<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
HONDA AUTO RECEIVABLES 1997-1 OWNER TRUST
(Issuer with respect to the Securities)
AMERICAN HONDA RECEIVABLES CORP.
(Originator of the Trust described herein)
(Exact name as specified in Originator's charter)
CALIFORNIA 6146 33-0526079
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
----------------
700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4100
----------------
(Address, including zip code, and telephone number, including
area code, of Originator's principal executive offices)
Y. KOHAMA
700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4100
----------------
(Name, address, including zip code, and telephone number, including
area code, of agent for service with respect to the Originator)
----------------
COPIES TO:
Dale W. Lum, Esq.
Brown & Wood LLP
555 California Street
San Francisco, California 94104
----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
PROPOSED TITLE OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Asset Backed Securities............. $1,000,000.00 100%(1) $1,000,000.00(1) $303.03
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JUNE 25, 1997
$
Honda Auto Receivables 1997-1 Owner Trust
$ % Asset Backed Notes, Class A-1
$ % Asset Backed Notes, Class A-2
$ % Asset Backed Notes, Class A-3
$ % Asset Backed Certificates
--------------
American Honda Receivables Corp.
Seller
American Honda Finance Corporation
Servicer
--------------
THE HONDA AUTO RECEIVABLES 1997-1 OWNER TRUST (THE "TRUST") WILL BE GOVERNED BY
A TRUST AGREEMENT TO BE DATED AS OF 1, 1997, BETWEEN AMERICAN HONDA
RECEIVABLES CORP. (THE "SELLER") AND , AS OWNER TRUSTEE. THE TRUST
WILL ISSUE THREE CLASSES OF NOTES (EACH, A "CLASS", RESPECTIVELY, THE
"CLASS A-1 NOTES", THE "CLASS A-2 NOTES" AND THE "CLASS A-3 NOTES",
AND COLLECTIVELY, THE "NOTES") PURSUANT TO AN INDENTURE TO BE DATED
AS OF 1, 1997, BETWEEN THE TRUST AND , AS
INDENTURE TRUSTEE. THE TRUST WILL ALSO ISSUE ONE CLASS OF
CERTIFICATES (THE "CERTIFICATES" AND, TOGETHER WITH THE
NOTES, THE "SECURITIES"). THE ASSETS OF THE TRUST WILL
PRIMARILY INCLUDE A POOL OF RETAIL INSTALLMENT SALE
CONTRACTS (THE "RECEIVABLES") SECURED BY THE NEW
OR USED HONDA AND ACURA AUTOMOBILES, ODYSSEY
MINIVANS, HONDA SPORT UTILITY VEHICLES AND
LIGHT-DUTY TRUCKS FINANCED THEREBY (THE
"FINANCED VEHICLES"), CERTAIN MONIES
DUE OR RECEIVED UNDER THE
RECEIVABLES ON OR AFTER 1,
1997 AND SECURITY INTERESTS IN
THE RECEIVABLES.
INTEREST ON THE NOTES AT THE RELATED INTEREST RATES SPECIFIED ABOVE WILL BE
DISTRIBUTED TO NOTEHOLDERS ON THE TH DAY OF EACH MONTH OR, IF ANY SUCH
DAY IS NOT A BUSINESS DAY, ON THE IMMEDIATELY SUCCEEDING BUSINESS DAY
(EACH, A "DISTRIBUTION DATE"), COMMENCING , 1997.
PRINCIPAL OF THE NOTES WILL BE PAYABLE ON EACH DISTRIBUTION DATE
TO THE EXTENT DESCRIBED HEREIN; HOWEVER, NO PRINCIPAL PAYMENTS
WILL BE MADE ON THE CLASS A-2 NOTES UNTIL THE CLASS A-1
NOTES HAVE BEEN PAID IN FULL OR ON THE CLASS A-3 NOTES
UNTIL THE CLASS A-1 AND CLASS A-2 NOTES HAVE BEEN
PAID IN FULL. THE NOTES WILL BE SECURED BY
THE ASSETS OF THE TRUST PURSUANT TO THE
INDENTURE.
THE CERTIFICATES WILL REPRESENT FRACTIONAL UNDIVIDED INTERESTS IN THE TRUST.
INTEREST, TO THE EXTENT OF THE PASS-THROUGH RATE SPECIFIED ABOVE, WILL BE
DISTRIBUTED TO CERTIFICATEHOLDERS ON EACH DISTRIBUTION DATE, COMMENCING
WITH THE DISTRIBUTION DATE ON WHICH THE NOTES HAVE BEEN PAID IN FULL.
PAYMENTS IN RESPECT OF THE NOTES WILL BE SUBORDINATED TO PAYMENTS ON
THE NOTES TO THE EXTENT DESCRIBED HEREIN.
TO THE EXTENT NOT PREVIOUSLY PAID PRIOR TO SUCH DATES, THE OUTSTANDING PRINCIPAL
AMOUNT OF EACH CLASS OF SECURITIES WILL BE PAYABLE IN
FULL ON THE FOLLOWING DATES, IN THE CASE OF (I) THE CLASS A-1 NOTES,
THE DISTRIBUTION DATE, (II) THE CLASS A-2 NOTES,
THE DISTRIBUTION DATE, (III) THE CLASS A-3 NOTES, THE
DISTRIBUTION DATE AND (IV) THE CERTIFICATES, THE
DISTRIBUTION DATE.
------------------
THE NOTES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES WILL REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST AND WILL NOT REPRESENT OBLIGATIONS OF
OR INTERESTS IN AMERICAN HONDA RECEIVABLES CORP.,
AMERICAN HONDA FINANCE CORPORATION OR
ANY OF THEIR RESPECTIVE
AFFILIATES.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC(1) COMMISSIONS SELLER(1)(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER CLASS A-1 NOTE.................................... % % %
PER CLASS A-2 NOTE....................................
PER CLASS A-3 NOTE....................................
PER CERTIFICATE....................................... % % %
TOTAL................................................. $ $ $
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM , 1997.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE SELLER ESTIMATED AT $ .
----------------
THE SECURITIES ARE OFFERED BY THE SEVERAL UNDERWRITERS WHEN, AS AND IF
ISSUED BY THE TRUST, DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT
TO THEIR RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT
DELIVERY OF THE SECURITIES, IN BOOK-ENTRY FORM, WILL BE MADE THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY, CEDEL BANK, SOCIETE ANONYME AND THE
EUROCLEAR SYSTEM ON OR ABOUT , 1997, AGAINST PAYMENT IN IMMEDIATELY
AVAILABLE FUNDS.
[Underwriter]
PROSPECTUS DATED , 1997.
<PAGE>
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of any Class of
Securities. Such transactions may include stabilizing. For a description of
these activities, see "Underwriting".
--------------
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission") on behalf of the Trust a Registration Statement on Form S-1
(together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus is a part, 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, Room 1024, 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 that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission at http: //www.sec.gov.
REPORTS TO SECURITYHOLDERS
The Servicer, on behalf of the Trust, will prepare and the Indenture Trustee
and the Owner Trustee will provide to Securityholders of record (which shall be
Cede & Co. as the nominee of DTC unless Definitive Securities are issued under
the limited circumstances described herein) monthly and annual unaudited reports
concerning the Receivables. The Seller, as originator of the Trust, will also
file or cause to be filed with the Commission such periodic reports as are
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain capitalized
terms used and not otherwise defined herein shall have the meanings ascribed
thereto elsewhere in this Prospectus. See the Index of Principal Terms for the
location herein of certain capitalized terms.
<TABLE>
<S> <C>
Trust............... Honda Auto Receivables 1997-1 Owner Trust (the "Trust").
Seller.............. American Honda Receivables Corp. (the "Seller"), a wholly
owned, limited purpose subsidiary of American Honda
Finance Corporation.
Servicer............ American Honda Finance Corporation ("AHFC" or, in its
capacity as Servicer, the "Servicer"), a wholly owned
subsidiary of American Honda Motor Co., Inc. ("AHMC").
AHMC is the exclusive distributor of Honda and Acura
automobiles, Odyssey minivans, Honda motorcycles, sport
utility vehicles and light-duty trucks and Honda power
equipment, parts and accessories in the United States and
is a wholly owned subsidiary of Honda Motor Co., Ltd., a
Japanese corporation.
Owner Trustee....... (the "Owner Trustee").
Indenture Trustee... (the "Indenture Trustee" and, together with the Owner
Trustee, the "Trustees").
Securities The Trust will issue three Classes of Notes pursuant to an
Offered............ indenture to be dated as of 1, 1997 (the
"Indenture"), between the Trust and the Indenture Trustee,
as follows: (i) $ aggregate principal amount of
% Asset Backed Notes, Class A-1 (the "Class A-1
Notes"), (ii) $ aggregate principal amount of %
Asset Backed Notes, Class A-2 (the "Class A-2 Notes") and
(iii) $ aggregate principal amount of % Asset
Backed Notes, Class A-3 (the "Class A-3 Notes" and,
together with the Class A-1 Notes and the Class A-2 Notes,
the "Notes"). Payments of principal and interest on the
Notes will be made in accordance with the priorities set
forth under "Certain Information Regarding the Securities
-- Distributions on the Securities". The Notes will be
secured by the assets of the Trust (other than the
Certificate Distribution Account) pursuant to the
Indenture.
The Trust will issue $ aggregate principal amount
of % Asset Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") pursuant to a
trust agreement to be dated as of 1, 1997 (the
"Trust Agreement"), between the Seller and the Owner
Trustee. The Certificates will represent fractional
undivided interests in the Trust. Payments in respect of
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 integral multiples of
$1,000 in excess thereof. Definitive Securities will be
issued only under the limited circumstances described
herein. See "Certain Information Regarding the Securities
-- Book-Entry Registration" and "-- Definitive Securi-
ties".
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
The Receivables..... On the date of initial issuance of the Securities (the
"Closing Date"), pursuant to a sale and servicing
agreement dated as of 1, 1997 (the "Sale and
Servicing Agreement"), among the Trust, the Seller and the
Servicer, the Trust will purchase from the Seller a pool
of retail installment sale contracts (the "Receivables")
secured by the new or used Honda and Acura automobiles,
Odyssey minivans, Honda sport utility vehicles and
light-duty trucks financed thereby (the "Financed
Vehicles"). The Receivables will be selected by AHFC from
its portfolio of retail motor vehicle installment sale
contracts based upon the criteria to be specified in the
Sale and Servicing Agreement and described herein. As of
1, 1997 (the "Cutoff Date"), the Receivables had an
aggregate unpaid principal balance of $ (the
"Cutoff Date Pool Balance"). Based on Cutoff Date Pool
Balance, the Receivables had a weighted average annual
percentage rate (the "APR") of approximately %, a
weighted average original maturity of approximately
months and a weighted average remaining maturity of
approximately months.
Distribution Distributions of interest and principal on the Securities
Dates.............. will be made on the day of each month or, if any such
day is not a Business Day, on the next succeeding Business
Day (each, a "Distribution Date"), commencing ,
1997. Payments on the Securities on each Distribution Date
will be paid to the holders of record of the related
Securities on the Business Day immediately preceding such
Distribution Date or, in the event that Definitive
Securities are issued, as of the last day of the month
immediately preceding the month in which such Distribu-
tion 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 New York,
New York, Wilmington, Delaware or Los Angeles, California
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 (the
"Class A-1 Final Distribution Date"), (ii) the Class A-2
Notes will be payable on the Distribution Date
(the "Class A-2 Final Distribution Date"), (iii) the Class
A-3 Notes will be payable on the Distribution
Date (the "Class A-3 Final Distribution Date" and,
together with the Class A-1 Final Distribution Date and
the Class A-2 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 (the "Certificate Final Distribution
Date" and, together with the Note Final Distribution
Dates, the "Final Distribution Dates").
Terms of the The principal terms of the Notes will be as described
Notes.............. below:
A. Interest Rates... Interest will be borne on (i) the Class A-1 Notes at the
rate of % per annum (the "Class A-1 Rate"), (ii) the
Class A-2 Notes at the rate of % per annum (the "Class
A-2 Rate") and (iii) the Class A-3 Notes at the rate of
% per annum (the "Class A-3 Rate" and, together
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
with the Class A-1 Rate and the Class A-2 Rate, the
"Interest Rates"). Interest on the Notes will be
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
B. Interest......... Interest on the outstanding principal amount of each Class
of Notes will accrue at the related Interest Rate from and
including the most recent Distribution Date on which
interest has been paid (or from and including the Closing
Date with respect to the first Distribution Date) to but
excluding 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 immediately succeeding
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 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". No principal payments will be made
on the Class A-2 Notes until the Class A-1 Notes have been
paid in full or on the Class A-3 Notes until the Class A-1
and Class A-2 Notes have been paid in full.
Notwithstanding the foregoing, if the principal amount of
a Class of Notes has not been paid in full prior to its
Note Final Distribution Date, the Note Principal
Distributable Amount for such Note Final Distribution Date
will include an amount sufficient to reduce the unpaid
principal amount of such Class of Notes to zero on such
Note Final Distribution Date. See "Description of the
Notes -- Payments of Principal" and "Certain Information
Regarding the Securities -- Distributions on the Securi-
ties -- Deposits to the Distribution Accounts; Priority of
Payments".
D. Optional In the event of an Optional Purchase, each Class of
Redemption......... outstanding Notes will be redeemed in whole, but not in
part, at a redemption price equal to the unpaid principal
amount of such Class of Notes plus accrued interest
thereon at the related Interest Rate. See "Description of
the Notes -- Optional Redemption".
Terms of the The principal terms of the Certificates will be as
Certificates....... described below:
A. Interest......... On each Distribution Date, the Owner Trustee or any Paying
Agent will distribute pro rata to Certificateholders of
record as of the related Record Date accrued interest at
the rate of % per annum (the "Pass-Through Rate") on
the Certificate Balance as 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 Original 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 most
recent Distribution Date on which interest has been paid,
to but excluding the current Distribution Date.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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 Certif-
icates -- Distributions of Interest" and "Certain
Information Regarding the Securities -- Distributions on
the Securities".
The "Certificate Balance" will initially equal $
(the "Original Certificate Balance") and on any
Distribution Date will equal the Original 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 as
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 amount of the
Class A-1, Class A-2 and Class A-3 Notes has 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 for such Distribution Date,
calculated as described under "Certain Information
Regarding the Securities -- Distributions on the
Securities -- Deposits to the Distribution Accounts;
Priority of Payments". If not paid in full prior to the
Certificate Final Distribution Date, the remaining
Certificate Balance, if any, will be payable on that date.
See "Description of the Certificates -- Distributions of
Principal".
C. Optional In the event of an Optional Purchase, the Certificates
Prepayment......... will be prepaid 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".
The Reserve Fund.... The holders of the Notes and the Certificates
(respectively, the "Noteholders" and the
"Certificateholders", and collectively, the "Securi-
tyholders") will be afforded certain limited protection,
to the extent described herein, against losses in respect
of the Receivables by the establishment of a segregated
trust account in the name of the Indenture Trustee for the
benefit of the Securityholders (the "Reserve Fund").
The Reserve Fund will be funded by the Seller on the
Closing Date in an amount equal to $ (the
"Reserve Fund Initial Deposit"). Thereafter, all Excess
Amounts will be deposited from time to time in the Reserve
Fund to the extent necessary to maintain the amount on
deposit in the Reserve Fund at the Specified Reserve Fund
Balance. The Specified Reserve Fund Balance for the first
Distribution Date will be $ and on any
Distribution Date thereafter will be calculated as
described under "Certain Information Regarding the Securi-
ties -- The Reserve Fund -- Calculation of Specified
Reserve Fund
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Balance". On each Distribution Date, funds will be
withdrawn from the Reserve Fund for distribution to
Securityholders to cover any shortfalls in interest and
principal required to be paid on the Securities.
On each Distribution Date, after giving effect to all
distributions made on such Distribution Date, any amounts
in the Reserve Fund in excess of the Specified Reserve
Fund Balance will be distributed to the Seller, and upon
such distribution the Certificateholders will have no
further rights in, or claims to, such amounts.
Advances............ On the Business Day immediately preceding each
Distribution Date (each, a "Deposit Date"), the Servicer
will advance to the Trust, in respect of each (i)
Precomputed Receivable, that portion, if any, of the
related Scheduled Payment that was not timely made (each,
a "Precomputed Advance") and (ii) Simple Interest
Receivable, an amount equal to the product of the
principal balance of such Receivable as of the first day
of the related Collection Period and one-twelfth of its
APR, minus the amount of interest actually received on
such Receivable during such Collection Period (each, a
"Simple Interest Advance" and, together with Precomputed
Advances, the "Advances"). If such calculation in respect
of a Simple Interest Receivable results in a negative
number, an amount equal to such negative number shall be
paid to the Servicer out of interest collections in
respect of the Receivables during the related Collection
Period in reimbursement of outstanding Simple Interest
Advances. The Servicer will be required to make an Advance
only to the extent that it determines such Advance will be
recoverable from future payments and collections on or in
respect of such Receivable. Upon the determination by the
Servicer that such reimbursement is unlikely, the Servicer
will be entitled to recover Advances from payments and
collections on or in respect of other Receivables. See
"Certain Information Regarding the Securities --
Advances". A "Collection Period" with respect to any
Distribution Date will be the calendar month immediately
preceding the month in which such Distribution Date
occurs.
Servicing Fee....... The Servicer will receive a monthly fee, payable on each
Distribution Date (the "Servicing Fee"), equal to
one-twelfth of the product of 1.00% (the "Servicing Fee
Rate") and the Pool Balance as of the first day of the
related Collection Period. The Servicer will be entitled
to receive additional servicing compensation in the form
of investment earnings on the amounts on deposit in the
Trust Accounts plus any late fees, prepayment charges and
other administrative fees and expenses or similar charges
received by the Servicer during such Collection Period.
See "Certain Information Regarding the Securities --
Servicing Compensation".
Optional Purchase... The Seller or the Servicer, or any successor to the
Servicer, may purchase all the Receivables remaining in
the Trust on the Distribution Date following the last day
of any Collection Period as of which the aggregate unpaid
principal balance of the Receivables is 10% or less of
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
the Cutoff Date Pool Balance, at a purchase price
determined as described under "Certain Information
Regarding the Securities -- Termination". The exercise of
such purchase option is referred to herein as an "Optional
Purchase".
Ratings............. It is a condition to the issuance of the Securities that
the Class A-1 Notes be rated by Moody's Investors
Service, Inc. ("Moody's") and by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's" and, together with Moody's, the
"Rating Agencies"), and that the Class A-2 and Class A-3
Notes and the Certificates each be rated by Moody's
and by Standard & Poor's. See "Ratings of the
Securities".
Tax Status.......... In the opinion of counsel to the Seller, for both federal
and California 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 (or a beneficial interest
therein), will agree to treat the Notes as indebtedness,
and each Certificateholder, by the acceptance of a
Certificate (or a beneficial interest therein), will agree
to treat the Trust as a partnership in which the
Certificateholders are partners for federal income tax
purposes. See "Certain Federal Income Tax Consequences"
and "Certain California Income Tax Consequences".
ERISA Subject to the considerations discussed under "ERISA
Considerations..... Considerations", the Notes will be eligible for purchase
by employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA").
Because the Certificates will be subordinated to the Notes
to the extent described herein, employee benefit plans
subject to ERISA will not be eligible to purchase the
Certificates. Any benefit plan fiduciary considering
purchase of the Securities should, among other things,
consult with its counsel in determining whether all
required conditions have been satisfied. See "ERISA
Considerations".
</TABLE>
8
<PAGE>
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 Receivables 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 Seller will establish the Trust by selling and
assigning the assets of the Trust to the Trust. AHFC will act as Servicer of the
Receivables and will be compensated for such services. To facilitate servicing
and to minimize administrative burden and expense, pursuant to the Sale and
Servicing Agreement, the Servicer will be appointed custodian for the
Receivables and documents relating thereto by the Owner Trustee but will not
physically segregate the Receivables from the other retail installment sales
contracts owned or serviced by it nor amend the certificates of title to the
Financed Vehicles to reflect the assignment of the security interest in the
Financed Vehicles to the Trust, although the Servicer will stamp the Receivables
to reflect the sale and assignment of the Receivables to the Trust. In the
absence of such an amendment, the Trustee may not have a perfected security
interest in the Financed Vehicles in all states. See "Certain Information
Regarding the Securities -- Sale and Assignment of the Receivables" and "Certain
Legal Aspects of the Receivables".
If the protection provided to the Securityholders by the Reserve Fund is
insufficient, the Trust will look only to the retail purchasers (the "Obligors")
on the Receivables and the proceeds from the repossession and sale of the
Financed Vehicles which secured Defaulted Receivables. In such event, certain
factors, such as if the Trust does not have a first priority perfected security
interest in the related Financed Vehicles, may affect the Trust's ability to
realize on the collateral securing the Receivables, and thus may reduce the
proceeds to be distributed to Securityholders with respect to the Securities.
The Trust's principal offices will be in Wilmington, Delaware in care of
, as Owner Trustee, at the address listed below under "The Owner
Trustee".
CAPITALIZATION
The Trust will initially be capitalized with equity equal to the Original
Certificate Balance. The Sale and Servicing Agreement will provide that the
Securities will be issued to the Seller in exchange for the Receivables and
other assets conveyed to the Trust. The Seller will purchase Certificates with
an original Certificate Balance equal to approximately 1% of the Original
Certificate Balance (the "Seller Certificate") and the remaining Certificates
will be sold to third party investors that are expected to be unaffiliated with
the Seller, the Servicer or the Trust. The Reserve Fund and amounts on deposit
therein will not be property of the Trust, but will be pledged to and held for
the benefit of the Indenture Trustee, as secured party.
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Securities had taken place on
such date:
<TABLE>
<S> <C>
Class A-1 Notes.......................................... $
Class A-2 Notes..........................................
Class A-3 Notes..........................................
Certificates.............................................
---------
Total................................................ $
---------
---------
</TABLE>
9
<PAGE>
THE OWNER TRUSTEE
will be the Owner Trustee under the Trust Agreement. is
a Delaware corporation and its Corporate Trust Office is located at .
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".
PROPERTY OF THE TRUST
Each Note will represent an obligation of, and each Certificate will
represent a fractional undivided interest in, the Trust. The property of the
Trust will include, among other things, the Receivables and certain monies due
thereunder on and after the Cutoff Date. The Receivables were originated by
motor vehicle dealers (the "Dealers") in accordance with AHFC's requirements and
subsequently purchased by AHFC. The Receivables evidence the indirect financing
made available by AHFC to the related Obligors. On or before the Closing Date,
AHFC will sell the Receivables to the Seller pursuant to a receivables purchase
agreement to be dated as of the Cutoff Date (the "Receivables Purchase
Agreement"), between AHFC and the Seller. The Seller will, in turn, sell the
Receivables to the Trust pursuant to the Sale and Servicing Agreement.
During the term of the Sale and Servicing Agreement, neither the Seller nor
AHFC may substitute any other retail installment sale contract for any
Receivable sold to the Trust. The assets of the Trust will also include: (i)
such amounts as from time to time may be held in the Trust Accounts; (ii)
security interests in the Financed Vehicles and any accessions thereto; (iii)
the rights to proceeds from physical damage, credit life and disability
insurance policies, if any, covering individual Financed Vehicles or Obligors,
as the case may be; (iv) the right to receive proceeds of Dealer Recourse, if
any; (v) the rights of the Seller under the Sale and Servicing Agreement; (vi)
the right to realize upon any property (including the right to receive future
Liquidation Proceeds) that shall have secured a Receivable and have been
repossessed on behalf of the Trust; and (vii) any and all proceeds of the
foregoing. The Reserve Fund will be maintained for the benefit of the
Securityholders, but will not be part of the Trust.
Pursuant to agreements between AHFC and the Dealers, each Dealer is
obligated, after purchase by AHFC of retail installment sale contracts from such
Dealer, to repurchase from AHFC such contracts which do not meet certain
representations and warranties made by such Dealer (such Dealer repurchase
obligations, "Dealer Recourse"). Such representations and warranties relate
primarily to the origination of the contracts and the perfection of the security
interests in the related financed vehicles, and do not typically relate to the
creditworthiness of the related obligors or the collectability of such
contracts. Although the Dealer agreements with respect to the Receivables will
not be assigned to the Trustee, the Sale and Servicing Agreement will require
that any recovery by AHFC pursuant to any Dealer Recourse be deposited in the
Collection Account in satisfaction of its repurchase obligations under the
Receivables Purchase Agreement. It is expected that substantially all sales by
the Dealers of installment sale contracts to AHFC do not provide for recourse to
the Dealer for unpaid amounts in the event of a default by an obligor
thereunder, other than in connection with the breach of the foregoing
representations and warranties.
THE RECEIVABLES
PAYMENTS ON THE RECEIVABLES
Except as otherwise described under "Selection Criteria", the scheduled
monthly payment on each Receivable (each, a "Scheduled Payment") is a fixed
level monthly payment which will amortize the full amount of the Receivable over
its term. Each Receivable provides for allocation of payments according to (i)
the "sum of periodic balances" or "sum of monthly payments" method (each, a
"Rule of 78s Receivable"), (ii) the "actuarial" method (each, an "Actuarial
Receivable" and, together with Rule of 78s Receivables, the "Precomputed
Receivables") or (iii) the simple interest method (each, a "Simple Interest
Receivable").
10
<PAGE>
Each Rule of 78s Receivable provides for the payment by the Obligor of a
specified total amount of payments, payable in monthly installments on the
related due date, which total represents the principal amount financed and
finance charges in an amount calculated on the basis of a stated APR for the
term of such Receivable. The rate at which such amount of finance charges is
earned and, correspondingly, the amount of each Scheduled Payment allocated to
reduction of the outstanding principal balance of the related Receivable are
calculated in accordance with the Rule of 78s. Under the Rule of 78s, the
portion of each payment allocable to interest is higher during the early months
of the term of a Rule of 78s Receivable and lower during later months than that
under a constant yield method for allocating payments between interest and
principal.
An Actuarial Receivable provides for amortization of the loan over a series
of fixed level monthly installments. Each Scheduled Payment is deemed to consist
of an amount of interest equal to 1/12 of the stated APR of the Receivable
multiplied by the scheduled principal balance of the Receivable and an amount of
principal equal to the remainder of the Scheduled Payment.
All payments received by the Servicer on or in respect of Precomputed
Receivables will be allocated pursuant to the Sale and Servicing Agreement on an
actuarial basis, under which each Scheduled Payment, including the final
Scheduled Payment, consists of an amount of interest equal to 1/12 of the APR of
such Receivable multiplied by the unpaid principal balance of such Receivable,
and an amount of principal equal to the remainder of the Scheduled Payment. No
adjustment will be made in the event of early or late payments, although in the
latter case the Obligor will be subject to a late charge.
Payments on Simple Interest Receivables will be applied first to interest
accrued through the date immediately preceding the date of payment and then to
unpaid principal. Accordingly, if an Obligor pays an installment before its due
date, the portion of the payment allocable to interest for the payment period
will be less than if the payment had been made on the due date, the portion of
the payment applied to reduce the principal balance will be correspondingly
greater and the principal balance will be amortized more rapidly than scheduled.
Conversely, if an Obligor pays an installment after its due date, the portion of
the payment allocable to interest for the payment period will be greater than if
the payment had been made on the due date, the portion of the payment applied to
reduce the principal balance will be correspondingly less, and the principal
balance will be amortized more slowly than scheduled, in which case a larger
portion of the principal balance may be due on the final scheduled payment date.
In the event of a prepayment in full (voluntarily or by acceleration) of a
Precomputed Receivable, a "rebate" will be made to the Obligor of that portion
of the total amount of payments under such Receivable allocable to "unearned"
finance charges. In the event of the prepayment in full (voluntarily or by
acceleration) of a Simple Interest Receivable, a "rebate" will not be made to
the Obligor, but the Obligor will be required to pay interest only to the date
immediately preceding the date of prepayment. The amount of a rebate under a
Precomputed Receivable will always be less than or equal to the remaining
scheduled payments of interest that would have been due under a Simple Interest
Receivable for which all remaining payments were made on schedule.
The amount of a rebate under a Rule of 78s Receivable calculated in
accordance with the Rule of 78s will always be less than had such rebate been
calculated on an actuarial basis. However, Rule of 78s Receivables originated in
certain states require rebates based on the actuarial method. Distributions to
Securityholders will not be affected by Rule of 78s rebates under the Rule of
78s Receivables because pursuant to the Sale and Servicing Agreement such
distributions will be determined using the actuarial method.
SELECTION CRITERIA
The Receivables were purchased by AHFC from Dealers through its nationwide
branch system in the ordinary course of business. The Receivables were randomly
selected from AHFC's portfolio of motor vehicle retail installment sale
contracts that met the selection criteria described herein and under "Certain
11
<PAGE>
Information Regarding the Securities -- Sale and Assignment of the Receivables".
Such selection criteria included that (i) each Receivable is secured by a new or
used Honda or Acura automobile, Odyssey minivan, Honda sport utility vehicle or
light-duty truck; (ii) each Receivable was originated in the United States;
(iii) each Receivable provides for level Scheduled Payments that fully amortize
the amount financed over its original term, except that the payment in the first
or last month in the life of the Receivable may be minimally different from the
level payment; (iv) each Receivable was originated prior to , 199 ;
(v) each Receivable had an original term of to months and, as of the
Cutoff Date, had a remaining term to maturity of not less than months and
not more than months; (vi) each Receivable provides for the payment of a
finance charge based on the Rule of 78s, the actuarial method or the simple
interest method; (vii) each Receivable shall not have a payment that is more
than 30 days past due as of the Cutoff Date; (viii) to the best knowledge of the
Seller, no Receivable shall be due from any Obligor who is presently the subject
of a bankruptcy proceeding or is bankrupt or insolvent; and (ix) no Financed
Vehicle has been repossessed without reinstatement as of the Cutoff Date.
The Receivables represent financing of new and used Honda and Acura
automobiles, Odyssey minivans, Honda sport utility vehicles and light-duty
trucks manufactured by Honda Motor Co., Ltd. and its affiliates. Based on Cutoff
Date Pool Balance, % and % of the Receivables represented financing of
Honda automobiles and Acura automobiles, respectively, and % and % of
the Receivables represented financing of new and used vehicles, respectively.
Based on the addresses of the originating Dealers, the Receivables were
originated in states. Based on Cutoff Date Pool Balance, approximately
%, % and % of the Receivables will be Actuarial Receivables, Rule of
78s Receivables and Simple Interest Receivables, respectively.
The composition, distribution by APR and geographical distribution of the
Receivables are as set forth in the following tables.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
Aggregate Cutoff Date Principal Balance..................... $
<S> <C>
Number of Receivables.......................................
Average Cutoff Date Principal Balance....................... $
Average Original Amount Financed............................ $
Range of Original Amounts Financed........................ $ to $
Weighted Average APR (1).................................... %
Range of APRs............................................. % to %
Weighted Average Original Maturity (1)...................... months
Range of Original Maturities.............................. months to months
Weighted Average Remaining Maturity (1)..................... months
Range of Remaining Maturities as of the Cutoff Date....... months to months
</TABLE>
- --------------
(1) Weighted by Principal Balance as of the Cutoff Date.
12
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
AGGREGATE CUTOFF DATE CUTOFF DATE
NUMBER OF NUMBER OF PRINCIPAL POOL
RANGE OF APRS RECEIVABLES RECEIVABLES BALANCE BALANCE
- ----------------------------- ----------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
7.500% to 7.999%........... % $
8.000% to 8.999%...........
9.000% to 9.999%...........
10.000% to 10.999%...........
11.000% to 11.999%...........
12.000% to 12.999%...........
13.000% to 13.999%...........
14.000% to 14.999%...........
15.000% to 15.999%...........
16.000% to 16.999%...........
17.000% to 17.999%...........
18.000% to 18.999%...........
19.000% to 19.999%...........
20.000% to 20.999%...........
----------- ------ ----------------- ------
Total...................... 100.00% $ 100.00%
----------- ------ ----------------- ------
----------- ------ ----------------- ------
</TABLE>
13
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY STATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUTOFF DATE
CUTOFF DATE POOL
STATE(1) PRINCIPAL BALANCE BALANCE
- ---------------------------------------- ----------------- -------------
<S> <C> <C>
Alabama................................. $ %
Alaska..................................
Arizona.................................
Arkansas................................
California..............................
Colorado................................
Connecticut.............................
Delaware................................
District of Columbia....................
Florida.................................
Georgia.................................
Hawaii..................................
Idaho...................................
Illinois................................
Indiana.................................
Iowa....................................
Kansas..................................
Kentucky................................
Louisiana...............................
Maine...................................
Maryland................................
Massachusetts...........................
Michigan................................
Minnesota...............................
Mississippi.............................
Missouri................................
Montana.................................
Nebraska................................
Nevada..................................
New Hampshire...........................
New Jersey..............................
New Mexico..............................
New York................................
North Carolina..........................
North Dakota............................
Ohio....................................
Oklahoma................................
Oregon..................................
Pennsylvania............................
Rhode Island............................
South Carolina..........................
South Dakota............................
Tennessee...............................
Texas...................................
Utah....................................
Vermont.................................
Virginia................................
Washington..............................
West Virginia...........................
Wisconsin...............................
Wyoming.................................
----------------- ------
Total................................. $ 100.00%
----------------- ------
----------------- ------
</TABLE>
- --------------
(1) Based on the addresses of the originating Dealers.
14
<PAGE>
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Securities will generally be influenced by
the rate at which the principal balances of the Receivables are paid, which
payment may be in the form of scheduled amortization or prepayments.
All of the Receivables are prepayable at any time without any penalty.
However, partial prepayments on Precomputed Receivables made by Obligors will
not be distributed on the Distribution Date following the Collection Period in
which they were received but will be retained and applied towards payments due
in one or more future Collection Periods. See "Certain Information Regarding the
Securities -- Collections". If prepayments in full are received on Precomputed
Receivables or if full or partial prepayments are received on Simple Interest
Receivables, the actual weighted average life of the Receivables can be shorter
than the scheduled weighted average life, which is calculated based on the
assumption that payments will be made as scheduled and that no such prepayments
in full will be made. For this purpose, the term "prepayments in full" includes,
among other items, voluntary prepayments in full by Obligors, liquidations due
to default, proceeds from physical damage, credit life and credit disability
insurance policies, repurchases by the Seller or the Servicer, as the case may
be, of certain Receivables and the sale of the Receivables and other property of
the Trust following the occurrence of certain specified Events of Default, as
described herein. Weighted average life means the average amount of time during
which each dollar of principal of a Receivable is outstanding. The rate of
prepayments on the Receivables may be influenced by a variety of economic,
social and other factors, including the fact that an Obligor generally may not
sell or transfer a Financed Vehicle without the consent of the Servicer. Any
reinvestment risk resulting from the rate of prepayments of the Receivables and
the distribution of such prepayments to Securityholders will be borne entirely
by the Securityholders. In addition, early retirement of the Securities may be
effected by the exercise of the option of the Seller or the Servicer, or any
successor to the Servicer, to purchase all of the Receivables remaining in the
Trust in connection with an Optional Purchase. See "Certain Information
Regarding the Securities -- Termination".
No prediction can be made as to the rate of prepayments on the Receivables
in either stable or changing interest rate environments. AHFC maintains limited
records of the historical prepayment experience of the motor vehicle retail
installment sale contracts included in its portfolio and its experience is
insufficient to draw any specific conclusions with respect to the expected rates
of prepayments in full on the Receivables. AHFC is not aware of any publicly
available statistics for the entire auto finance industry on an aggregate basis
that set forth principal prepayment experience for retail installment sale
contracts similar to the Receivables over an extended period of time.
In light of the foregoing considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes or the Certificates on
each Distribution Date since such amount will depend, in part, on the amount of
principal collected on the related Receivables during the related Collection
Period. No principal payments will be made on the (i) Class A-2 Notes until the
Class A-1 Notes have been paid in full, (ii) Class A-3 Notes until the Class A-1
and A-2 Notes have been paid in full and (iii) Certificates until the Class A-1,
A-2 and A-3 Notes have been paid in full.
Because the rate of distribution of principal on the Securities will depend
on the rate of payment on the Receivables, the final distribution on each Class
of Notes or the Certificates could occur significantly earlier than the related
Final Distribution Date. Any reinvestment risk resulting from a faster or slower
incidence of payments on the Receivables will be borne entirely by the related
Securityholders.
USE OF PROCEEDS
The net proceeds from the sale of the Securities (I.E., the proceeds of the
public offering of the Securities minus expenses relating thereto) will be
applied by the Seller to the purchase of the Receivables from AHFC.
15
<PAGE>
THE SELLER
The Seller was incorporated in the State of California in August 1992 as a
wholly owned, limited purpose finance subsidiary of AHFC. The principal
executive offices of the Seller are located at 700 Van Ness Avenue, Torrance,
California 90501 and its telephone number is (310) 781-4100.
The Seller was organized primarily for the purpose of acquiring installment
sale contracts similar to the Receivables and associated rights from AHFC,
causing the issuance of securities similar to the Securities and engaging in
related transactions. The Seller's articles of incorporation limit the
activities of the Seller to the foregoing purposes and to any activities
incidental to and necessary for such purposes.
AMERICAN HONDA FINANCE CORPORATION
GENERAL
AHFC was incorporated in the State of California in February 1980. AHFC
provides wholesale and retail financing to authorized dealers of Honda and Acura
automobiles, Odyssey minivans, Honda sport utility vehicles and light-duty
trucks, Honda motorcycles (including scooters and all terrain vehicles) and
Honda power equipment, such as lawn and utility tractors, lawnmowers, snow
throwers, water pumps, portable outboard motors, outboard marine engines and
generators, and their customers in the United States and Canada. AHFC also
offers retail leasing for Honda, Acura and Odyssey motor vehicles throughout the
United States and Canada, and administers the sale of vehicle service contracts
for AHMC throughout the United States.
AHFC is a wholly owned subsidiary of AHMC, a California corporation that is
the sole authorized distributor of Honda and Acura automobiles, Odyssey
minivans, Honda sport utility vehicles and light-duty trucks, power equipment,
parts and accessories in the United States. AHMC is a wholly owned subsidiary of
Honda Motor Co., Ltd., a Japanese corporation which is a worldwide manufacturer
and distributor of motor vehicles and power equipment.
The principal executive offices of AHFC are located at 700 Van Ness Avenue,
Torrance,
California 90501. Its telephone number is (310) 781-4100.
UNDERWRITING OF MOTOR VEHICLE LOANS
AHFC purchases retail installment sale contracts secured by new and used
Honda and Acura automobiles, Odyssey minivans and Honda sport utility vehicles
and light-duty trucks from approximately Dealers located throughout
the United States. In keeping with the practice of AHFC, the Receivables were
originated by Dealers in accordance with AHFC's requirements under existing
agreements with such Dealers. The Receivables were purchased in accordance with
AHFC's underwriting standards, which emphasize the prospective purchaser's
ability to pay and creditworthiness, as well as the asset value of the
automobile to be financed.
Applications submitted to AHFC must list sufficient information to process
the application, including the applicant's income, residential status, monthly
mortgage or rent payment, bank account(s) and other personal information. Upon
receipt of an application, AHFC obtains a credit report from an independent
credit bureau. The credit report is reviewed by AHFC to determine the
applicant's current credit status and past credit performance. Factors
considered negative generally include past due credit, repossessions, loans
charged off by other lenders and previous bankruptcy. Positive factors such as
amount of credit and favorable payment history are also considered.
The credit decision is made utilizing a credit scoring system and other
considerations. The credit scoring system includes an assessment of residence
and employment stability and credit bureau information. Other
16
<PAGE>
considerations include income requirements and the ratio of income to total
debt. An assessment is made of the relative degree of credit risk indicated by
these criteria and the decision to grant or deny credit is made at the
appropriate management level.
AHFC's retail installment sale contract requires that obligors maintain
specific levels and types of insurance coverage, including physical damage
insurance, to protect the related financed vehicle against loss. At the time of
purchase, an obligor signs a statement which indicates that he either has or
will have the necessary insurance, and which shows the name and address of the
insurance company along with a description of the type of coverage. Obligors are
generally required to provide AHFC with evidence of compliance with the
foregoing insurance requirements; however, AHFC performs no ongoing verification
of such insurance coverage.
The amount of a retail installment sale contract secured by a new or used
Honda or Acura automobile generally will not exceed 120% of the dealer invoice
cost of the related vehicle plus optional features at the dealer cost, sales
tax, title and registration fees, insurance premiums for credit life and credit
disability insurance and certain fees for extended service contracts.
SERVICING OF MOTOR VEHICLE LOANS
AHFC considers a retail installment sale contract to be past due or
delinquent when the obligor fails to make at least 60% of a scheduled payment by
the related due date; any portion of a scheduled payment not paid on the related
due date automatically becomes due with the next scheduled payment. A computer
generated delinquency notice is mailed to the obligor on the eleventh day of
delinquency and a follow up telephone call is made on the fifteenth day of
delinquency. If the delinquent contract cannot be brought current or completely
collected within approximately 60 days, AHFC generally attempts to repossess the
related vehicle. Repossessed vehicles are held in inventory to comply with
statutory requirements and then are sold (generally within 60 days after
repossession). Any deficiencies remaining after repossession and sale of the
vehicle or after the full charge-off of the related contract are pursued by AHFC
to the extent practicable and legally permitted. See "Certain Legal Aspects of
the Receivables -- Deficiency Judgments and Excess Proceeds". Obligors are
contacted and, when warranted by individual circumstances, repayment schedules
are established and monitored until the deficiencies are either paid in full or
become impractical to pursue.
DELINQUENCY AND LOAN LOSS INFORMATION
Set forth below is certain information concerning AHFC's experience with
respect to its portfolio of new and used Honda and Acura automobile and Odyssey
minivan retail installment sale contracts. The data presented in the following
tables are for illustrative purposes only. There is no assurance that AHFC's
delinquency, credit loss and repossession experience with respect to automobile
retail installment sale contracts in the future, or the experience of the Trust
with respect to the Receivables, will be similar to that set forth below. Credit
losses are an expected cost in the business of extending credit and are
considered in AHFC's rate-setting process. AHFC's strategy is to minimize credit
losses while providing financing support for the sale of the motor vehicles that
it finances. Losses and delinquencies are affected by, among other things,
general and regional economic conditions and the supply of and demand for motor
vehicles.
17
<PAGE>
DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
AT DECEMBER AT MARCH 31,
31, --------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Principal Amount Outstanding
(2)........................... $ $2,236,736 $1,396,919 $1,027,492 $ 811,804 $ 681,268
Delinquencies (3)
30-59 Days.................... $ 19,627 $ 12,727 $ 7,158 $ 6,248 $ 4,814
60-89 Days.................... 3,037 1,573 748 607 524
90-119 Days................... 1,103 555 297 307 235
Over 119 Days................. 241 81 4 10 20
Repossessions (4)............... 6,298 3,610 2,268 1,815 1,489
Total Delinquencies and
Repossessions................. 30,307 18,547 10,475 8,987 7,082
Total Delinquencies and
Repossessions as a Percentage
of Principal Amount
Outstanding................... % 1.35% 1.33% 1.02% 1.11% 1.04%
</TABLE>
- ----------------
(1) Includes contracts that have been sold but are still being serviced by AHFC.
(2) Net remaining principal balance of all outstanding contracts.
(3) The period of delinquency is based on the number of days scheduled payments
are contractually past due.
(4) Amounts shown represent the outstanding principal amount of contracts for
which the related vehicle had been repossessed and not yet liquidated.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE (1)
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS AT OR FOR THE YEAR ENDED MARCH 31,
ENDED DECEMBER -----------------------------------------------------------
31, 1996 1996 1995 1994 1993 1992
--------------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Principal Amount Outstanding (2)........... $ $ 2,236,736 $ 1,396,919 $ 1,027,492 $ 811,804 $ 681,268
Average Principal Amount Outstanding (3)... $ $ 1,882,918 $ 1,173,798 $ 894,475 $ 746,536 $ 621,607
Number of Contracts Outstanding............ 194,927 126,046 97,783 86,684 70,252
Average Number of Contracts Outstanding
(3)...................................... 165,203 109,144 92,871 78,468 61,534
Number of Repossessions.................... 2,186 1,647 1,382 1,247 1,011
Number of Repossessions as a Percentage of
the Average Number of Contracts
Outstanding (4).......................... % 1.32% 1.51% 1.49% 1.59% 1.64%
Gross Charge-Offs (5)...................... $ $ 14,799 $ 7,912 $ 5,577 $ 4,551 $ 4,179
Recoveries (6)............................. $ $ 3,906 $ 2,935 $ 1,973 $ 1,528 $ 988
Net Losses................................. $ $ 10,893 $ 4,977 $ 3,604 3,023 3,191
Net Losses as a Percentage of Average
Principal Amount Outstanding (4)......... % 0.58% 0.42% 0.40% 0.40% 0.51%
</TABLE>
- ----------------
(1) Includes contracts that have been sold but are still being serviced by AHFC.
(2) Net remaining principal balance of all outstanding contracts.
(3) Average of the principal amounts or number of contracts, as the case may be,
outstanding at the beginning and end of period.
(4) Annualized.
(5) Amount charged-off is the remaining principal balance, excluding any
expenses associated with collection, repossession or disposition of the
related vehicle, plus earned but not yet received finance charges, net of
any proceeds collected prior to charge-off.
(6) Proceeds received on previously charged-off contracts.
18
<PAGE>
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 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 seven-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 Original Certificate Balance. Each
Note Pool Factor and the Certificate Pool Factor will be 1.0000000 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 Note and (ii) the
applicable Note Pool Factor at the time of determination. A Certificateholder's
portion of the 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.
Securityholders will receive reports on or about each Distribution Date
concerning payments received on the Receivables, the Pool Balance, each Note
Pool Factor, 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".
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture, a form of which has been
filed as an exhibit to the Registration Statement. Copies of the Indenture
(without exhibits) may be obtained by Noteholders upon request in writing to the
Indenture Trustee at its Corporate Trust Office. The following summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Notes and the Indenture. Where
particular provisions or terms used in the Notes or the Indenture are referred
to, the actual provisions of such documents (including definitions of terms) are
incorporated by reference as part of such summaries.
PAYMENTS OF INTEREST
Interest on the outstanding principal amount of each Class of Notes will
accrue at the applicable Interest Rate and will be payable to the Noteholders of
such Class on each 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
shortfall at the related Interest Rate. Interest payments on the Notes generally
will be made from the Available Amount and from amounts on deposit in the
Reserve Fund after all accrued and unpaid Trustees' fees and other
administrative fees of the Trust and payment of all applicable servicing
compensation to the Servicer (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".
Interest payments to all Classes of Notes will have the same priority. Under
certain circumstances, the amount available for interest payments on any
Distribution Date could be less than the amount of interest due on the Notes, in
which case each Class of Notes will receive their ratable share (based on the
aggregate amount of interest due on such Class of Notes) of the aggregate amount
available to be distributed in respect of interest on the Notes.
19
<PAGE>
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 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 generally will be made from the Available Amount
and from amounts on deposit in the Reserve Fund after all Trust Fees and
Expenses have been paid, and after the Note Interest Distributable Amount has
been distributed to Noteholders. 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, 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 and third to the holders of the
Class A-3 Notes until the principal amount of the Class A-3 Notes has been
reduced to zero. See "Certain Information Regarding the Securities -- Deposits
to the Distribution Accounts; Priority of Payments".
The principal amount of each Class of Notes, to the extent not previously
paid, will be payable on the related Note Final Distribution Date. The actual
Distribution Date on which the outstanding principal amount of any Class of
Notes is paid may be significantly earlier than its Note Final Distribution Date
based on a variety of factors, including the factors described under "Weighted
Average Life of the Securities".
OPTIONAL REDEMPTION
Each Class of outstanding 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 such Class of Notes
plus accrued interest thereon at the applicable Interest Rate. See "Certain
Information Regarding the Securities -- Termination".
THE INDENTURE TRUSTEE
will be the Indenture Trustee. The Indenture Trustee is a
corporation and its Corporate Trust Office is located at
.
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; RIGHTS UPON EVENT OF DEFAULT
"Events of Default" under the Indenture will consist of: (i) a default 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 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 interests thereof, voting together as a
single class; and (iv) certain events of bankruptcy, insolvency, receivership or
liquidation relating to the Trust. However, the amount of principal required to
be paid to Noteholders under the Indenture will generally be limited to amounts
available to be deposited in the Note Distribution Account and amounts on
deposit in the Reserve Fund. 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 related Note Final Distribution Date.
20
<PAGE>
Upon the occurrence of an Event of Default, the Indenture Trustee may, or if
so requested in writing by holders of Notes evidencing a majority of the voting
interests thereof, voting together as a single class, shall, declare the Notes
to be immediately due and payable. Notwithstanding the foregoing, such
declaration may, under certain circumstances, be rescinded by the holders of
Notes evidencing a majority of the voting interests thereof, voting together as
a single class.
If the Notes are due and payable following an Event of Default, the
Indenture Trustee may institute proceedings to collect amounts due or foreclose
on the property of the Trust, exercise remedies as a secured party, sell the
Receivables and other property of the Trust or elect to have the Trust maintain
possession and continue to apply collections on or in respect of the Receivables
as if there had been no event of acceleration. Notwithstanding the foregoing,
the Indenture Trustee will be prohibited from selling the Receivables and other
property of the Trust 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, unless (i) holders of Notes evidencing 100% of the
voting interests thereof, voting together as a single class, consent to such
sale or liquidation, (ii) the proceeds of such sale are sufficient to pay in
full the principal of and accrued interest on the Notes at the date of such sale
or (iii) the Indenture Trustee determines that the proceeds of the Receivables
would not be sufficient on an ongoing basis to make all payments on the Notes as
such payments would have become due if such obligations had not been declared
due and payable, and the Indenture Trustee obtains the consent of holders of
Notes evidencing 66 2/3% of the voting interests thereof, voting together as a
single class.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing, such
Indenture Trustee will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of the holders of
such Notes, if the 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 Indenture, the holders
of Notes evidencing at least a majority of the voting interests thereof, voting
together as a single class, will have the right to direct the time, method and
place of conducting any proceeding or any remedy available to the Indenture
Trustee, and the holders of Notes evidencing at least a majority of the voting
interests thereof, voting together as a single class, 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 holders
of outstanding Notes.
No holder of a Note 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 Notes evidencing at least 25% of the voting
interests thereof, voting together as a single class, 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 Notes evidencing at least a majority of the voting interests
thereof, voting together as a single class.
CERTAIN COVENANTS
The Indenture will provide that the Trust may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of every agreement and covenant of the Trust under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) each Rating Agency delivers
a letter to the Trustees to the effect that such consolidation or merger will
not result in a qualification, reduction or withdrawal of its
21
<PAGE>
then-current rating on any Class of Securities and (v) the Trust has received an
opinion of counsel to the effect that such consolidation or merger would have no
material adverse tax consequence to the Trust or to any Securityholder.
The Trust will not, among other things, (i) except as expressly permitted by
the Indenture, Sale and Servicing Agreement or certain related documents with
respect to the Trust, sell, transfer, exchange or otherwise dispose of any of
its assets, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of Notes because of the payment of taxes
levied or assessed upon the Trust, (iii) dissolve or liquidate in whole or in
part, (iv) permit the validity or effectiveness of the Indenture to be impaired
or permit any person to be released from any covenants or obligations with
respect to the Notes under the Indenture except as may be expressly permitted
thereby or (v) 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 the Trust or any part thereof, or any interest
therein or the proceeds thereof.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing the
Notes upon the delivery to the Indenture Trustee for cancellation of all the
Notes or, with certain limitations, upon deposit with such Indenture Trustee of
funds sufficient for the payment in full of all the Notes.
ADDITIONAL INFORMATION
Certain additional information regarding the Indenture and the Indenture
Trustee may be found under "Certain Information Regarding the Securities --
Evidence as to Compliance -- The Indenture" and " -- Amendment -- Amendment of
the Indenture".
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Trust Agreement, a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. 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 following summary describes certain terms of
the Certificates and the Trust Agreement and does not purport to be complete and
is subject to, and qualified in its entirety by, reference to all of the
provisions of the Certificates and the Trust Agreement. Where particular
provisions or terms used in the Trust Agreement are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance will accrue at the Pass-Through Rate and
will be payable to Certificateholders on each 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 generally will be made from the
Available Amount and from amounts on deposit in the Reserve Fund after all Trust
Fees and Expenses have been paid and after the Note Distributable Amount has
been distributed to Noteholders. See "Certain Information Regarding the
Securities -- Distributions on the Securities -- Deposits to the Distribution
Accounts; Priority of Payments".
22
<PAGE>
DISTRIBUTIONS OF PRINCIPAL
No principal will be paid on the Certificates until the Distribution Date on
which the principal amount of the Class A-1, Class A-2 and Class A-3 Notes has
been reduced to zero. On such Distribution Date and each Distribution Date
thereafter, the Certificateholders will be entitled to distributions in an
amount equal to the Certificate Percentage of the 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". Distributions with respect to
principal payments generally will be made from the Available Amount and from
amounts on deposit in the Reserve Fund after all Trust Fees and Expenses have
been paid and after the Note Distributable Amount and the Certificate Interest
Distributable Amount have been distributed to the related Securityholders. See
"Certain Information Regarding the Securities -- Distributions on the Securities
- -- Deposits to the Distribution Accounts; Priority of Payments".
The principal amount of the Certificates, to the extent not previously paid,
will be payable on the Certificate Final Distribution Date. The actual
Distribution Date on which the Certificate Balance is reduced to zero may be
significantly earlier than the Certificate Final Distribution Date based on a
variety of factors, including the factors described under "Weighted Average Life
of the Securities".
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 "Description of the Notes -- Events of
Default", upon the occurrence of an Event of Default, under certain
circumstances the Indenture Trustee will be required to cause the property of
the Trust to be sold or liquidated in whole or in part. Any such sale or
liquidation may cause a full or partial prepayment of the Certificates.
PAYING AGENTS
Distributions of principal of and interest on the Certificates will be made
by the Owner Trustee or any paying agent as the Owner Trustee may designate from
time to time (each, a "Paying Agent"). will be designated as the
initial Paying Agent with respect to the Certificates.
ADDITIONAL INFORMATION
Certain additional information regarding the Trust Agreement and the Owner
Trustee may be found under "Certain Information Regarding the Securities --
Evidence as to Compliance -- The Trust Agreement", "-- Insolvency Event" and "--
Amendment -- Amendment of the Trust Agreement".
CERTAIN INFORMATION REGARDING THE SECURITIES
SALE AND ASSIGNMENT OF THE RECEIVABLES
On or prior to the Closing Date, pursuant to the Receivables Purchase
Agreement, AHFC will sell and assign to the Seller, without recourse, its entire
interest in the Receivables, including the security interests in the Financed
Vehicles. On the Closing Date, pursuant to the Sale and Servicing Agreement, the
Seller will sell and assign to the Trustee, without recourse, all of its right,
title and interest in and to the Receivables, including its security interests
in the Financed Vehicles. Each Receivable will be identified in a schedule
23
<PAGE>
referred to in the Sale and Servicing Agreement and the Trust Agreement and on
file with the Trustee (the "Schedule of Receivables"). The applicable Trustee
will, concurrently with such transfer and assignment, execute, authenticate and
deliver the Notes or the Certificates, as the case may be, to or upon the order
of the Seller. Thereafter, the Seller will sell the Securities to the
Underwriters.
As more fully described under "The Receivables -- Selection Criteria", AHFC,
pursuant to the Receivables Purchase Agreement, and the Seller, pursuant to the
Sale and Servicing Agreement, will make certain representations and warranties
with respect to the Receivables and the Financed Vehicles. In the Receivables
Purchase Agreement, AHFC will additionally represent and warrant to the Seller,
and in the Sale and Servicing Agreement, the Seller will additionally represent
and warrant to the Trustee, among other things, that (i) the information set
forth in the Schedule of Receivables is true and correct in all material
respects; (ii) at the time of origination of each Receivable, the related
Obligor was required to maintain physical damage insurance in accordance with
AHFC's normal requirements; (iii) on the Cutoff Date, to the best of its
knowledge, the Receivables are free and clear of all prior security interests,
liens, charges and encumbrances and no offsets, defenses or counterclaims have
been asserted or threatened; (iv) on the Closing Date, each of the Receivables
is secured by a first priority perfected security interest in the related
Financed Vehicle in favor of AHFC; and (v) each Receivable at the time it was
originated complied, and on the Closing Date complies, in all material respects
with applicable state and federal laws, including, without limitation, consumer
credit, truth-in-lending, equal credit opportunity and disclosure laws.
As of the last day of the second Collection Period (or, if the Seller so
elects, the last day of the first Collection Period) following the Collection
Period in which the Seller, the Servicer or the Trustee discovers a breach of
any representation or warranty of the Seller that materially and adversely
affects the interests of the Securityholders in a Receivable, the Seller, unless
the breach is cured, will repurchase such Receivable from the Trustee and,
pursuant to the Receivables Purchase Agreement, AHFC will purchase such
Receivable from the Seller, at a price equal to the Repurchase Payment for such
Receivable. The "Repurchase Payment" for a Receivable will be equal to its
unpaid principal balance, plus interest thereon at the related APR to the last
day of the Collection Period relating to such repurchase. This repurchase
obligation will constitute the sole remedy available to the Securityholders and
the Trustees for any such uncured breach by the Seller. The obligation of the
Seller to repurchase a Receivable will not be conditioned on performance by AHFC
of its obligation to purchase such Receivable from the Seller pursuant to the
Receivables Purchase Agreement. Receivables purchased as described in this
paragraph or by the Servicer as described in the second paragraph under
"Servicing Procedures" are referred to herein as "Repurchased Receivables".
Pursuant to the Sale and Purchase Agreement, to assure uniform quality in
servicing both the Receivables and the Servicer's own portfolio of motor vehicle
installment sale contracts, as well as to reduce administrative costs, the
Trustee will appoint the Servicer as custodian of the Receivables and all
documents related thereto. The Receivables will not be physically segregated
from other automobile installment sale contracts of the Servicer, or those which
the Servicer services for others, to reflect the transfer to the Trust. However,
UCC financing statements reflecting the sale and assignment of the Receivables
by AHFC to the Seller and by the Seller to the Trustee will be filed, and the
respective accounting records and computer files of AHFC and the Seller will
reflect such sale and assignment. Because the Receivables will remain in the
possession of the Servicer and will not be stamped or otherwise marked to
reflect the assignment thereof to the Trustee, if a subsequent purchaser were
able to take physical possession of the Receivables without knowledge of the
assignment, the Trustee's interest in the Receivables could be defeated. See
"Certain Legal Aspects of the Receivables -- General" and "-- Security Interests
in the Financed Vehicles". In addition, under certain circumstances the
Trustee's security interest in collections that have been received by the
Servicer but not yet remitted to the Collection Account could be defeated. See
"Collections".
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and, in a manner consistent with the Sale and
Servicing Agreement, will continue such collection procedures
24
<PAGE>
as it follows with respect to comparable motor vehicle retail installment sale
contracts it services for itself and others. The Servicer will be authorized to
grant certain rebates, adjustments or extensions with respect to a Receivable.
See "American Honda Finance Corporation -- Servicing of Motor Vehicle Loans".
However, if any such modification of a Receivable alters the APR or the amount
financed or extends the maturity of a Receivable beyond six months after the
scheduled maturity of the Receivable with the latest scheduled maturity as of
the Cutoff Date, the Servicer will be obligated to purchase such Receivable as
described in the immediately succeeding paragraph.
In the Sale and Servicing Agreement, the Servicer will covenant that except
as otherwise contemplated therein, (i) it will not release any Financed Vehicle
from the security interest created by the related Receivable, (ii) it will do
nothing to impair the rights of the Securityholders in the Receivables and (iii)
except as otherwise provided in the Sale and Servicing Agreement, it will not
amend any Receivable such that the total number of Scheduled Payments, the
amount financed or the APR is altered or the maturity of a Receivable is
extended beyond six months after the scheduled maturity of the Receivable with
the latest scheduled maturity as of the Cutoff Date. As of the last day of the
second Collection Period (or, if the Servicer so elects, the last day of the
first Collection Period) following the Collection Period in which the Seller,
the Servicer or the Trustee discovers a breach of any such covenant that
materially and adversely affects the interests of the Securityholders in a
Receivable, the Servicer, unless the breach is cured, will purchase the
Receivable from the Trustee at a price equal to the Purchase Payment for such
Receivable. This repurchase obligation will constitute the sole remedy available
to the Securityholders and the Trustees for any such uncured breach by the
Servicer.
If the Servicer determines that eventual payment in full of a Receivable is
unlikely, the Servicer will follow its normal practices and procedures to
recover all amounts due upon such Receivable, including the repossession and
disposition of the related Financed Vehicle at a public or private sale, or the
taking of any other action permitted by applicable law.
INSURANCE ON FINANCED VEHICLES
Each Receivable requires the related Obligor to maintain insurance covering
physical damage to the Financed Vehicle in an amount not less than the unpaid
principal balance of such Receivable pursuant to which AHFC is named as a loss
payee. Since the Obligors may select their own insurers to provide the requisite
coverage, the specific terms of their policies may vary. AHFC will not be
required to monitor the maintenance of such insurance. A failure by an Obligor
to maintain such physical damage insurance will constitute a default under the
related Receivable. See "American Honda Finance Corporation -- Underwriting of
Motor Vehicle Loans". In the event that the failure of an Obligor to maintain
any such required insurance results in a shortfall in amounts to be distributed
to Securityholders and such shortfall is not covered by amounts on deposit in
the Reserve Fund, the related Securityholders could suffer a loss on their
investment.
THE ACCOUNTS
THE COLLECTION AND PAYAHEAD ACCOUNTS. The Servicer will establish and
maintain in the name of the Indenture Trustee on behalf of the Securityholders,
(i) one or more accounts into which all payments made on or in respect of the
Receivables will be deposited (the "Collection Account") and (ii) an account
into which payments made by Obligors in excess of the related Scheduled Payments
on Precomputed Receivables (each, a "Payment Ahead"), to the extent that such
payments do not constitute a prepayment in full of the related Receivable, will
be deposited until the Deposit Date relating to the Collection Period in which
such payments become due (the "Payahead Account").
THE DISTRIBUTION ACCOUNTS. The Servicer will establish and maintain (i) 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
25
<PAGE>
(the "Note Distribution Account") and (ii) an 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").
MAINTENANCE OF TRUST ACCOUNTS. The Collection Account, Payahead Account and
the Distribution Accounts (collectively, the "Trust Accounts") will be
maintained with a depository institution or a trust company (which may include
the related Trustee) so long as (i) the commercial paper or other short-term
unsecured debt obligations of such entity is rated at least P-1 by Moody's and
A-1+ by Standard & Poor's or (ii) such Trust Accounts are maintained in a
segregated trust account for the benefit of the related Securityholders, located
in the corporate trust department of a depository institution or trust company
(which may include the related Trustee) with a long-term deposit rating from
Moody's of at least Baa3 (or such lower rating as Moody's shall approve in
writing). Initially, all Trust Accounts other than the Certificate Distribution
Account will be maintained with the Indenture Trustee and the Certificate
Distribution Account will be maintained with the Owner Trustee.
INVESTMENT OF TRUST ACCOUNT MONIES. Funds on deposit in the Trust Accounts
may, at the direction of the Servicer, be invested in Permitted Investments that
mature on the Deposit Date immediately succeeding the date of investment (other
than instruments of the entity at which the related Trust Account is located,
which may mature on the related Distribution Date). All income or other gain
from such investments, net of any loss and investment expenses resulting from
such investment, shall be paid to the Servicer as additional servicing
compensation. Any net loss and investment expenses resulting from such
investment shall be charged to the related Trust Account. "Permitted
Investments" will be specified in the Sale and Servicing Agreement and will be
limited to investments which meet the criteria of each Rating Agency from time
to time as being consistent with its then-current rating of any Securities.
COLLECTIONS
The Servicer will deposit all payments on or in respect of the Receivables
received from or on behalf of Obligors and all proceeds of Receivables collected
during each Collection Period into the Collection Account not later than two
Business Days after receipt. However, the Servicer may retain such amounts until
the related Deposit Date so long as (i) AHFC is the Servicer, (ii) no Event of
Default exists and is continuing and (iii) either (a) the short-term unsecured
debt of AHFC is rated at least P-1 by Moody's and A-1 by Standard & Poor's, or
(b) AHFC obtains a letter of credit, surety bond or insurance policy (the
"Servicer Letter of Credit") as provided in the Sale and Servicing Agreement
under which demands for payment will be made to secure timely remittance of
monthly collections to the Collection Account and, in the case of either clause
(a) or (b) above, the Trustee is provided with a letter from each Rating Agency
to the effect that the utilization of such alternative remittance schedule will
not result in a qualification, reduction or withdrawal of its then-current
rating of any Securities. In the event that the Servicer is permitted to make
remittances of collections to the Collection Account on a monthly basis pursuant
to satisfaction of the conditions described above, the Sale and Servicing
Agreement will be modified, to the extent necessary, without the consent of any
Securityholder. Pending deposit into the Collection Account, collections may be
invested by the Servicer at its own risk and for its own benefit and will not be
segregated from its own funds. The Seller or the Servicer, as the case may be,
will remit the aggregate Repurchase Payments of any Receivables to be
repurchased from the Trust into the Collection Account on or before each Deposit
Date.
Collections on or in respect of a Receivable made during a Collection Period
(including Repurchase Payments) which are not late fees, prepayment charges,
extension fees or certain other similar fees or charges will be applied first to
any outstanding Advances made by the Servicer with respect to such Receivable,
and then to the related Scheduled Payment. Any collections on or in respect of a
Receivable remaining after such applications will be considered an "Excess
Payment". Excess Payments constituting a
26
<PAGE>
prepayment in full of the related Receivable will be applied as a prepayment in
full of such Receivable (each, a "Prepayment") and all other Excess Payments
will be deposited in the Payahead Account as a Payment Ahead.
On each Deposit Date, the Servicer will cause Payments Ahead previously
deposited in the Payahead Account or held by the Servicer in respect of the
related Collection Period to be transferred to the Collection Account.
ADVANCES
If the Scheduled Payment due on a Precomputed Receivable is not received in
full by the end of the month in which it is due, whether as the result of any
extension granted to the Obligor or otherwise, the amount of Payments Ahead, if
any, not previously applied with respect to such Precomputed Receivable shall be
applied by the Servicer to the extent of the shortfall and the Payahead Account
shall be reduced accordingly. If any shortfall remains, the Servicer will make a
Precomputed Advance to the Trust in an amount equal to the amount of such
shortfall. In addition, if the Scheduled Payment on a Simple Interest Receivable
is not received in full by the end of the month in which it is due, the Servicer
will be required, subject to the limitations set forth below, to make a Simple
Interest Advance to the Trust in an amount equal to the product of the Principal
Balance of such Simple Interest Receivable as of the first day of the related
Collection Period and one-twelfth of its APR minus the amount of interest
actually received on such Simple Interest Receivable during such Collection
Period. If such a calculation results in a negative number, an amount equal to
such negative amount shall be paid to the Servicer in reimbursement of
outstanding Simple Interest Advances. In addition, in the event that a Simple
Interest Receivable becomes a Liquidated Receivable, the amount of accrued and
unpaid interest thereon (but not including interest for the current Collection
Period) shall, up to the amount of all outstanding Simple Interest Advances in
respect thereof, be withdrawn from the Collection Account and paid to the
Servicer in reimbursement of such outstanding Simple Interest Advances. No
advances of principal will be made with respect to Simple Interest Receivables.
The obligation of the Servicer to make an Advance (other than a Simple
Interest Advance in respect of an interest shortfall arising from the prepayment
of a Simple Interest Receivable) will be limited to the extent that it
determines, in its sole discretion, that such Advance will be recovered from
subsequent collections on or in respect of such Receivable. In making Advances,
the Servicer will endeavor to maintain monthly payments of interest to
Securityholders at the related Interest Rate or Pass-Through Rate rather than to
guarantee or insure against losses. Accordingly, all Advances shall be
reimbursable to the Servicer, without interest, if and when a payment relating
to a Receivable with respect to which an Advance has previously been made is
subsequently received. Upon the determination by the Servicer that reimbursement
from the preceding source is unlikely, it will be entitled to recover
unreimbursed Advances from collections on or in respect of other Receivables.
The Servicer will make all Advances by depositing into the Collection
Account any amount equal to the aggregate of the Precomputed Advances and Simple
Interest Advances due in respect of a Collection Period on the related Deposit
Date.
SERVICING COMPENSATION
On each Distribution Date, the Servicer will receive the Servicing Fee for
the related Collection Period equal to one-twelfth of the Servicing Fee Rate
multiplied by the Pool Balance as of the first day of such Collection Period or,
in the case of the first Collection Period, the Cutoff Date Pool Balance. The
Servicing Fee will be calculated and paid based upon a 360-day year consisting
of twelve 30-day months. The Servicer will be entitled to collect and retain as
additional servicing compensation in respect of each Collection Period any late
fees, prepayment charges and other administrative fees and expenses or similar
charges collected during such Collection Period, plus any interest earned during
such Collection Period from the investment of monies on deposit in the Trust
Accounts, net of investment expenses and any losses from such
27
<PAGE>
investments. The Servicer shall pay all expenses incurred by it in connection
with its servicing activities under the Sale and Servicing Agreement and shall
not be entitled to reimbursement of such expenses except to the extent they
constitute liquidation expenses or expenses recoverable under an applicable
insurance policy.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of the Receivables as an agent for the Indenture
Trustee and the Owner Trustee, including collecting and posting all payments,
responding to inquiries of Obligors, investigating delinquencies, sending
payment statements and reporting tax information to Obligors, paying costs of
collections and policing the collateral. The Servicing Fee will also compensate
the Servicer for administering the Receivables, including making Advances,
accounting for collections, furnishing monthly and annual statements to the
Indenture Trustee and the Owner Trustee with respect to distributions and
generating federal income tax information and certain taxes, accounting fees,
outside auditor fees, data processing costs and other costs incurred in
connection with administering the Receivables.
The "Pool Balance" will equal the aggregate Principal Balance of the
Receivables. The "Principal Balance" of a Receivable as of any date will equal
the original principal balance of such Receivable minus the sum, in each case
computed in accordance with the actuarial method, of (i) that portion of all
Scheduled Payments due on or prior to such date allocable to principal, (ii) any
Repurchase Payment with respect to such Receivable allocable to principal and
(iii) any Prepayments or other payments applied to reduce the unpaid principal
balance of such Receivable.
NET DEPOSITS
Unless the Servicer is required to remit collections daily, the Servicer
will be permitted to deposit into the Trust Accounts only the net amount
distributable to Securityholders on the related Distribution Date. The Servicer,
however, will account to the Trustees and the Securityholders as if all deposits
and distributions were made individually.
DISTRIBUTIONS ON THE SECURITIES
GENERAL. On or before the fifth Business Day prior to each Distribution
Date (each, a "Determination Date"), the Servicer will deliver to the Indenture
Trustee, the Owner Trustee and each Rating Agency a statement (the "Distribution
Date Statement") setting forth, among other things, the following amounts with
respect to such Distribution Date: (i) the amount of funds in the Collection
Account allocable to collections on or in respect of the Receivables during such
Collection Period (excluding any Advances and Repurchase Payments); (ii) the
Repurchase Payments of all Receivables repurchased by the Seller or the Servicer
during such Collection Period; (iii) the Advances made by the Servicer and the
amounts for which the Servicer is entitled to be reimbursed for unreimbursed
Advances; (iv) the amount of Available Funds; (v) the Note Interest
Distributable Amount; (vi) the Note Principal Distributable Amount; (vii) the
Certificate Interest Distributable Amount; (viii) the Certificate Principal
Distributable Amount; and (ix) the Servicing Fee.
DETERMINATION OF AVAILABLE AMOUNTS. The amount of funds available for
distribution on a Distribution Date will generally equal the sum of Available
Interest and Available Principal (collectively, the "Available Amount").
"Available Interest" for a Distribution Date will equal the sum of the
following amounts allocable to interest received or allocated by the Servicer on
or in respect of the Receivables during the related Collection Period, in each
case computed in accordance with the actuarial method: all (i) collections on or
in respect of the Receivables other than Defaulted Receivables (including
Payments Ahead being applied in such Collection Period but excluding Payments
Ahead to be applied in one or more future Collection Periods); (ii) proceeds of
the liquidation of Defaulted Receivables, net of expenses incurred by the
Servicer
28
<PAGE>
in accordance with its customary servicing procedures in connection with such
liquidation ("Net Liquidation Proceeds"); (iii) Advances made by the Servicer;
and (iv) Repurchase Payments with respect to Repurchased Receivables repurchased
by the Seller and the Servicer, in either case in respect of such Collection
Period.
"Available Principal" for a Distribution Date will equal the sum of the
amounts described in clauses (i) through (iv) of the immediately preceding
paragraph received or allocated by the Servicer in respect of principal on or in
respect of the Receivables during the related Collection Period, in each case
computed in accordance with the actuarial method.
Available Interest and Available Principal on any Distribution Date will
exclude (i) amounts received on a particular Receivable (other than a Defaulted
Receivable) to the extent that the Servicer has previously made an unreimbursed
Advance in respect of such Receivable and (ii) Net Liquidation Proceeds with
respect to a particular Receivable to the extent of unreimbursed Advances in
respect of such Receivable. A "Defaulted Receivable" will be a Receivable (other
than a Repurchased Receivable) as to which (a) all or any part of a Scheduled
Payment is 120 or more days past due and the Servicer has not repossessed the
related Financed Vehicle or (b) the Servicer has, in accordance with its
customary servicing procedures, determined that eventual payment in full is
unlikely and has either repossessed and liquidated the related Financed Vehicle
or repossessed and held the related Financed Vehicle in its repossession
inventory for 90 days, whichever occurs first.
DEPOSITS TO THE DISTRIBUTION ACCOUNTS; PRIORITY OF PAYMENTS. On each
Distribution Date, the Servicer will allocate amounts on deposit in the
Collection Account with respect to the related Collection Period 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 Servicer, the Servicing Fee, including any unpaid Servicing
Fees with respect to one or more prior Collection Periods;
(ii) to the Indenture Trustee and the Owner Trustee, any accrued and
unpaid Trustees' fees, in each case to the extent such fees have not been
previously paid by the Servicer;
(iii) to the Note Distribution Account, from the Available Amount (after
giving effect to the reduction in the Available Amount described in clauses
(i) and (ii) above), the Note Interest Distributable Amount to be
distributed to the holders of the Notes at their respective Interest Rates;
(iv) to the Note Distribution Account, from the Available Amount (after
giving effect to the reduction in the Available Amount described in clauses
(i) through (iii) above), the Note Principal Distributable Amount to the
holders of the Class A-1 Notes until the principal amount of the Class A-1
Notes has been reduced to zero, 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
and third to the holders of the Class A-3 Notes until the principal amount
of the Class A-3 Notes has been reduced to zero;
(v) to the Note Distribution Account, if such Distribution Date is a
Note Final Distribution Date, the remaining principal amount of the related
Class of Notes (after giving effect to the reduction in the Available Amount
described in clauses (i) through (iv) above) to be distributed to the
holders of such Class of Notes;
(vi) to the Certificate Distribution Account, from the Available Amount
(after giving effect to the reduction in the Available Amount described in
clauses (i) through (v) above), the Certificate Interest Distributable
Amount to be distributed to the holders of the Certificates;
(vii) to the Certificate Distribution Account, from the Available Amount
(after giving effect to the reduction in the Available Amount described in
clauses (i) through (vi) above), the Certificate Principal Distributable
Amount to be distributed to the holders of the Certificates;
29
<PAGE>
(viii) to the Certificate Distribution Account, if such Distribution Date
is the Certificate Final Distribution Date, from the Available Amount (after
giving effect to the reduction in the Available Amount described in clauses
(i) through (vii) above), the Certificate Balance, as such balance has been
reduced by payments thereon in respect of such Distribution Date to be
distributed to the holders of the Certificates; and
(ix) in the event that the distributions described in clauses (i)
through (viii) above have been funded from the Available Amount, any
Available Amount remaining ("Excess Amounts") will be deposited into the
Reserve Fund until the amount on deposit therein equals the Specified
Reserve Fund Balance, with any remaining Excess Amounts being distributed as
described under "The Reserve Fund -- Withdrawals".
If the Notes are accelerated following an Event of Default, amounts
collected following the sale of the Receivables and other property of the Trust
will be distributed in the priority described above. See "Description of the
Notes -- Events of Default; Rights upon Event of Default".
For the purposes hereof, the following terms will have the following
meanings:
The "Certificate Distributable Amount" will mean, with respect to any
Distribution Date, the sum of the Certificate Interest Distributable Amount and
the Certificate Principal Distributable Amount for such Distribution Date.
The "Certificate Interest Carryover Shortfall" will mean, 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 is actually deposited in the Certificate Distribution Account on such
preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Pass-Through Rate for the related Interest Period.
The "Certificate Interest Distributable Amount" will mean, 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.
The "Certificate Monthly Interest Distributable Amount" will mean, 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
Certificate Balance on the immediately preceding Distribution Date, after giving
effect to all payments of principal on such preceding Distribution Date (or, in
the case of the first Distribution Date, the Original Certificate Balance).
The "Certificate Monthly Principal Distributable Amount" will mean, with
respect to any Distribution Date, the Certificate Percentage of the Principal
Distributable Amount for such Distribution Date.
The "Certificate Percentage" will mean for each Distribution Date (i) to but
excluding the Distribution Date on which the principal amount of the Class A-3
Notes is reduced to zero, 0% and (ii) on and after the Distribution Date on
which the principal amount of the Class A-3 Notes is reduced to zero, a
percentage equal to 100% minus the Note Percentage for such Distribution Date.
The "Certificate Principal Carryover Shortfall" will mean, 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 for the immediately preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account on such Distribution Date.
30
<PAGE>
The "Certificate Principal Distributable Amount" will mean, with respect to
any Distribution Date, the sum of the Certificate Monthly Principal
Distributable Amount for such Distribution Date and any outstanding Certificate
Principal Carryover Shortfall for 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.
The "Note Distributable Amount" will mean, with respect to any Distribution
Date, the sum of the Note Interest Distributable Amount and the Note Principal
Distributable Amount for such Distribution Date.
The "Note Interest Carryover Shortfall" will mean, 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 is 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 Noteholders of such Class on such preceding Distribution Date at the related
Interest Rate for the related Interest Period.
The "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.
The "Note Monthly Interest Distributable Amount" will mean, 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 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).
The "Note Monthly Principal Distributable Amount" will mean, with respect to
any Distribution Date, the Note Percentage of the Principal Distributable Amount
for such Distribution Date.
The "Note Percentage" will mean (i) for each Distribution Date to and
including the Distribution Date on which the principal amount of the Class A-3
Notes is reduced to zero, 100% (ii) on the Distribution Date on which the
principal amount of the Class A-3 Notes is reduced to zero, (a) 100% until the
principal amount of the Class A-3 Notes has been reduced to zero and (b) with
respect to any remaining portion of the Principal Distributable Amount, zero;
and (iii) for any Distribution Date after the Distribution Date on which the
principal amount of the Class A-3 Notes has been reduced to zero, zero.
The "Note Principal Carryover Shortfall" will mean, 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 for
the immediately preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account on such
Distribution Date.
The "Note Principal Distributable Amount" will mean, with respect to any
Distribution Date, the sum of the Note Monthly Principal Distributable Amount
and any outstanding Note Principal Carryover Shortfall for the immediately
preceding Distribution Date; provided, however, that the Note Principal
Distributable Amount with respect to a Class of Notes shall not exceed the
outstanding principal amount of such Class of Notes. Notwithstanding the
foregoing, the Note Principal Distributable Amount on each Note 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 related Class of Notes to zero.
31
<PAGE>
The "Principal Distributable Amount" will mean, with respect to any
Distribution Date and the related Collection Period, the sum of the following
amounts, each computed in accordance with the actuarial method: (i) the
principal portion of all Scheduled Payments due during such Collection Period,
(ii) the principal portion of all Prepayments received during such Collection
Period (to the extent such amounts are not included in clause (i) above) and
(iii) the Principal Balance of each Receivable that the Servicer became
obligated to purchase, the Seller became obligated to repurchase or that became
a Defaulted Receivable during such Collection Period (to the extent such amounts
are not included in clauses (i) or (ii) above).
THE RESERVE FUND
GENERAL. The rights of the Securityholders to receive distributions with
respect to the Receivables 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), the Trustees and certain
other entities (to the extent the Trustees and such other entities have not
received all other Trust Fees and Expenses payable to them). In addition, the
rights of the Noteholders to receive distributions with respect to the
Receivables will be subject to the priorities set forth under "Distributions on
the Securities -- Deposits to the Distribution Accounts; Priority of Payments",
and the rights of the Certificateholders to receive distributions with respect
to the Receivables will be subordinated to the rights of the Noteholders, in
each case to the extent described herein.
The foregoing protection afforded to the Noteholders will be effected both
by the preferential right of the Noteholders to receive, to the extent described
herein, current distributions with respect to the Receivables and by the
establishment of the Reserve Fund. The Reserve Fund will not be a part of the
Trust and will be a segregated trust account in the name of the Indenture
Trustee. The Reserve Fund will be created with an initial deposit by the Seller
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, if any, in respect of each Distribution Date.
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of holders of the Securities and may be invested in Permitted
Investments. Investment income on such investments will be credited to the
Reserve Fund and any loss on such investment and investment expenses will be
charged to the Reserve Fund.
The subordination of the Certificates and the Reserve Fund are intended to
enhance the likelihood of receipt by Noteholders of the full amount of principal
and interest due them and to decrease the likelihood that the Noteholders will
experience losses. In addition, the Reserve Fund is intended to enhance the
likelihood of receipt by Certificateholders of the full amount of principal and
interest due them and to decrease the likelihood that the Certificateholders
will experience losses. However, in certain circumstances, the Reserve Fund
could be depleted. If the amount required to be withdrawn from the Reserve Fund
to cover shortfalls in collections on the Receivables exceeds the amount of
available cash in the Reserve Fund, Noteholders or Certificateholders could
incur losses or a temporary shortfall in the amounts distributed to the
Noteholders or the Certificateholders could result.
CALCULATION OF SPECIFIED RESERVE FUND BALANCE. The "Specified Reserve Fund
Balance" with respect to any Distribution Date will be $ , except that,
if on any Distribution Date (i) the average of the Charge-off Rates for the
three preceding Collection Periods exceeds %, or (ii) the average of the
Delinquency Percentages for the three preceding Collection Periods exceeds %,
then the Specified Reserve Fund Balance will be an amount equal to a specified
percentage of the Pool Balance as of the last day of the immediately preceding
Collection Period. Such percentage shall be determined by deducting from %
the following fraction, expressed as a percentage: (a) one minus (b) a fraction,
the numerator of which is the aggregate outstanding principal amount of the
Notes and the Certificate Balance with respect to such Distribution Date and the
denominator of which is such Pool Balance. Notwithstanding the foregoing, in no
event will the Specified Reserve Fund Balance be more than $ or less than
$ . As of any
32
<PAGE>
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.
Notwithstanding the foregoing, on any Distribution Date on which the aggregate
outstanding principal amount of the Notes and the Certificate Balance is
$ or less after giving effect to distributions of principal on such
Distribution Date, the Specified Reserve Fund Balance will be the greater of the
applicable balance determined as described above or $ .
The "Charge-off Rate" with respect to a Collection Period will equal the
Aggregate Net Losses with respect to the Receivables expressed, on an annualized
basis, as a percentage of the average of (i) the Pool Balance on the last day of
the immediately preceding Collection Period and (ii) the Pool Balance on the
last day in such Collection Period. The "Aggregate Net Losses" with respect to a
Collection Period will equal the Principal Balance, calculated on the basis of
the actuarial method, of all Receivables newly designated during such Collection
Period as Defaulted Receivables minus Net Liquidation Proceeds collected during
such Collection Period with respect to all Defaulted Receivables. The
"Delinquency Percentage" with respect to a Collection Period will equal the
number of (a) all outstanding Receivables 61 days or more delinquent (after
taking into account permitted extensions) as of the last day of such Collection
Period, determined in accordance with the Servicer's normal practices, plus (b)
the number of repossessed Financed Vehicles that have not been liquidated (to
the extent the related Receivable is not otherwise reflected in clause (a) above
or is not a Defaulted Receivable), expressed as a percentage of the aggregate
number of Current Receivables on the last day of such Collection Period. A
"Current Receivable" will be a Receivable that is not a Defaulted Receivable or
a Liquidated Receivable. A "Liquidated Receivable" will be a Receivable that has
been the subject of a Prepayment or otherwise has been paid in full or, in the
case of a Defaulted Receivable, a Receivable as to which the Servicer has
determined that the final amounts in respect thereof have been paid.
The Servicer may, from time to time after the date of this Prospectus,
request each Rating Agency to approve a formula for determining the Specified
Reserve Fund Balance or funding the Reserve Fund that is different from that
described above and would result in a decrease in the amount of the Specified
Reserve Fund Balance 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 Securities, then the Specified Reserve Fund Balance or the funding of the
Reserve Fund, as the case may be, will be determined in accordance with such new
formula. The Sale and Servicing Agreement will accordingly be amended to reflect
such new calculation without the consent of any Securityholder.
WITHDRAWALS. Amounts held from time to time in the Reserve Fund will 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 such 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 Distribution Account is less than the Certificate
Distributable Amount and will be deposited in the Certificate Distribution
Account.
If the amount on deposit in the Reserve Fund on any Distribution Date (after
giving effect to all deposits thereto and withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Fund Balance for such
Distribution Date, the Servicer shall instruct the Indenture Trustee to
distribute to the Seller an amount of cash equal to the amount by which the
amount on deposit in the Reserve Fund exceeds the Specified Reserve Fund
Balance. Upon any such distribution to the Seller, the Securityholders will have
no further rights in, or claims to, such amounts.
None of Securityholders, the Indenture Trustee, the Owner Trustee or the
Seller 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.
33
<PAGE>
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 "Statement to Securityholders"), setting forth with
respect to the related Distribution Date or Collection Period, as applicable,
among other things, the following information:
(i) the amount of the Noteholder's or Certificateholder's distribution
allocable to principal (stated separately for each Class of Notes and the
Certificates);
(ii) the amount of the Noteholder's or Certificateholder's distribution
allocable to interest (stated separately for each Class of Notes and the
Certificates);
(iii) the Pool Balance as of the close of business on the last day of
such Collection Period;
(iv) the amount of the Servicing Fee paid to the Servicer with respect
to such Collection Period;
(v) 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;
(vi) the Note Pool Factor for each Class of Notes and the Certificate
Pool Factor, in each case as of such Distribution Date;
(vii) the balance on deposit in the Reserve Fund on such Distribution
Date, after giving effect to distributions made on such Distribution Date,
and the change in such balance from the immediately preceding Distribution
Date; and
(viii) the amount available under the Servicer Letter of Credit, if any,
and such amount as a percentage of the Pool Balance as of the last day of
such Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (v) above
will be expressed in the aggregate and as a dollar amount per $1,000 of original
principal amount of a Note or the original Certificate Balance of a Certificate,
as the case may be. Copies of such statements may be obtained by Security Owners
by a request in writing addressed to the related Trustee at its Corporate Trust
Office. In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of the Sale and
Servicing 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), (iv) and (v) above for
the purposes of such holder's preparation of federal income tax returns. See
"Certain Federal Income Tax Consequences".
EVIDENCE AS TO COMPLIANCE
THE SALE AND SERVICING AGREEMENT. The Sale and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
Indenture Trustee and the Owner Trustee, on or before 90 days after the end of
each fiscal year of the Servicer, beginning with the fiscal year ended March 31,
1998, a statement as to compliance by the Servicer during the preceding fiscal
year (or since the Closing Date in the case of the first such statement) with
certain standards relating to the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Owner Trustee, on or before 90 days after the end of
each fiscal year of the Servicer, commencing with the fiscal year ended March
31, 1998, of a certificate signed by an officer of the Servicer stating that the
Servicer has
34
<PAGE>
fulfilled its obligations under the Sale and Servicing Agreement throughout the
preceding fiscal year (or since the Closing Date in the case of the first such
certificate) or, if there has been a default in the fulfillment of any such
obligation, describing each such default.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the related Trustee at its
Corporate Trust Office.
THE INDENTURE. The Trust will be required to file annually with the
Indenture Trustee a written statement as to the fulfillment of its obligations
under the Indenture.
The Indenture Trustee will be required to mail each year to all related
Noteholders a brief report relating to, among other things, its eligibility and
qualification to continue as Indenture Trustee under the Indenture, any amounts
advanced by it under the Indenture, the amount, interest rate and maturity date
of certain indebtedness owing by the Trust to the 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 Notes and
that has not been previously reported.
CERTAIN MATTERS REGARDING THE SERVICER
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until (i) the Indenture Trustee or a successor servicer has assumed the
Servicer's servicing obligations and duties under the Sale and Servicing
Agreement and (ii) each Rating Agency confirms that the selection of such
successor servicer will not result in the qualification, reduction or withdrawal
of its then-current rating of any Securities.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees or agents shall be under
any liability to the Trust or the Securityholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. The Servicer will be under no obligation to appear in,
prosecute or defend any legal action that is not incidental to its servicing
responsibilities under the Sale and Servicing Agreement and that, in its
opinion, may cause it to incur any expense or liability. The Servicer may,
however, undertake any reasonable action that it may deem necessary or desirable
in respect of the Sale and Servicing Agreement and the rights and duties of the
parties thereto and the interests of the Securityholders thereunder. In any
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust, and the Servicer
will be entitled to be reimbursed therefor out of funds on deposit in the
Collection Account. Any such indemnification or reimbursement could reduce the
amount otherwise available for distribution to Securityholders.
Any corporation into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party or any corporation succeeding to all or substantially
all of the business of the Servicer will be the successor of the Servicer under
the Sale and Servicing Agreement.
SERVICER DEFAULT
"Servicer Defaults" under the Sale and Servicing Agreement will consist of
(i) any failure by the Servicer to deposit in or credit to any Trust Account any
amount required to be so deposited or credited or to make the required
distributions therefrom, which failure continues unremedied for three Business
Days after written notice from the Indenture Trustee or the Owner Trustee is
received by the Servicer or discovery by an officer of the Servicer, (ii) any
failure by the Servicer or the Seller (so long as AHFC is the Servicer)
35
<PAGE>
duly to observe or perform in any material respect any other covenant or
agreement in the Sale and Servicing Agreement, which failure materially and
adversely affects the rights of Securityholders, the Indenture Trustee or the
Owner Trustee and which continues unremedied for 60 days after the giving of
written notice of such failure (A) to the Servicer or the Seller, as the case
may be, by the Owner Trustee or the Indenture Trustee or (B) to the Servicer or
the Seller, as the case may be, and to the Indenture Trustee or the Owner
Trustee by holders of Notes evidencing not less than 25% of the voting interests
thereof, voting together as a single class, or, if the Notes have been paid in
full, by the holders of Certificates evidencing not less than 25% of the voting
interests thereof or (iii) certain events of bankruptcy, insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by the Servicer (or the Seller, so long as AHFC
is the Servicer) indicating its insolvency, reorganization pursuant to
bankruptcy or similar proceedings or inability to pay its obligations (each, an
"Insolvency Event").
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default remains unremedied, the Indenture Trustee or
holders of Notes representing not less than 25% of the voting interests thereof,
voting together as a single class (or, if the Notes have been paid in full and
the Indenture has been discharged in accordance with its terms, by holders of
Certificates evidencing not less than 25% of the voting interests thereof), may
terminate all the rights and obligations of the Servicer under the Sale and
Servicing Agreement, whereupon the Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer in its capacity as such
under the Sale 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
the Indenture Trustee or the Noteholders (or Certificateholders) from effecting
a transfer of servicing. In the event that the Indenture Trustee is unwilling or
unable so to act, it may appoint or petition a court of competent jurisdiction
to appoint a successor with a net worth of at least $50,000,000 and whose
regular business includes the servicing of motor vehicle receivables. The
Indenture Trustee may make such arrangements for compensation to be paid, which
in no event may be greater than the servicing compensation paid to the Servicer
under the Sale and Servicing Agreement. Notwithstanding such termination, the
Servicer shall be entitled to payment of certain amounts payable to it prior to
such termination, for services rendered prior to such termination.
WAIVER OF PAST DEFAULTS
The holders of Notes evidencing at least a majority of the voting interests
thereof, voting together as a single class (or the holders of Certificates
evidencing not less than a majority of the voting interests thereof, in the case
of any Servicer Default that does not adversely affect the related Indenture
Trustee or the Noteholders), may, on behalf of all Securityholders, waive any
default by the Servicer in the performance of its obligations under the Sale and
Servicing Agreement and its consequences, except a default in making any
required deposits to or payments from any Trust Account in accordance with the
Sale and Servicing Agreement or in respect of a covenant or provision of the
Sale and Servicing Agreement that cannot be modified or amended without the
consent of each Securityholder (in which event the related waiver will require
the approval of holders of all of the Securities). No such waiver will impair
the Securityholders' rights with respect to subsequent Servicer Defaults.
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 Seller, AHFC or any of their
respective affiliates shall be excluded from such determination.
36
<PAGE>
AMENDMENT
AMENDMENT OF THE SALE AND SERVICING AGREEMENT. The Sale and Servicing
Agreement may be amended, without the consent of any Securityholders or the bank
issuing any Servicer Letter of Credit (the "Letter of Credit Bank"), 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
Specified Reserve Fund Balance, the funding of the Reserve Fund, the remittance
schedule with respect to collections to be deposited into the Trust Accounts or
the Servicer Letter of Credit or the acquisition 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
Securityholder, and provided further, that in the case of a change with respect
to the Specified Reserve Fund Balance or any Servicer Letter of Credit, the
Trustee receives a letter from Standard & Poor's 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 Moody's notice
of such amendment.
The Sale and Servicing Agreement may also be amended from time to time with
the consent of the holders of Notes evidencing at least a majority of the voting
interests thereof, voting together as a single class, and the holders of
Certificates evidencing at least a majority of the 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 or the Letter of Credit Bank;
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 Receivables, required
distributions on the Notes or the Certificates or to or by the Letter of Credit
Bank, or the Specified Reserve Fund Balance or the manner in which the Reserve
Fund is funded or to or by the Letter of Credit Bank 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, to 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 thereunder which are not inconsistent with the provisions
thereof or to delete certain provisions relating to an Insolvency Event of the
Seller; 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 Securityholder.
The Trust Agreement may also be amended from time to time with the consent
of the holders of Notes evidencing at least a majority of the voting interests
thereof, voting together as a single class, and the holders of Certificates
evidencing at least a majority of the 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
Noteholders or the Certificateholders; 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 Receivables or required
distributions on the Notes or the Certificates 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 the 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
37
<PAGE>
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 Sale and Servicing Agreement
or certain other agreements; provided, that any such action 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 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 the Indenture; provided
that any such action shall not, as evidenced by any opinion of counsel,
adversely affect in any material respect the interests of any Noteholder unless
such Noteholder's consent is otherwise obtained as described below.
Without the consent of the holder of each outstanding Note affected thereby,
no supplemental indenture may: (i) change the due date of any installment of
principal of or interest on any Note or reduce the principal amount thereof, the
interest rate thereon (or the method by which such interest or principal is
calculated) or the redemption price with respect thereto or change any place of
payment where or the coin or currency in which any such Note or any interest
thereon is payable; (ii) impair the right to institute suit for the enforcement
of 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 Seller 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 voting interests of the
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 for purposes of communicating with other
Certificateholders with respect to their rights under the Trust Agreement.
Three or more holders of Notes or holders of Notes evidencing not less than
25% of the voting interests thereof, voting together as a single class, 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.
38
<PAGE>
Neither the Trust Agreement nor the Indenture will provide for the holding
of any annual or other meetings of Securityholders.
INSOLVENCY EVENT
The Trust Agreement will provide that if an Insolvency Event occurs with
respect to the Seller, the Receivables and other property of the Trust will be
sold 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 holders of (i) Certificates (other than
the Seller Certificate) representing not less than a majority of the voting
interests thereof and (ii) each Class of Notes evidencing not less than a
majority of the voting interests of such Class, to the effect that each such
party disapproves of the liquidation of the Receivables and termination of the
Trust. Promptly after the occurrence of an Insolvency Event, notice thereof will
be given to Securityholders; provided that any failure to give such required
notice will not prevent or delay termination of the Trust. Upon termination of
the Trust, the Owner Trustee shall, or shall direct the related Indenture
Trustee to, promptly sell the assets of the Trust (other than the Trust Accounts
and the Reserve Fund) in a commercially reasonable manner and on commercially
reasonable terms. The proceeds from any such sale, disposition or liquidation of
the Receivables will be treated as collections on such Receivables and deposited
in the Collection Account. If the proceeds from the liquidation of the
Receivables and any amounts on deposit in the Trust Accounts and the Reserve
Fund are not sufficient to pay the Securities in full, the amount of principal
returned to Securityholders will be reduced and some or all of the Noteholders
and Certificateholders will incur a loss.
The provisions providing for the sale of the Receivables upon an Insolvency
Event may be deleted at the election of the Seller, if the inclusion of such
provisions is not necessary in order to obtain the opinion of counsel to the
Seller to the effect that, for federal and California income tax purposes, the
Trust will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation.
The Trust Agreement will provide that the Owner Trustee will not have the
power to commence a voluntary proceeding in bankruptcy with respect to the Trust
without the unanimous prior approval of all Certificateholders (including the
Seller) and the delivery to the Trustee by each such Certificateholder of a
certificate certifying that such Certificateholder reasonably believes that the
Trust is insolvent.
The Trust Agreement will provide that the Owner Trustee, each
Certificateholder, the Indenture Trustee and each Noteholder shall agree that
they will not at any time institute, or join in any institution against, the
Trust or the Seller, any bankruptcy proceedings relating to the Certificates,
the Notes, the Trust Agreement, the Indenture or certain other agreements.
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 Sale and Servicing Agreement, except as otherwise
provided therein.
TERMINATION
The obligations of the Servicer, the Seller, the Owner Trustee and the
Indenture Trustee with respect to the related Securityholders pursuant to the
Trust Agreement, Sale and Servicing Agreement or Indenture will terminate upon
the earliest to occur of (i) the maturity or other liquidation of the last
Receivable and the disposition of any amounts received upon liquidation of any
property remaining in the Trust, (ii) the payment to such Securityholders of all
amounts required to be paid to them pursuant to such agreement and (iii) the
occurrence of the event described below.
39
<PAGE>
In order to avoid excessive administrative expenses, the Seller, the
Servicer, or any successor to the Servicer will be permitted to purchase the
remaining Receivables from the Trust on any Distribution Date as of which the
Pool Balance is less than 10% of the Cutoff Date Pool Balance at a price equal
to the aggregate unpaid principal balances of the related Receivables, together
with accrued interest thereon at the related APRs to the last day in the
Collection Period in which such purchase occurs. In the event that both the
Seller and the Servicer, or any successor to the Servicer, elect to purchase the
Receivables as described above, the party first notifying the Owner Trustee
(based on the Owner Trustee's receipt of such notice) shall be permitted to
purchase the Receivables. The related Trustee will give written notice of
termination to each Securityholder of record.
The Owner Trustee and Indenture Trustee will give written notice of
termination to each Securityholder of record. The final distribution to each
Securityholder will be made only upon surrender and cancellation of such
holder's Securities at the office or agency of the related Trustee specified in
the notice of termination. Any funds remaining in the Trust, after such Trustee
has taken certain measures to locate a Securityholder and such measures have
failed, will be distributed to a charity designated by the Servicer.
Any outstanding Notes will be redeemed concurrently with any Optional
Purchase described above, and the subsequent distribution to the related
Certificateholders of all amounts required to be distributed to them pursuant to
the Trust Agreement will effect early retirement of the Certificates.
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
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 such under the
Trust Agreement or Indenture, as the case may be. In such event, the
Administrator will be obligated to appoint a successor Trustee. Any resignation
or removal of a Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
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 the related Trustee by the Indenture, Sale and Servicing 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 cotrustee 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 Seller will pay the fees
of the Owner Trustee and the Trust will, or will cause the Administrator to, pay
the fees of the Indenture Trustee. The Trust Agreement will further provide that
the Owner Trustee will be entitled to indemnification by the Servicer 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
Neither Trustee will make any representations as to the validity or
sufficiency of the Trust Agreement or Indenture, the Securities issued pursuant
thereto (other than the execution and authentication thereof), or of any
Receivables or related documents, and will not be accountable for the use or
application by the Seller
40
<PAGE>
or the Servicer of any funds paid to the Seller or the Servicer in respect of
such Securities or the related Receivables, 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
Receivables. If no Event of Default or Servicer Default has occurred and is
continuing, each Trustee will be required to perform only those duties
specifically required of it under the Indenture, Trust Agreement or Sale and
Servicing 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. No Trustee will 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 Servicer Default unless such
Trustee obtains actual knowledge of such failure as specified in such
agreements.
No Trustee will be under any obligation to exercise any of the rights or
powers vested in it by the Trust Agreement or Sale and Servicing 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 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.
SELLER LIABILITY
The Trust Agreement will require the Seller 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 the Seller
was a general partner. The foregoing provision may be deleted from the Trust
Agreement, if the inclusion of such provision is not necessary in order to
obtain the opinion of counsel to the Seller to the effect that, for federal and
California income tax purposes, the Trust will not be characterized as an
association (or a publicly traded partnership) taxable as a corporation.
ADMINISTRATION AGREEMENT
AHFC, in its capacity as administrator (the "Administrator"), will enter
into an agreement (the "Administration Agreement") with the Trust, the Seller
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. 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 payable by the
Seller.
BOOK-ENTRY REGISTRATION
Each Class of Securities will be offered for purchase in denominations of
$1,000 and integral multiples thereof in book-entry form. Each Class of
Securities will initially be represented by certificates registered in the name
of Cede & Co. ("Cede"), the nominee of The Depository Trust Company ("DTC"). No
beneficial owner of a Security (a "Security Owner") will be entitled to receive
a certificate representing such owner's interest, except as set forth below.
Unless and until Securities are issued in fully registered certificated form
41
<PAGE>
("Definitive Securities") under the limited circumstances described below, all
references herein to distributions, notices, reports and statements to
Noteholders or Certificateholders will refer to the same actions made with
respect to DTC or Cede, as the case may be, for the benefit of the related
Security Owners in accordance with DTC procedures. Security Owners will only be
permitted to exercise the rights of Securityholders indirectly through DTC and
its Participants, as more fully described below.
Security Owners may hold beneficial interests in the related Securities
through DTC (in the United States), or Cedel Bank, societe anonyme ("CEDEL") or
Euroclear (in Europe), which in turn hold through DTC, if they are participants
in such systems, or indirectly through organizations that are participants in
such systems. CEDEL and Euroclear will hold omnibus positions on behalf of the
participants in CEDEL ("CEDEL Participants") and Euroclear ("Euroclear
Participants"), respectively, through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositories
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the names of the Depositaries on the books of
DTC. For additional information regarding clearance and settlement procedures,
see Annex I hereto.
DTC is a limited-purpose trust company organized under the 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 (the "UCC") 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 its
participating members ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions between DTC Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. DTC Participants
include securities brokers and dealers (including the Underwriters), 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 (the "Indirect Participants"). The rules applicable to DTC and DTC
Participants are on file with the Commission.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective 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 CEDEL or Euroclear by its Depositary.
However, each such cross-market transaction 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). CEDEL or Euroclear 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 related Depositaries.
Because of time-zone differences, credits of securities received in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participants or Euroclear Participants on such business day. Cash received in
CEDEL or Euroclear as a result of sales of Securities by or through a CEDEL
Participant or Euroclear Participant to a DTC Participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
42
<PAGE>
Security Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
Securities may do so only through DTC Participants and Indirect Participants.
DTC Participants will receive a credit for the related Securities on DTC's
records. The ownership interest of each Security Owner will in turn be recorded
on the respective records of Participants and Indirect Participants. Security
Owners will not receive written confirmation from DTC of their purchase, but
Security Owners are expected to receive written confirmations providing details
of the transaction, as well as periodic statements of their holdings, from the
DTC Participant or Indirect Participant through which the Security Owner entered
into the transaction. Transfers of ownership interests in the Securities will be
accomplished by entries made on the books of DTC Participants acting on behalf
of Security Owners.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC will be registered in the name of Cede, as nominee of DTC.
The deposit of Securities with DTC and their registration in the name of Cede
will effect no change in beneficial ownership. DTC will have no knowledge of the
actual Security Owners and its records will reflect only the identity of the DTC
Participants to whose accounts such Securities are credited, which may or may
not be the Security Owners. DTC Participants and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants and by DTC Participants and
Indirect Participants to Security Owners will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede will consent or vote with respect to the Securities.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the Indenture
Trustee or the Owner Trustee, as the case may be, as soon as possible after each
applicable record date for such a consent or vote. The Omnibus Proxy will assign
Cede's consenting or voting rights to those DTC Participants to whose accounts
the related Securities will be credited on that record date (identified in a
listing attached to the Omnibus Proxy).
Payments on the Securities will be made to DTC. DTC's practice is to credit
DTC Participants' accounts on each Distribution Date in accordance with their
respective holdings of Securities shown on DTC's records unless DTC has reason
to believe that it will not receive payment on such Distribution Date. Payments
by DTC Participants and Indirect Participants to Security Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of such DTC Participant or
Indirect Participant and not of DTC, the Indenture Trustee, the Owner Trustee or
the Seller, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal of and interest on the Securities
to DTC will be the responsibility of the related Trustee, disbursement of such
payments to DTC Participants will be the responsibility of DTC and disbursement
of such payments to Security Owners will be the responsibility of DTC
Participants and Indirect Participants. As a result, under the book-entry
format, Security Owners may experience some delay in their receipt of payments.
DTC will forward such payments to its DTC Participants which thereafter will
forward them to Indirect Participants or Security Owners.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a 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 for such Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Noteholder under the related Indenture or a Certificateholder under
the related Trust Agreement only at the direction of one or more DTC
Participants to whose accounts with DTC the applicable Notes or Certificates are
credited. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of DTC
Participants whose holdings include such undivided interests.
43
<PAGE>
Except as required by law, none of the Administrator, the Servicer, the
Seller, the Indenture Trustee or the Owner Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Securities held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for CEDEL Participants and facilitates the
clearance and settlement of securities transactions between CEDEL Participants
through electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. CEDEL interfaces with domestic
markets in several countries. As a professional depository, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the Underwriters. Indirect
access to CEDEL is also available to others, such as banks, brokers and dealers
and trust companies that clear through or maintain a custodial relationship with
a CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for Euroclear
Participants and to clear and settle transactions between Euroclear Participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in Euroclear 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. 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 "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Securities held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
44
<PAGE>
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences". CEDEL or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Securityholder under the related agreement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Securities among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. In the event
that any of DTC, Cedel or Euroclear should discontinue its services, the
Administrator would seek an alternative depository (if available) or cause the
issuance of Definitive Securities to the owners thereof or their nominees in the
manner described under "-- Definitive Securities".
DEFINITIVE SECURITIES
Definitive Securities representing any Class of Notes or the Certificates
will be issued to the related Security Owners rather than to DTC, only if (i)
DTC is no longer willing or able to discharge its responsibilities as depository
with respect to the Securities, and neither the Indenture Trustee nor the Owner
Trustee, as the case may be, nor the Administrator is able to locate a qualified
successor, (ii) the Administrator, at its option, elects to terminate the
book-entry system through DTC or (iii) after an Event of Default or Servicer
Default, Security Owners evidencing not less than 51% of the voting interests of
the related Securities advise the related Trustee through DTC and its
Participants in writing that the continuation of a book-entry system through DTC
or its successor is no longer in the best interest of the related Security
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee or the Owner Trustee, as the case may
be, will be required to notify the related Security Owners, through
Participants, of the availability through DTC of Definitive Securities. Upon
surrender by DTC of the certificates representing all Securities of any affected
Class and the receipt of instructions for re-registration, the Trustee will
issue Definitive Securities to the related Security Owners, who thereupon will
become Noteholders or Certificateholders, as the case may be, for all purposes
of the Indenture or the Trust Agreement, respectively.
Distributions on the Definitive Securities will thereafter be made by the
related Trustee directly to holders of such Definitive Securities in accordance
with the procedures described herein and to be set forth in the Indenture and
the Trust Agreement. Interest payments and any principal payments on the
Securities on each Distribution Date will be made to holders in whose names the
Definitive Securities were registered at the close of business on the Record
Date with respect to such Distribution Date. Distributions will be made by check
mailed to the address of such holders as they appear on the register specified
in the Trust Agreement or the Indenture, as the case may be. The final payment
on any Securities (whether Definitive Securities or Securities registered in the
name of Cede), however, will be made only upon presentation and surrender of
such Securities at the office or agency specified in the notice of final
distribution to Securityholders. The Owner Trustee or the Indenture Trustee will
mail such notice to registered Securityholders within five Business Days of
receipt from the Servicer of notice of termination of the Trust.
Definitive Certificates will be transferable and exchangeable at the offices
of the Owner Trustee or the Indenture Trustee (or any security registrar
appointed thereby), as will be set forth in the Trust Agreement or the
Indenture, as the case may be. No service charge will be imposed for any
registration of transfer or exchange, but such Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
45
<PAGE>
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of the Receivables to the Trustee, the perfection of the
security interests in the Receivables and the enforcement of rights to realize
on the Financed Vehicles as collateral for the Receivables are subject to a
number of federal and state laws, including the UCC as in effect in various
states. The Servicer and the Seller will take such action as is required to
perfect the rights of the Trustee in the Receivables. If, through inadvertence
or otherwise, another party purchases (including the taking of a security
interest in) the Receivables for new value in the ordinary course of its
business, without actual knowledge of the Trust's interest, and takes possession
of the Receivables, such purchaser would acquire an interest in the Receivables
superior to the interest of the Trust.
SECURITY INTERESTS IN THE FINANCED VEHICLES
GENERAL. Retail installment sale contracts such as the Receivables evidence
the credit sale of motor vehicles by dealers to obligors; the contracts also
constitute personal property security agreements and include grants of security
interests in the related vehicles under the UCC. Perfection of security
interests in motor vehicles is generally governed by state certificate of title
statutes or by the motor vehicle registration laws of the state in which each
vehicle is located. In most states (including California, the state in which the
largest number of Financed Vehicles is located), a security interest in a motor
vehicle is perfected by notation of the secured party's lien on the vehicle's
certificate of title.
All retail installment sale contracts that AHFC acquires from Dealers name
AHFC as obligee or assignee and as the secured party. AHFC also takes all
actions necessary under the laws of the state in which the related vehicles are
located to perfect its security interest in such vehicles, including, where
applicable, having a notation of its lien recorded on the related certificate of
title and obtaining possession of the certificate of title.
PERFECTION. Pursuant to the Receivables Purchase Agreement, AHFC will sell
and assign its security interests in the Financed Vehicles to the Seller and,
pursuant to the Sale and Servicing Agreement, the Seller will sell and assign
its security interests in the Financed Vehicles to the Trust. However, because
of the administrative burden and expense, neither AHFC, the Seller nor either
Trustee will amend any certificate of title to identify the Trust as the new
secured party on the certificates of title relating to the Financed Vehicles.
However, UCC financing statements with respect to the transfer to the Seller of
AHFC's security interest in the Financed Vehicles and the transfer to the Trust
of the Seller's security interest in the Financed Vehicles will be filed. In
addition, the Servicer will continue to hold any certificates of title relating
to the Financed Vehicles in its possession as custodian for the Trustee pursuant
to the Agreement. See "Certain Information Regarding the Securities -- Sale and
Assignment of the Receivables".
In most states, assignments such as those under the Receivables Purchase
Agreement and the Sale and Servicing Agreement are an effective conveyance of a
security interest without amendment of any lien noted on a vehicle's certificate
of title, and the assignee succeeds thereby to the assignor's rights as secured
party. Although re-registration of the vehicle is not necessary to convey a
perfected security interest in the Financed Vehicles to the Trustee, because the
Trustee will not be listed as legal owner on the certificates of title to the
Financed Vehicles, its security interest could be defeated through fraud or
negligence. However, in the absence of fraud, forgery or administrative error,
the notation of AHFC's lien on the certificates of title will be sufficient to
protect the Trust against the rights of subsequent purchasers of a Financed
Vehicle or subsequent creditors who take a security interest in a Financed
Vehicle. In the Receivables Purchase Agreement, AHFC will represent and warrant,
and in the Sale and Servicing Agreement, the Seller will represent and warrant,
that it has taken all action necessary to obtain a perfected security interest
in each Financed Vehicle. If there are any Financed Vehicles as to which AHFC
failed to obtain a first perfected security interest, its security interest
would be subordinate to, among others, subsequent purchasers of such Financed
Vehicles and holders of perfected security interests therein. Such a failure,
however, would
46
<PAGE>
constitute a breach of AHFC's representations and warranties under the
Receivables Purchase Agreement and the Seller's representations and warranties
under the Sale and Servicing Agreement. Accordingly, pursuant to the Sale and
Servicing Agreement, the Seller would be required to repurchase the related
Receivable from the Trustee and, pursuant to the Receivables Purchase Agreement,
AHFC would be required to purchase such Receivable from the Seller, in each case
unless the breach were cured. See "Certain Information Regarding the Securities
- -- Sale and Assignment of the Receivables". The Seller will assign its rights
under the Receivables Purchase Agreement to the Trustee.
CONTINUITY OF PERFECTION. Under the laws of most states, a perfected
security interest in a vehicle continues for four months after the vehicle is
moved to a new state from the one in which it is initially registered and
thereafter until the owner re-registers such vehicle in the new state. A
majority of states require surrender of the related certificate of title to
re-register a vehicle. In those states (such as California) that require a
secured party to hold possession of the certificate of title to maintain
perfection of the security interest, the secured party would learn of the
re-registration through the request from the obligor under the related
installment sale contract to surrender possession of the certificate of title.
In the case of vehicles registered in states providing for the notation of a
lien on the certificate of title but not possession by the secured party, the
secured party would receive notice of surrender from the state of
re-registration if the security interest is noted on the certificate of title.
Thus, the secured party would have the opportunity to re-perfect its security
interest in the vehicles in the state of relocation. However, these procedural
safeguards will not protect the secured party if through fraud, forgery or
administrative error, the debtor somehow procures a new certificate of title
that does not list the secured party's lien. Additionally, in states that do not
require a certificate of title for registration of a vehicle, re-registration
could defeat perfection. In the ordinary course of servicing the Receivables,
AHFC will take steps to effect re-perfection upon receipt of notice of
re-registration or information from the Obligor as to relocation. Similarly,
when an Obligor sells a Financed Vehicle, AHFC must surrender possession of the
certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related Receivable before release of the lien. Under the Sale and Servicing
Agreement, the Servicer will be obligated to take appropriate steps, at its own
expense, to maintain perfection of security interests in the Financed Vehicles.
PRIORITY OF CERTAIN LIENS ARISING BY OPERATION OF LAW. Under the laws of
most states (including California), liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a first perfected
security interest in such vehicle. The Internal Revenue Code of 1986, as
amended, also grants priority to certain federal tax liens over the lien of a
secured party. The laws of certain states and federal law permit the
confiscation of motor vehicles by governmental authorities under certain
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in a confiscated vehicle. AHFC will
represent and warrant to the Seller in the Receivables Purchase Agreement and
the Seller will represent and warrant to the Trustee in the Sale and Servicing
Agreement that, as of the Closing Date, the security interest in each Financed
Vehicle is prior to all other present liens upon and security interests in such
Financed Vehicle. However, liens for repairs or taxes could arise at any time
during the term of a Receivable. No notice will be given to the Trustee or
Certificateholders in the event such a lien or confiscation arises and any such
lien or confiscation arising after the Closing Date would not give rise to the
Seller's repurchase obligation under the Sale and Servicing Agreement or AHFC's
repurchase obligation under the Receivables Purchase Agreement.
REPOSSESSION
In the event of default by an obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is the method employed by AHFC in most cases
and is accomplished simply by taking possession of the related
47
<PAGE>
vehicle. In cases where the obligor objects or raises a defense to repossession,
or if otherwise required by applicable state law, a court order must be obtained
from the appropriate state court, and the vehicle must then be recovered in
accordance with that order. In some jurisdictions, the secured party is required
to notify the debtor of the default and the intent to repossess the collateral
and be given a time period within which to cure the default prior to
repossession. In most states, under certain circumstances after the vehicle has
been repossessed, the obligor may reinstate the related contract by paying the
delinquent installments and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
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 to
cure the default prior to repossession. Generally, this right of cure may only
be exercised on a limited number of occasions during the term of the related
contract.
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon plus reasonable expenses for repossessing, holding and
preparing the collateral for disposition and arranging for its sale, plus, in
some jurisdictions, reasonable attorneys' fees or in some states, by payment of
delinquent installments or the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed vehicles generally will be applied
first to the expenses of resale and repossession and then to the satisfaction of
the indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those states
that do not prohibit or limit such judgments. In addition to the notice
requirement, the UCC requires that every aspect of the sale or other
disposition, including the method, manner, time, place and terms, be
"commercially reasonable". Generally, courts have held that when a sale is not
"commercially reasonable", the secured party loses its right to a deficiency
judgment. In addition, the UCC permits the debtor or other interested party to
recover for any loss caused by noncompliance with the provisions of the UCC.
Also, prior to a sale, the UCC permits the debtor or other interested person to
prohibit the secured party from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC. However, the deficiency judgment would be a personal
judgment against the obligor for the shortfall, and a defaulting obligor can be
expected to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
Occasionally, after resale of a repossessed vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a subordinate lien
with respect to such vehicle or if no such lienholder exists, the UCC requires
the creditor to remit the surplus to the obligor.
CERTAIN BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
application for relief by AHFC under the United States Bankruptcy Code or
similar applicable state laws (collectively, "Insolvency Laws") will result in
consolidation of the assets and liabilities of the Seller with those of AHFC.
These steps include the creation of the Seller as a wholly owned, limited
purpose subsidiary pursuant to articles of incorporation containing certain
limitations (including requiring that the Seller must have at least two
"Independent Directors" and restrictions on the nature of the Seller's business
and on its ability to commence a voluntary case or proceeding
48
<PAGE>
under any Insolvency Law without the affirmative vote of a majority of its
directors, including each Independent Director). In addition, to the extent that
the Seller granted a security interest in the Receivables to the Trust, and that
interest was validly perfected before the bankruptcy or insolvency of AHFC and
was not taken or granted in contemplation of insolvency or with the intent to
hinder, delay or defraud AHFC or its creditors, that security interest should
not be subject to avoidance, and payments to the Trust with respect to the
Receivables should not be subject to recovery by a creditor or trustee in
bankruptcy of AHFC. If, notwithstanding the foregoing, (i) a court concluded
that the assets and liabilities of the Seller should be consolidated with those
of AHFC in the event of the application of applicable Insolvency Laws to AHFC or
following the bankruptcy or insolvency of AHFC the security interest in the
Receivables granted by the Seller to the Trustee should be avoided, (ii) a
filing were made under any Insolvency Law by or against the Seller, or (iii) an
attempt were made to litigate any of the foregoing issues, delays in payments on
the Securities and possible reductions in the amount of such payments could
occur. On the Closing Date, counsel to the Seller, will render an opinion which
concludes that following the bankruptcy of AHFC, a court, applying the
principles set forth in such opinion, should not allow a creditor or trustee in
bankruptcy to consolidate the assets and liabilities of AHFC and the Seller on
the basis of any applicable legal theory theretofore recognized by a court of
competent jurisdiction so as to adversely affect the ultimate payment of all
amounts owing under the Securities.
AHFC will warrant in the Receivables Purchase Agreement that the sale of the
Receivables by it to the Seller is a valid sale. Notwithstanding the foregoing,
if AHFC were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to take the
position that the sale of Receivables to the Seller should instead be treated as
a pledge of such Receivables to secure a borrowing of such debtor, then delays
in payments of collections of Receivables to the Seller could occur or (should
the court rule in favor of any such trustee, debtor or creditor) reductions in
the amount of such payments could result. If the transfer of Receivables to the
Seller is treated as a pledge instead of a sale, a tax or government lien on the
property of AHFC arising before the transfer of a Receivable to the Seller may
have priority over the Seller's interest in such Receivable. If the transactions
contemplated herein are treated as a sale, the Receivables would not be part of
AHFC's bankruptcy estate and would not be available to AHFC's creditors, except
under certain limited circumstances. In addition, while AHFC is the Servicer,
collections on the Receivables may, under certain circumstances, be commingled
with the funds of AHFC and, in the event of the bankruptcy of AHFC, the Trust
may not have a perfected interest in such collections.
A case decided by the United States Court of Appeals for the Tenth Circuit
contains language to the effect that under the UCC, accounts sold by a debtor
would remain property of the debtor's bankruptcy estate, whether or not the sale
of accounts was perfected under the UCC. UCC Article 9 applies to the sale of
chattel paper as well as the sale of accounts and although the Receivables
constitute chattel paper under the UCC rather than accounts, perfection of a
security interest in both chattel paper and accounts may be accomplished by the
filing of a UCC-1 financing statement. If, following a bankruptcy of AHFC, a
court were to follow the reasoning of the Tenth Circuit reflected in the case
described above, then the Receivables would be included in the bankruptcy estate
of AHFC and delays in payments of collections on or in respect of the
Receivables could occur.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Civil Relief Act of 1940, the Military Reservist Relief
Act, state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code and state motor vehicle retail installment sale acts, retail
installment sales acts and other similar laws. Also, the laws of certain states
impose finance charge ceilings and other restrictions on consumer
49
<PAGE>
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities upon
creditors who fail to comply with their provisions. In some cases, this
liability could affect the ability of an assignee such as the Trustee to enforce
consumer finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
(the "FTC Rule"), has the effect of subjecting a seller (and certain related
lenders and their assignees) in a consumer credit transaction to all claims and
defenses which the obligor in the transaction could assert against the seller of
the goods. Liability under the FTC Rule is limited to the amounts paid by the
obligor under the contract, and the holder of the contract may also be unable to
collect any balance remaining due thereunder from the obligor. The FTC Rule is
generally duplicated by the Uniform Consumer Credit Code, other state statutes
or the common law in certain states.
Most of the Receivables will be subject to the requirements of the FTC Rule.
Accordingly, the Trust, as holder of the Receivables, will be subject to any
claims or defenses that the purchaser of a Financed Vehicle may assert against
the seller of the Financed Vehicle. Such claims are limited to a maximum
liability equal to the amounts paid by the obligor on the Receivable.
If an Obligor were successful in asserting any such claim or defense as
described in the two immediately preceding paragraphs, such claim or defense
would constitute a breach of a representation and warranty under the Receivables
Purchase Agreement and the Sale and Servicing Agreement and would create an
obligation of AHFC and the Seller to repurchase such Receivable unless the
breach were cured, See "Certain Information Regarding the Securities -- Sale and
Assignment of the Receivables".
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
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 of the Fourteenth Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
From time to time, AHFC has been involved in litigation under consumer
protection laws. In addition, substantially all of the Receivables originated in
California (the "California Receivables") after 1990, having an aggregate
Principal Balance as of the Cutoff Date of approximately $ million, provide
that the Receivable may be rescinded by the related Dealer if such Dealer is
unable to assign the Receivable to a lender within ten days of the date of such
Receivable. As of the date of this Prospectus, the ten day rescission period had
run in respect of all of the California Receivables in which the rescission
provision appears. Although there is authority, which is not binding upon any
court, providing that a conditional sale contract containing such a provision
does not comply with California law and would render the Receivable
unenforceable, to the knowledge of AHFC and the Seller, the issue has not been
presented before any California court. On the Closing Date, the Seller will
receive an opinion of counsel to the effect that all of the California
Receivables are enforceable under California law and applicable federal laws.
AHFC and the Seller will represent and warrant under the Receivables
Purchase Agreement and the Sale and Servicing Agreement, respectively, that each
Receivable complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim against the Trustee for violation of any
law or claims that the related Receivable is unenforceable and such claim
materially and adversely affects the Trustee's interest in a Receivable, such
violation would constitute a breach of such representation and warranty under
the Receivables Purchase Agreement and the Sale and Servicing Agreement and will
create an obligation of
50
<PAGE>
AHFC and the Seller to repurchase such Receivable unless the breach were cured.
The foregoing repurchase obligations would similarly apply in the event that a
court found a California Receivable containing a rescission provision described
above to be unenforceable. See "Certain Information Regarding the Securities --
Sale and Assignment of the Receivables".
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under the related contract or change the rate of interest and time of repayment
of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
consequences of the purchase, ownership and disposition of the Securities. This
summary is based upon laws, regulations, rulings and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Securities as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code").
Investors should consult their own tax advisors to determine the federal,
state, local and other tax consequences of the purchase, ownership and
disposition of the Securities. Prospective investors should note that no rulings
have been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given that the IRS will not take contrary positions. Moreover,
there are no cases or IRS rulings on transactions similar to those described
herein with respect to the Trust, involving both debt and equity interests
issued by a trust with terms similar to those of the Notes and the Certificates.
Prospective investors are urged to consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Securities.
TAX CHARACTERIZATION OF TRUSTS
In the opinion of Brown & Wood LLP, counsel to the Seller, the 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
assumption that the terms of the Trust Agreement and related documents will be
complied with, and on such counsel's conclusions that (i) the Trust will not
have certain characteristics necessary for a business trust to be classified as
an association taxable as a corporation and (ii) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
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 Receivables, which
may be reduced by its interest expense on the Notes. Any such corporate income
tax could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
51
<PAGE>
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Brown & Wood LLP, counsel to the Seller, will
render an opinion that the Notes will be classified as debt for federal income
tax purposes. The discussion below assumes this 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 principal amount of the Notes over
their issue price) does not exceed a DE MINIMIS amount (I.E., 1/4% of their
principal amount multiplied by the number of full years included in their term),
all within the meaning of such OID regulations.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a DE MINIMIS amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. 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.
However, because a failure to pay interest currently on the Notes is not a
default and does not give rise to a penalty, under the OID regulations the Notes
might be viewed as having been issued with OID. This interpretation would not
significantly affect accrual basis holders of Notes, although it would somewhat
accelerate taxable income to cash basis holders by in effect requiring them to
report interest income on the accrual basis.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
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.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of outstanding Notes or
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8 or
a similar form), signed under penalty 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
52
<PAGE>
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%, 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.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder such
as a corporation, tax exempt organization, qualified pension and profit sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
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 backup withholding. Should a nonexempt Noteholder fail to provide the
required certification, the Trust will be required to withhold 31% of the amount
otherwise payable to the holder, and remit the withheld amount to the IRS as a
credit against the holder's federal income tax liability.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of tax counsel, the IRS successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences 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, and
most likely in the view of tax counsel, 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) would be "unrelated business taxable income",
income to foreign holders generally would be subject to United States tax and
United States tax return filing and withholding requirements, and individual
holders might be subject to certain limitations on their ability to deduct their
share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF TRUST AS A PARTNERSHIP. The Seller 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 Seller and the
Servicer is not certain because there is no authority on transactions closely
comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership and that all payments on the Certificates are denominated in U.S.
dollars.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and
53
<PAGE>
finance charges earned on the related Receivables (including appropriate
adjustments for market discount, OID and bond premium) and any gain upon
collection or disposition of such Receivables. The Trust's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of
Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (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 Receivables that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Seller. 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
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
DISCOUNT AND PREMIUM. It is believed that the Receivables will not be
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the related Receivables may be greater
or less than the remaining principal balance of the Receivables at the time of
purchase. If so, the Receivables will have been acquired at a premium or
discount, as the case may be. As indicated above, the Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.
If the Trust acquires the Receivables at a market discount or premium, it
will elect to include any such discount in income currently as it accrues over
the life of such Receivables or to offset any such premium against interest
income on such Receivables. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
54
<PAGE>
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
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 an Certificate attributable to the holder's share of
unrecognized accrued market discount on the related Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller 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
55
<PAGE>
fiscal year of the Trust will on March 31 of each 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 Seller 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.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether the
Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold 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. These rates may be increased by proposed tax legislation.
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 rely on
IRS Form W-8, IRS Form W-9 or the holder's certification of nonforeign status
signed under penalty of perjury.
Each foreign holder might be required to file a United States 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
56
<PAGE>
position that no taxes were due because the Trust was not engaged in a United
States trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust. If these interest payments are properly characterized
as guaranteed payments, then the interest will not be considered "portfolio
interest". As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30%, 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.
BACKUP WITHHOLDING. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
CERTAIN CALIFORNIA INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel to the Seller, the Trust will
not be an association taxable as a corporation for California income tax
purposes. This opinion will be based on the assumption that the terms of the
Trust Agreement and related documents will be complied with, and such counsel's
conclusions that the Trust will not have certain characteristics necessary for a
business trust to be classified as an association taxable as a corporation.
Brown & Wood LLP will further render an opinion that Certificateholders and
Noteholders who are not residents of or otherwise subject to tax in California
will not, solely by reason of their acquisition of an interest in the
Certificates or any Class of Notes, respectively, be subject to California
income, franchise, excise or similar taxes with respect to interest on the
Certificates or any Class of Notes, respectively, or with respect to any of the
other property of the Trust.
Investors should consult their own tax advisors to determine the state,
local and other tax consequences to them of the purchase, ownership and
disposition of the Securities.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans which would affect purchases
of Securities by or on behalf of 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 and assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law, including, for any such government or church plan
qualified under Section 401 (a) of the Code and exempt from taxation under
Section 501(a) of the Code, the prohibited transaction rules set forth in
Section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification,
requirements respecting delegation of investment authority and the requirement
that a Plan's investment be made in accordance with the documents governing the
Plan.
PROHIBITED TRANSACTIONS
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory or administrative exemption applies to the transaction. Section 4975
of the Code and Section 502(i) of ERISA impose certain excise taxes on such
prohibited transactions. Securities purchased by a Plan would be assets of the
Plan. Under regulations issued by the U.S. Department of Labor, the Receivables
in certain circumstances may also be deemed to be assets
57
<PAGE>
of each Plan that purchases Securities. If this were so, persons that cause a
Plan to acquire Securities or that sponsor or insure the related Receivables or
manage, control or service the Receivables may be subject to the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
Section 4975 of the Code in the absence of a statutory or administrative
exemption.
THE NOTES
The Notes may be purchased by a Plan subject to ERISA or Section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase of a Note is
consistent with its fiduciary duties under ERISA and does not result in a
nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code.
The Notes may not be purchased with the assets of a Plan if the Seller, the
Servicer, the Indenture Trustee, the Owner Trustee or any of their affiliates
(i) has investment or administrative discretion with respect to such Plan
assets; (ii) has authority or responsibility to give, or regularly gives,
investment advice with respect to such Plan assets, for a fee and pursuant to an
agreement or understanding that such advice (a) will serve as a primary basis
for investment decisions with respect to such Plan assets and (b) will be based
on the particular investment needs for such Plan; or (iii) is an employer
maintaining or contributing to such Plan.
THE CERTIFICATES
The Certificates may not be acquired by (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) (I) 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 plan assets by reason of a plan's
investment in the entity or which uses plan assets to acquire Certificates. By
its acceptance of a Certificate or a beneficial interest therein, each
Certificateholder or Certificate Owner will be deemed to have represented and
warranted that it is not subject to the foregoing limitation.
Due to the complexities of the foregoing rules and the penalties imposed
upon persons involved in prohibited transactions, it is important that the
fiduciary of an employee benefit plan considering the purchase of Certificates
consult with its counsel regarding the applicability of the prohibited
transaction provisions of ERISA and the Code to such investment.
Prohibited Transaction Class Exemption ("PTCE") 95-60 was issued by the
Department of Labor on July 12, 1995 in response to the United States Supreme
Court decision JOHN HANCOCK MUTUAL LIFE INSURANCE CO. V. HARRIS TRUST AND
SAVINGS BANK, 510 U.S. 86 (1993), in which the Supreme Court held that assets
held in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Subject to certain conditions,
PTCE 95-60 provides general relief from the prohibited transaction rules that
would otherwise be applicable to assets held in an insurance company's general
account. Prospective insurance company purchasers should consult with their
counsel to determine whether the decision in JOHN HANCOCK, as modified by PTCE
95-60, affects their ability to make purchases of the Certificates.
58
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom is acting as representative
(the "Representative"), have severally but not jointly agreed to purchase, from
the Seller the principal amount of the Securities set forth opposite its name
below:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3
UNDERWRITERS NOTES NOTES NOTES CERTIFICATES
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ $ $ $
----------- ----------- ----------- -----------
Total.................................................... $ $ $ $
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Securities, if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an Underwriter, in certain
circumstances the purchase commitments of the non-defaulting Underwriter may be
increased or the Underwriting Agreement may be terminated.
The Seller has been advised by the Underwriters that the Underwriters
propose to offer the Securities to the public initially at the offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession of, in the case of (i) the Class A-1 Notes, % of the
principal amount per Note, (ii) the Class A-2 Notes, % of the principal
amount per Note, (iii) the Class A-3 Notes, % of the principal amount per
Note and (iv) the Certificates, % of the principal amount per Certificate,
and the Underwriter and such dealers may allow a discount of, in the case of (i)
the Class A-1 Notes, % of the principal amount per Note, (ii) the Class A-2
Notes, % of the principal amount per Note, (iii) the Class A-3 Notes, % of
the principal amount per Note and (iv) the Certificates, % of the principal
amount per Certificate, on sales to certain other dealers. After the initial
public offering, the public offering price and such concessions may be changed.
There currently is no secondary market for any Class of Securities and there
is no assurance that one will develop. The Underwriters expect, but will not be
obligated, to make a market in each Class of Securities. There is no assurance
that any such market will develop, or if one does develop, that it will continue
or that it will provide sufficient liquidity.
The Seller and AHFC have agreed to indemnify, jointly and severally, the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act or contribute to payments that the Underwriters may be required
to make in respect thereof.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Securities. As an exemption to these rules,
the Underwriters are permitted to engage in certain transactions that stabilize
the price of each Class of Securities. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Securities.
Neither the Seller nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Certificates. In addition, neither
the Seller nor any Underwriter makes any representation the Underwriters will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
59
<PAGE>
Upon receipt of a request by an investor who has received an electronic
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,
the Seller or the Underwriter will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Securities in Canada is being made only on a private
placement basis exempt from the requirement that the Seller, on behalf of the
Trust, prepare and file a prospectus with the securities regulatory authorities
in each province where trades of Securities are effected. Accordingly, any
resale of Securities in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Securities in Canada who receives a purchase confirmation
will be deemed to represent to the Seller, the Servicer, the related Trustee,
the Trust and the dealer from whom such purchase confirmation is received that
(i) such purchaser is entitled under applicable provincial securities laws to
purchase such Securities without the benefit of a prospectus qualified under
such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Securities to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Securities acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Seller. Only one such
report must be filed in respect of Securities acquired on the same date and
under the same prospectus exemption.
60
<PAGE>
RATING OF THE SECURITIES
It is a condition to issuance of the Securities that the Class A-1 Notes
will be by Moody's and
by Standard & Poor's, and that each of the Class A-2 and Class A-3 and the
Certificates will be rated by Moody's and by Standard & Poor's. The
ratings of the Securities will be based primarily on the value of the
Receivables, the terms of the Securities and the Reserve Fund. The ratings of
the Securities should be evaluated independently from similar ratings on other
types of securities. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
There can be no assurance as to whether any rating agency other than the
Rating Agencies will rate the Securities, or, if one does, what rating will be
assigned by any such other rating agency. A rating on any or all of the
Securities by other rating agencies, if assigned at all, may be lower than the
rating assigned to such Securities by the Rating Agencies.
LEGAL MATTERS
Certain legal matters with respect to the Securities, including certain
federal income tax consequences with respect thereto, will be passed upon for
the Seller by Brown & Wood LLP, San Francisco, California. , will
act as counsel for the Underwriters.
61
<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of certain of the more significant capitalized
terms used in this Prospectus and the pages on which the definitions of such
terms may be found.
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------- ---------
<S> <C>
Actuarial Receivable......................... 11
Administrator................................ 41
Administration Agreement..................... 41
Advance...................................... 7
Aggregate Net Losses......................... 23
AHFC......................................... 3
AHMC......................................... 3
APR.......................................... 4
Available Amount............................. 28
Available Interest........................... 28
Available Principal.......................... 29
Business Day................................. 4
Cede......................................... 41
CEDEL........................................ 42
CEDEL Participants........................... 42
Certificate Balance.......................... 6
Certificate Distributable Amount............. 30
Certificate Distribution Account............. 26
Certificate Final Distribution Date.......... 4
Certificate Interest Carryover Shortfall..... 30
Certificate Interest Distributable Amount.... 30
Certificate Monthly Interest Distributable
Amount..................................... 30
Certificate Monthly Principal Distributable
Amount..................................... 30
Certificate Percentage....................... 30
Certificate Principal Carryover Shortfall.... 30
Certificate Principal Distributable Amount... 31
Certificateholders........................... 6
Certificates................................. 3
Charge-off Rate.............................. 33
Class A-1 Final Distribution Date............ 4
Class A-1 Notes.............................. 3
Class A-1 Rate............................... 4
Class A-2 Final Distribution Date............ 4
Class A-2 Notes.............................. 3
Class A-2 Rate............................... 4
Class A-3 Final Distribution Date............ 4
Class A-3 Notes.............................. 3
Class A-3 Rate............................... 4
Closing Date................................. 4
Code......................................... 51
Collection Account........................... 25
Collection Period............................ 7
<CAPTION>
TERM PAGE
- --------------------------------------------- ---------
<S> <C>
Commission................................... 2
Cooperative.................................. 44
Current Receivable........................... 33
Cutoff Date.................................. 4
Cutoff Date Pool Balance..................... 4
Dealers...................................... 10
Defaulted Receivable......................... 29
Definitive Securities........................ 42
Deliquency Percentage........................ 33
Deposit Date................................. 7
Depositaries................................. 42
Determination Date........................... 28
Distribution Accounts........................ 26
Distribution Date............................ 4
Distribution Date Statement.................. 28
DTC.......................................... 41
DTC Participants............................. 42
ERISA........................................ 8
Euroclear.................................... 44
Euroclear Operator........................... 44
Euroclear Participants....................... 42
Event of Default............................. 20
Excess Amounts............................... 30
Excess Payment............................... 26
Exchange Act................................. 2
Final Distribution Dates..................... 4
Indenture.................................... 3
Indenture Trustee............................ 3
Indirect Participants........................ 42
Insolvency Event............................. 36
Insolvency Laws.............................. 48
Interest Period.............................. 5
Interest Rates............................... 5
Letter of Credit Bank........................ 37
Liquidated Receivable........................ 33
Moody's...................................... 7
Net Liquidation Proceeds..................... 29
Note Distributable Amount.................... 31
Note Distribution Account.................... 26
Note Final Distribution Dates................ 4
Note Interest Carryover Shortfall............ 31
Note Interest Distributable Amount........... 31
Note Monthly Interest Distributable Amount... 31
Note Monthly Principal Distributable
Amount..................................... 31
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------- ---------
<S> <C>
Note Percentage.............................. 31
Note Principal Carryover Shortfall........... 31
Note Principal Distributable Amount.......... 31
Noteholders.................................. 6
Notes........................................ 3
Obligor...................................... 9
Omnibus Proxy................................ 43
Optional Purchase............................ 7
Original Certificate Balance................. 6
Owner Trustee................................ 3
Pass-Through Rate............................ 5
Payahead Account............................. 25
Paying Agent................................. 23
Payment Ahead................................ 25
Permitted Investments........................ 26
Plan......................................... 57
Pool Balance................................. 28
Precomputed Advance.......................... 7
Precomputed Receivable....................... 11
Prepayment................................... 27
Principal Balance............................ 28
Principal Distributable Amount............... 32
Rating Agencies.............................. 8
Receivables.................................. 4
Receivables Purchase Agreement............... 10
Record Date.................................. 4
Registration Statement....................... 2
Repurchase Payment........................... 24
Repurchased Receivable....................... 24
Reserve Fund................................. 6
<CAPTION>
TERM PAGE
- --------------------------------------------- ---------
<S> <C>
Reserve Fund Initial Deposit................. 6
Rule of 78s Receivable....................... 10
Sale and Servicing Agreement................. 4
Schedule of Receivables...................... 24
Scheduled Payment............................ 10
Securities................................... 3
Securities Act............................... 2
Security Owner............................... 41
Securityholders.............................. 6
Seller....................................... 3
Seller Certificate........................... 9
Servicer..................................... 3
Servicer Default............................. 35
Servicer Letter of Credit.................... 26
Servicing Fee................................ 7
Servicing Fee Rate........................... 7
Simple Interest Advance...................... 7
Simple Interest Receivable................... 10
Specified Reserve Fund Balance............... 32
Standard & Poor's............................ 8
Statement to Securityholders................. 34
Terms and Conditions......................... 44
Trust........................................ 3
Trust Accounts............................... 26
Trust Agreement.............................. 3
Trust Fees and Expenses...................... 19
Trustees..................................... 3
UCC.......................................... 42
Underwriters................................. 59
Voting Interests............................. 36
</TABLE>
63
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Securities
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and United States domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (I.E., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to United
States corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to United States withholding taxes unless such holders meet certain requirements
and deliver appropriate United States tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede, as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional eurobonds, except that there
will be no temporary global security and no "lock-up" or restricted period.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in the
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
A-1
<PAGE>
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
accounts 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, on the basis of actual days elapsed and a 360 day
year. Payment will then be made by the respective Depositary to the DTC
Participant account against delivery of the Global Securities. After settlement
has been completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the CEDEL Participant's or Euroclear Participant's account. The
Global Securities credit will appear the next day (European time) and the cash
debit will be back-valued to, and the interest on the Global Securities will
accrue from, the value date (which would be the preceding day when settlement
occurred in New York). If settlement is not completed on the intended value date
(i.e., the trade fails), the CEDEL or Euroclear cash debit will be valued
instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance 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 Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing systems, through the
respective Depositaries, 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 Depositaries, 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 on the basis of actual days elapsed and a
360 day year. The payment will then be reflected in the account of the CEDEL
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the CEDEL Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debit in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred
A-2
<PAGE>
over that one-day period. If settlement is not completed on the intended value
date (i.e., the trade fails), receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be value 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 United States from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding through CEDEL or Euroclear
(or through DTC if the holder has an address outside the United States) will be
subject to the 30% United States withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
United States entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons 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 or the Tax Certificate changes, a new Form W-8
or Tax Certificate, as the case may be, must be filed within 30 days of such
change.
EXEMPTION FOR NON-U.S. PERSON WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
United States 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 beneficial owners of Global Securities
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 Certificate
Owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through
A-3
<PAGE>
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 (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. This summary does not deal with all aspects of United
States Federal income tax withholding that may be relevant to foreign holders of
the Global Securities. Investors are advised to consult their own tax advisors
for specific tax advice concerning their holding and disposing of the Global
Securities.
A-4
<PAGE>
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATEHEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER
SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Reports to Securityholders................................................ 2
Summary................................................................... 3
Formation of the Trust.................................................... 9
Property of the Trust..................................................... 10
The Receivables........................................................... 10
Weighted Average Life of the Securities................................... 15
Use of Proceeds........................................................... 15
The Seller................................................................ 16
American Honda Finance Corporation........................................ 16
Pool Factors and Trading Information...................................... 19
Description of the Notes.................................................. 19
Description of the Certificates........................................... 22
Certain Information Regarding the Securities.............................. 23
Certain Legal Aspects of the Receivables.................................. 46
Certain Federal Income Tax Consequences................................... 51
Certain California Income Tax Consequences................................ 57
ERISA Considerations...................................................... 57
Underwriting.............................................................. 59
Notice to Canadian Residents.............................................. 60
Rating of the Securities.................................................. 61
Legal Matters............................................................. 61
Index of Principal Terms.................................................. 62
Annex I................................................................... A-1
</TABLE>
--------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS. UPON RECEIPT OF A REQUEST BY AN INVESTOR, OR SUCH
INVESTOR'S REPRESENTATIVE, WITHIN THE PERIOD DURING WHICH THERE IS A PROSPECTUS
DELIVERY OBLIGATION, THE SELLER OR THE UNDERWRITERS WILL TRANSMIT OR CAUSE TO BE
TRANSMITTED PROMPTLY, WITHOUT CHARGE AND IN ADDITION TO ANY SUCH DELIVERY
REQUIREMENTS, A PAPER COPY OF THE PROSPECTUS OR A PROSPECTUS ENCODED IN AN
ELECTRONIC FORMAT.
$
Honda Auto Receivables
1997-1 Owner Trust
$
% Auto Receivable Backed Notes,
Class A-1
$
% Auto Receivable Backed Notes,
Class A-2
$
% Auto Receivable Backed Notes,
Class A-3
$
% Auto Receivable Backed Certificates
American Honda
Receivables Corp.
Seller
American Honda
Finance Corporation
Servicer
P R O S P E C T U S
[Underwriters]
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Securities being registered
hereby are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses........................................ *
Rating agency fees................................................ *
Trustee's fees and expenses....................................... *
Printing and engraving............................................ *
Miscellaneous..................................................... *
-----------
Total........................................................... $ *
-----------
-----------
</TABLE>
- --------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317(b) of the California Corporations Code (the "Corporations Code")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any "proceeding" (as defined in Section 317(a)
of the Corporations Code), other than an action by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director, officer, employee or other agent of the corporation
(collectively, an "Agent"), against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if the Agent acted in good faith and in a manner the Agent reasonably
believed to be in the best interest of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any Agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was an Agent, against expenses actually and reasonably
incurred by the Agent in connection with the defense or settlement of such
action if the Agent acted in good faith and in a manner such Agent believed to
be in the best interest of the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any matter as to which an
Agent shall have been adjudged to be liable to the corporation, unless the court
in which such proceeding is or was pending shall determine that such Agent is
fairly and reasonably entitled to indemnity for expenses, (ii) amounts paid in
settling or otherwise disposing of a pending action without court approval and
(iii) expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
Section 317(d) of the Corporations Code requires that an Agent be
indemnified against expenses actually and reasonably incurred to the extent the
Agent has been successful on the merits in the defense of proceedings referred
to in subdivisions (b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
specifically authorized and upon a determination that indemnification is proper
in the circumstances because the Agent has met the applicable standard of
conduct, by any of the following: (i) a majority vote of a quorum consisting of
directors who are not parties to
II-1
<PAGE>
the proceeding, (ii) if such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion, (iii) approval of the
shareholders, provided that any shares owned by the Agent may not vote thereon,
or (iv) the court in which such proceeding is or was pending.
Pursuant to Section 317(f) of the Corporations Code, the corporation may
advance expenses incurred in defending any proceeding upon receipt of an
undertaking by the Agent to repay such amount if it is ultimately determined
that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder resolution
or an agreement which prohibits or otherwise limits indemnification, or where it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain insurance
on behalf of an Agent for liabilities arising by reason of the Agent's status,
whether or not the corporation would have the power to indemnify the Agent
against such liability under the provisions of Section 317.
Reference is also made to Section of the Underwriting Agreement among the
underwriters named therein, the Registrant and American Honda Finance
Corporation (see Exhibit 1.1), which provides for indemnification of the
Registrant under certain circumstances.
Article IX of the Articles of Incorporation of the Registrant provides for
the indemnification of the directors of the Registrant to the fullest extent
permissible under California law.
Article IV, Section 4.01 of the Bylaws of the Registrant (see Exhibit 3.2)
requires that the Registrant indemnify, and, in certain instances, advance
expenses to, its agents, with respect to certain costs, expenses, judgments,
fines, settlements and other amounts incurred in connection with any proceeding,
to the full extent permitted by applicable law.
In addition, Article IV, Section 4.03 of the Bylaws of the Registrant
authorizes the Registrant to purchase and maintain insurance to the extent
provided by Section 3.17(i) of the Corporations Code.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of American Honda Receivables Corp.*
3.2 Bylaws of American Honda Receivables Corp.*
4.1 Form of Trust Agreement between American Honda Receivables Corp., as
Seller, and , as Owner Trustee (including form of
Certificates)*
4.2 Form of Indenture between Honda Auto Receivables 1997-1 Owner Trust
and , as Indenture Trustee (including forms of Notes)*
5.1 Opinion of Brown & Wood LLP with respect to legality*
8.1 Opinion of Brown & Wood LLP with respect to tax matters*
10.1 Form of Sale and Servicing Agreement between American Honda
Receivables Corp. and , as Owner Trustee*
10.2 Form of Administration Agreement among Honda Auto Receivable 1997-1
Owner Trust, American Honda Finance Corporation, American Honda
Receivables Corp. and , as Indenture Trustee*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
23.1 Consent of Brown & Wood LLP (included as part of Exhibit 5.1)*
23.2 Consent of Brown & Wood LLP (included as part of Exhibit 8.1)*
24.1 Power of Attorney (included on page II-4)
25.1 Statement of Eligibility and Qualification of Indenture Trustee*
</TABLE>
- --------------
* To be filed by amendment.
B. FINANCIAL STATEMENT SCHEDULES:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing date specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to provide prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act will be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Torrance and State of California, on the 12th day of May 1997.
AMERICAN HONDA RECEIVABLES CORP.,
as Originator of
HONDA AUTO RECEIVABLES 1997-1 OWNER TRUST
By: /s/ Y. KOHAMA
------------------------------------------
Y. Kohama
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Y.
Kohama and John I. Weisickle, and each of them, his true and lawful
attorney-in-fact and agent, with full powers of substitution, for him and in his
name, place and stead, in any and all capacities, to sign and to file any and
all amendments, including post-effective amendments, to this Registration
Statement on Form S-1 with the Securities and Exchange Commission, granting to
said attorney-in-fact full power and authority to perform any other act on
behalf of the undersigned required to be done in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- -------------------------------------------- ----------------------
<C> <S> <C>
/s/ Y. KOHAMA Director and President (Principal Executive
---------------------------------- Officer) May 12, 1997
Y. Kohama
/s/ JOHN I. WEISICKLE Director, Treasurer and Secretary (Principal
---------------------------------- Financial and Accounting Officer) May 12, 1997
John I. Weisickle
/s/ M. YOSHIMI
---------------------------------- Director June 23, 1997
M. Yoshimi
/s/ SCOTT J. ULM
---------------------------------- Director May 12, 1997
Scott J. Ulm
/s/ DENNIS A. CULLEN
---------------------------------- Director May 12, 1997
Dennis A. Cullen
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER NUMBERED PAGE
- ----------- -----------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.............................................................
3.1* Articles of Incorporation of American Honda Receivables Corp...............................
3.2* Bylaws of American Honda Receivables Corp..................................................
4.1* Form of Trust Agreement between American Honda Receivables Corp., as Seller, and
, as Owner Trustee (including form of Certificates)............................
4.2* Form of Indenture between Honda Auto Receivables 1997-1 Owner Trust and , as
Indenture Trustee (including forms of Notes).............................................
5.1* Opinion of Brown & Wood LLP with respect to legality.......................................
8.1* Opinion of Brown & Wood LLP with respect to tax matters....................................
10.1* Form of Sale and Servicing Agreement between American Honda Receivables Corp. and
, as Owner Trustee.............................................................
10.2* Form of Administration Agreement among Honda Auto Receivable 1997-1 Owner Trust, American
Honda Finance Corporation, American Honda Receivables Corp. and , as Indenture
Trustee..................................................................................
23.1* Consent of Brown & Wood LLP (included as part of Exhibit 5.1)..............................
23.2* Consent of Brown & Wood LLP (included as part of Exhibit 8.1)..............................
24.1 Power of Attorney (included on page II-4)..................................................
25.1* Statement of Eligibility and Qualification of Indenture Trustee............................
</TABLE>
- --------------
* To be filed by amendment.
