 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
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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 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 8.75%, (ii) all motorcycles securing the
Contracts are Harley-Davidson or Buell motorcycles, (iii) approximately
64.61% of the aggregate Principal Balance of the Initial Contracts is
attributable to loans to purchase new Motorcycles and approximately 35.39% 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, (v) the first payment under each Initial
Contract is due on or before May 1998 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.
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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 $150,000, (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 Trustee. The
Pre-Funded Amount will initially equal $45,550,781.16 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 $150,000 by the Distribution Date occurring in July
1998. 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 $572,246.09 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 $515,021.49, 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 0.45% 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.
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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.
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
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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
(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.
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"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
"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, 0% until the
principal amount of the Class A-2 Notes has been reduced to zero 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
April 30, 1998.
"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.
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"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 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, 100% until the principal
amount of the Class A-2 Notes has been reduced 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
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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 "-- DISTRIBUTIONS ON THE
SECURITIES -- DEPOSITS TO THE DISTRIBUTION ACCOUNTS; PRIORITY OF PAYMENT." 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 Reserve Fund Initial Deposit. 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 $572,246.09 and (ii) the Initial
Certificate Reserve Amount of $515,021.49, 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) 2.50% of the Principal Balance of the
Contracts in the Trust as of the first day of the immediately preceding Due
Period and (ii) $720,000; 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) 6.00% of the Principal Balance of the Contracts in the Trust
as of the first day of the immediately preceding Due Period and (ii) $720,000.
Notwithstanding the foregoing, in no event shall the Specified Reserve Fund
Balance be less than the sum of (i) 1.00% of the aggregate of the Initial Class
A-1 Note Balance, Initial Class A-2 Note Balance and Initial Certificate Balance
and
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(ii) $720,000. 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) 2.50% 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) 3.00%
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) 3.50% 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) 4.00% 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) 2.75% 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) 3.25% 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)
0.75% 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) 1.50% 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, (c) 2.00% 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) 2.50% 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 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 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 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 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
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Subsequent Contracts as of the related Subsequent Cutoff Date. The "AVERAGE
DEFAULT RATIO" for any Distribution Date is equal to the arithmetic average
of the Default Ratio for such Distribution Date and the two immediately
preceding Distribution Dates and the "DEFAULT RATIO" for any Distribution
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 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 Interest 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 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 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 to the extent that the amount on deposit in the
Certificate
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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;
(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;
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(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, the Average Delinquency Ratio, the Default
Ratio and the Average Default 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 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
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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 of 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.
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
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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.
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
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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.
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.
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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.
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 been in good standing for the previous twelve-month period, (iii) such
extension is consistent with the Servicer's customary servicing procedures and
with the Agreement, (iv) 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 (v) the
aggregate Principal Balances of Contracts which have had extensions granted does
not exceed more than 3.00% of the aggregate of the principal amount of the Notes
and the Certificate Balance.
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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 1%
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. 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. 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.
EVIDENCE AS TO COMPLIANCE
Pursuant to the Agreement, on or before March 31 of each year, beginning on
March 31, 1999, 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
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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.
RIGHTS UPON AN EVENT OF TERMINATION
If an Event of Termination has occurred and is continuing, the Noteholders
evidencing not less than 51% of the Outstanding Amount 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 with aggregate
fractional interests evidencing 50% 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 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
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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.
(Sale and Servicing Agreement, Section 7.03). 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 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 and the
District of Columbia. 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
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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.
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
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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.
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
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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
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.
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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 persons that engage or participate in such prohibited transactions. The
Trust Depositor, the Underwriter, the Servicer,
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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 Underwriter, 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 April 21, 1998, 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 OF PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A-1 NOTES CLASS A-2 NOTES CERTIFICATES
<S> <C> <C> <C>
Salomon Brothers Inc $ 50,000,000 $ 24,800,000 $ 5,200,000
NationsBanc Montgomery
Securities LLC $ 50,000,000 $ 24,800,000 $ 5,200,000
------------ ------------ -----------
Total $100,000,000 $ 49,600,000 $10,400,000
------------ ------------ -----------
------------ ------------ -----------
</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 it sells 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
S-63
<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 each be rated at least BBB by S&P and Baa2 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),
S-66
<PAGE>
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement
date. Finally, day traders that use, CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(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).
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<PAGE>
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.
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.
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<PAGE>
INDEX OF TERMS
ACH Account . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Administrator . . . . . . . . . . . . . . . . . . . . . . . . S-54
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Aggregate Principal Balance . . . . . . . . . . . . . . . . . S-43
Aggregate Principal Balance Decline . . . . . . . . . . . . . S-43
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Available Amount . . . . . . . . . . . . . . . . . . . . . . S-11, S-48
Available Interest . . . . . . . . . . . . . . . . . . . . . . S-43
Available Monies . . . . . . . . . . . . . . . . . . . . . . . S-43
Available Principal . . . . . . . . . . . . . . . . . . . . . S-43
Average Default Ratio . . . . . . . . . . . . . . . . . . . . S-48
Average Delinquency Ratio. . . . . . . . . . . . . . . . . . . S-47
Average Loss Ratio . . . . . . . . . . . . . . . . . . . . . . S-47
Buell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Carrying Charges . . . . . . . . . . . . . . . . . . . . . . . S-12
Certificate Balance. . . . . . . . . . . . . . . . . . . . . . S-8
Certificate Distributable Amount . . . . . . . . . . . . . . . S-43
Certificate Distribution Account . . . . . . . . . . . . . . . S-42
Certificate Final Distribution Date. . . . . . . . . . . . . . S-6
Certificate Interest Carryover Shortfall . . . . . . . . . . . S-44
Certificate Interest Distributable Amount. . . . . . . . . . . S-44
Certificate Monthly Interest Distributable Amount. . . . . . . S-44
Certificate Monthly Principal Distributable Amount . . . . . . S-44
Certificate Percentage . . . . . . . . . . . . . . . . . . . . S-44
Certificate Principal Carryover Shortfall. . . . . . . . . . . S-44
Certificate Principal Distributable Amount . . . . . . . . . . S-44
Certificate Reserve Amount . . . . . . . . . . . . . . . . . . S-48
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Class A-1 Final Distribution Date. . . . . . . . . . . . . . . S-6
Class A-1 Noteholders. . . . . . . . . . . . . . . . . . . . . S-7
Class A-1 Notes . . . . . . . . . . . . . . . . . . . . . . . S-5
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-5
Class A-2 Rate . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-6
Collection Account . . . . . . . . . . . . . . . . . . . . . . S-40
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Cumulative Loss Ratio. . . . . . . . . . . . . . . . . . . . . S-47
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Dealer Recourse. . . . . . . . . . . . . . . . . . . . . . . . S-20
Defaulted Contract . . . . . . . . . . . . . . . . . . . . . . S-48
Delinquency Amount . . . . . . . . . . . . . . . . . . . . . . S-47
Delinquency Ratio. . . . . . . . . . . . . . . . . . . . . . . S-47
Determination Date . . . . . . . . . . . . . . . . . . . . . . S-42
Distribution Accounts . . . . . . . . . . . . . . . . . . . . S-42
Distribution Date . . . . . . . . . . . . . . . . . . . . . . S-6
S-69
<PAGE>
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Eaglemark. . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Eligible Investments . . . . . . . . . . . . . . . . . . . . . S-40
Events of Default. . . . . . . . . . . . . . . . . . . . . . . S-33
Excess Amounts . . . . . . . . . . . . . . . . . . . . . . . . S-10
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-5
Initial Class A-2 Note Balance . . . . . . . . . . . . . . . . S-5
Initial Contracts. . . . . . . . . . . . . . . . . . . . . . . S-2
Initial Cutoff Date. . . . . . . . . . . . . . . . . . . . . . S-2
Interest Period. . . . . . . . . . . . . . . . . . . . . . . . S-6, S-44
Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . S-6
Interest Reserve Account . . . . . . . . . . . . . . . . . . . S-12
Lien Certificate . . . . . . . . . . . . . . . . . . . . . . . S-39
Liquidated Contract. . . . . . . . . . . . . . . . . . . . . . S-47
Mandatory Special Redemption . . . . . . . . . . . . . . . . . S-7
Monthly Servicing Fee. . . . . . . . . . . . . . . . . . . . . S-15
Moody's. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Motorcycles. . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Net Liquidation Losses . . . . . . . . . . . . . . . . . . . . S-47
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . S-47
Note Distributable Amount. . . . . . . . . . . . . . . . . . . S-44
Note Distribution Account. . . . . . . . . . . . . . . . . . . S-42
Note Final Distribution Dates. . . . . . . . . . . . . . . . . S-6
Note Interest Carryover Shortfall. . . . . . . . . . . . . . . S-45
Note Interest Distributable Amount . . . . . . . . . . . . . . S-45
Note Monthly Interest Distributable Amount . . . . . . . . . . S-45
Note Monthly Principal Distributable Amount. . . . . . . . . . S-45
Note Percentage. . . . . . . . . . . . . . . . . . . . . . . . S-45
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Note Principal Carryover Shortfall . . . . . . . . . . . . . . S-45
Note Principal Distributable Amount. . . . . . . . . . . . . . S-45
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-45
Principal Distributable Amount . . . . . . . . . . . . . . . . S-45
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . S-3
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Registrar of Titles. . . . . . . . . . . . . . . . . . . . . . S-39
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-41
Reserve Fund Deposits. . . . . . . . . . . . . . . . . . . . . S-10
Reserve Fund Initial Deposit . . . . . . . . . . . . . . . . . S-10
Reserve Fund Trigger Event . . . . . . . . . . . . . . . . . . S-47
S&P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Specified Reserve Fund Balance . . . . . . . . . . . . . . . . S-46
Subsequent Certificate Reserve Amount. . . . . . . . . . . . . S-11
Subsequent Contracts . . . . . . . . . . . . . . . . . . . . . S-2
Subsequent Cutoff Date . . . . . . . . . . . . . . . . . . . . S-9
Subsequent Reserve Fund Amount . . . . . . . . . . . . . . . . S-11
Subsequent Transfer Agreement. . . . . . . . . . . . . . . . . S-16
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . S-9
Transfer and Sale Agreement. . . . . . . . . . . . . . . . . . S-2
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . S-2
Trust Depositor. . . . . . . . . . . . . . . . . . . . . . . . S-2
Trust Insolvency . . . . . . . . . . . . . . . . . . . . . . . S-33
Trust Property . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
S-71
<PAGE>
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.
Except as otherwise provided in the related 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 11 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 April 9, 1997.
<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) 885-1200.
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) 885-1200.
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 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
3
<PAGE>
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 Notes will be redeemed as
set forth in the related 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 (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
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-
4
<PAGE>
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.
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).
5
<PAGE>
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
"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
6
<PAGE>
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 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.
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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 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
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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 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
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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 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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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.
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 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
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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.
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".
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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 AND POOLING AND SERVICING
AGREEMENT -- 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.
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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."
SOCIAL, ECONOMIC AND OTHER FACTORS AFFECTING THE PERFORMANCE OF THE
CONTRACTS OR GENERATION OF SUBSEQUENT CONTRACTS. Economic conditions in states
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,
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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 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.
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
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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
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,
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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 superheavyweight motorcycles.
Within the superheavyweight class, Harley-Davidson sells touring motorcycles
(equipped for long-distance touring), as well as 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 three air cooled, twin
cylinder engines of "V" configuration which have displacements of 883cc,
1200cc, and 1340cc. 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.
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 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
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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 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
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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.
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% 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 and Harley-Davidson branded products including accessories
through its private-label "HARLEY CARD," as well as a range of motorcycle
insurance products through a wholly-owned subsidiary. 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 702/885-1200).
During the third quarter of 1994, Eaglemark began providing retail
consumer financing for other product lines. Initially, Eaglemark provided
financing for marine boat dealers under the trade names "MASTERCRAFT CREDIT,"
"WETJET CREDIT," "SKEETER CREDIT," "BOSTON WHALER FINANCIAL SERVICES," and
"MARIAH
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FINANCIAL SERVICES." Eaglemark has since added new lines of consumer
financing including (i) recreational vehicle financing through RV dealers
under the trade name of "HOLIDAY RAMBLER CREDIT"; (ii) Motorcycle financing
through the Canadian Harley-Davidson dealers transacted under the trade name
"DEELEY CREDIT"; and (iii) single-engine aircraft financing provided directly
through Mooney Aircraft under the trade name "MOONEY FINANCIAL SERVICES" or
through a broker (Sterling Air) under the Eaglemark name. Eaglemark also
provides other forms of consumer financing through various Dealers on a
case-by-case basis.
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 one director 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
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
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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".
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 66 2/3% of the
principal amount (or a lesser percentage as specified in the related Prospectus
Supplement, but in no case less than 51%) of such Notes then outstanding may
declare the principal of such Notes to be immediately due and payable. Such
declaration may, under certain circumstances, be rescinded by the holders of 66
2/3% (or a lesser percentage as specified in the related Prospectus Supplement,
but in no case less than 51%) of the principal amount of such Notes then
outstanding.
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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 66 2/3% (or a lesser
percentage as specified in the related Prospectus Supplement, but in no case
less than 51%) 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 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
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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.
MODIFICATION OF INDENTURE. Each Owner Trust and the related Indenture
Trustee may, with the consent of the holders of 51% (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.
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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.
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
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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 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
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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
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.
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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.
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
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Reset Period shall be the rate on such Federal Funds Rate Determination
Date made publicly 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, 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.,
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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 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.
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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 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.
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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;
(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;
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(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 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
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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 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
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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.
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.
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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 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,
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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
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.
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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.
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
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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.
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
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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.
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.
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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.
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 not less than 51% of the principal amount of the Notes then
outstanding and Certificateholders with aggregate fractional interests
representing 51% 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
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the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder.
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 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.
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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 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".
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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, 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.
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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.
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.
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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.
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 hat 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
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(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.
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.
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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 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.
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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 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.
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
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to the holder, and remit the withheld amount to the IRS as a credit against
the holder's federal income tax liability.
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 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
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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 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.
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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 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, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. Under current regulations, if such a termination occurs,
the Trust will be considered to distribute its assets to the partners, who
would then be treated as recontributing those assets to the Trust, as a new
partnership. Such deemed distribution may cause the realization of income
depending on the Certificateholder's basis in its Certificate. In addition,
the holding period of the Certificate will start anew. Under proposed
regulations, which will be effective for terminations on or after the date
the final regulations are published in the Federal Register, the partnership
on a termination will be treated as transferring all its assets and
liabilities to a new partnership in exchange for an interest in the new
partnership and immediately thereafter the terminated partnership will be
treated as distributing the new partnership interest to the partners in
liquidation of the terminated partnership. Such termination under the new
regulations should not cause income to be realized. The Trust may not comply
with certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Trust may be subject to certain tax
penalties and may incur additional expenses if it is required to comply with
those requirements. Furthermore, the Trust might not be able to comply due to
lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the 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.
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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 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.
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
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substantially similar to those described herein. Nevertheless, the Trust
will withhold as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income
were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust to change its
withholding procedures. In determining a 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 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
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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 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
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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 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
56
<PAGE>
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.
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.
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.
57
<PAGE>
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.
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
58
<PAGE>
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.
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.
59
<PAGE>
INDEX OF TERMS
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
Floating Rate Securities . . . . . . . . . . . . . . . . . . . . . . . 25
Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
FTC Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
60
<PAGE>
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
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Spread Multiplier. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Strip Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Strip Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Subsequent Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .6
Subsequent Purchase Agreement. . . . . . . . . . . . . . . . . . . . . 13
61
<PAGE>
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. . . . . . . . . . . . . . . . . . . . . . . . 58
62
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, AS SPONSOR OF THE TRUST OR
THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN 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 SUPPLEMENT
NOR THE 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
-----
<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-IV................................ S-31
DESCRIPTION OF THE NOTES....................... S-32
DESCRIPTION OF THE CERTIFICATES................ S-33
CERTAIN INFORMATION REGARDING
THE SECURITIES................................ S-35
SECURITY INTEREST AND OTHER ASPECTS OF THE
CONTRACTS; REPURCHASE OBLIGATIONS............. S-57
FEDERAL INCOME TAX CONSEQUENCES................ S-59
ERISA CONSIDERATIONS........................... S-61
UNDERWRITING................................... S-63
RATINGS OF THE SECURITIES...................... S-64
LEGAL MATTERS.................................. S-64
PROSPECTUS
AVAILABLE INFORMATION.......................... 2
SUMMARY OF TERMS............................... 3
RISK FACTORS................................... 11
THE TRUSTS..................................... 15
HARLEY-DAVIDSON MOTORCYCLES.................... 17
THE CONTRACTS.................................. 17
WEIGHTED AVERAGE LIFE OF THE SECURITIES 18
POOL FACTORS AND TRADING INFORMATION........... 18
USE OF PROCEEDS................................ 19
EAGLEMARK FINANCIAL SERVICES, INC.; EAGLEMARK,
INC.;
AND THE TRUST DEPOSITORS...................... 19
DESCRIPTION OF THE NOTES....................... 20
DESCRIPTION OF THE CERTIFICATES................ 24
CERTAIN INFORMATION REGARDING
THE SECURITIES................................ 25
DESCRIPTION OF THE TRANSFER AND SALE
AGREEMENTS.................................... 32
DESCRIPTION OF THE SALE AND SERVICING
AGREEMENTS AND POOLING AND SERVICING
AGREEMENTS.................................... 34
CERTAIN LEGAL ASPECTS OF
THE CONTRACTS................................. 43
FEDERAL INCOME TAX CONSEQUENCES................ 46
OWNER TRUSTS................................... 47
CERTAIN STATE TAX CONSEQUENCES................. 57
ERISA CONSIDERATIONS........................... 57
PLAN OF DISTRIBUTION........................... 58
LEGAL MATTERS.................................. 59
</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.
$160,000,000
HARLEY-DAVIDSON EAGLEMARK
MOTORCYCLE TRUST 1998-1
$100,000,000 5.81% HARLEY-DAVIDSON
MOTORCYCLE CONTRACT BACKED NOTES,
CLASS A-1
$49,600,000 5.94% HARLEY-DAVIDSON
MOTORCYCLE CONTRACT BACKED NOTES,
CLASS A-2
$10,400,000 6.42% HARLEY-DAVIDSON
MOTORCYCLE CONTRACT BACKED
CERTIFICATES
EAGLEMARK, INC.
SELLER AND SERVICER
EAGLEMARK CUSTOMER
FUNDING CORPORATION-IV
TRUST DEPOSITOR
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PROSPECTUS SUPPLEMENT
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SALOMON SMITH BARNEY
NATIONSBANC
MONTGOMERY SECURITIES LLC
