Filed Pursuant to Rule 424(b)(2)
Registration Statement File No. 333-63005
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 and has become effective. These securities
may not be sold nor may offers to buy be accepted prior to the time the
information herein has been completed. This prospectus supplement and the
accompanying prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 1999
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 21, 1999)
$1,095,000,000
BMW Vehicle Owner Trust 1999-A
BMW Financial Services NA, Inc. and BMW FS Funding Corporation
Sellers
BMW Financial Services NA, Inc.
Servicer
SSB Vehicle Securities Inc.
Depositor
---------------------
<TABLE>
<CAPTION>
Class A-1 Notes Class A-2 Notes Class A-3 Notes Class A-4 Notes Certificates
--------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Principal Amount $190,000,000 $400,000,000 $300,000,000 $171,600,000 $33,400,000
Price(1)
Underwriting
Discount
Proceeds to the
Depositor(1)
Interest Rate
Distribution Date Monthly on the Monthly on the Monthly on the Monthly on the Monthly on the
25th 25th 25th 25th 25th
First Distribution
Date October 25, 1999 October 25, 1999 October 25, 1999 October 25, 1999 October 25, 1999
Final Scheduled
Distribution Date August 2000 December 2001 April 2003 April 2004 May 2006
(1)Plus accrued interest, if any.
</TABLE>
Principal will be paid to the Noteholders in sequential order.
The Certificates are subordinated to the Notes. The Certificates will not
receive distributions of principal until after the Notes are paid in full.
These Securities are obligations of or interests in BMW Vehicle Owner Trust
1999-A and are backed by the assets of the Trust. Neither these Securities nor
the assets of the Trust are obligations of or interests in BMW Financial
Services NA, Inc., BMW FS Funding Corporation, SSB Vehicle Securities Inc. or
any of their respective affiliates.
Before you purchase these Securities, be sure you understand the structure and
risks. See "Risk Factors" beginning on page S-12 of this Prospectus Supplement
and page 8 of the accompanying Prospectus.
Neither the SEC nor any state securities commission has approved or
disapproved the Securities or determined that this Prospectus Supplement and
Prospectus are accurate or complete. Any representation to the contrary is a
criminal offense.
---------------
These Securities are offered subject to availability. We expect that these
Securities will be delivered in book-entry form on or about September [o],
1999 through the facilities of DTC, Cedelbank and the Euroclear System.
---------------
Notes
Salomon Smith Barney
Chase Securities Inc.
Credit Suisse First Boston
Certificates
Salomon Smith Barney
The date of this Prospectus Supplement is September , 1999.
<PAGE>
Content of Prospectus Supplement and Prospectus
We provide information to you about the Securities in two separate
documents that provide different levels of detail: (a) the Prospectus, which
provides general information, some of which may not apply to the Securities,
and (b) this Prospectus Supplement, which describes the specific terms of the
Securities.
If the descriptions of your Notes or your Certificates vary between this
Prospectus Supplement and the accompanying Prospectus, you should rely on the
information in this Prospectus Supplement.
We include cross-references in this Prospectus Supplement and the
Prospectus to captions in these materials where you can find further related
discussions. The Table of Contents on the back cover of this document provides
the pages on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus Supplement and the Prospectus are defined under the caption "Index
of Defined Terms" on page S-61 in this Prospectus Supplement and under the
caption "Index of Terms" beginning on page 59 in the Prospectus.
Limitations on Offers or Solicitations
We do not intend this document to be an offer or solicitation:
(A) if used in a jurisdiction in which the offer or solicitation is not
authorized;
(B) if the person making the offer or solicitation is not qualified to do
so; or
(C) if the offer or solicitation is made to anyone to whom it is unlawful
to make that offer or solicitation.
Transactions That May Affect the Price of the Securities
Persons participating in this offering may engage in transactions that
stabilize, maintain, or otherwise affect the price of the Securities. These
transactions may include stabilizing and the purchase of Securities to cover
syndicate short positions. For a description of these activities, see
"Underwriting" in this Prospectus Supplement.
REPORTS TO SECURITYHOLDERS
Unless and until the Notes or the Certificates are issued in definitive
certificated form, BMW Financial Services NA, Inc., as servicer, will send
monthly and annual unaudited reports containing information concerning the
Receivables and payments in respect of the Securities only to Cede & Co.
("Cede"), as nominee of DTC and registered holder of the Securities. See
"Certain Information Regarding the Securities -- Book-Entry Registration" and
"-- Reports to Securityholders" in the Prospectus. Those reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. SSB Vehicle Securities Inc., as depositor of the Trust,
will file with the SEC those periodic reports that are required under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the SEC.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Prospectus Supplement
---------------------
Page
----
<S> <C>
Summary of Terms...............................................................................................S-4
Risk Factors..................................................................................................S-12
The Sellers...................................................................................................S-15
BMW FS' Vehicle Financing Programs............................................................................S-16
The Trust.....................................................................................................S-20
The Receivables Pool..........................................................................................S-21
The Depositor.................................................................................................S-28
Use of Proceeds...............................................................................................S-28
Weighted Average Life of the Securities.......................................................................S-28
Description of the Notes......................................................................................S-35
Description of the Certificates...............................................................................S-41
Certain Information Regarding the Securities..................................................................S-42
Description of the Transfer and Servicing Agreements..........................................................S-45
Material Federal Income Tax Consequences......................................................................S-58
ERISA Considerations..........................................................................................S-58
Underwriting..................................................................................................S-59
Legal Matters.................................................................................................S-60
Index of Defined Terms........................................................................................S-61
Prospectus
Page
Summary of Terms.................................................................................................3
The Trusts......................................................................................................13
The Receivables Pools...........................................................................................14
Weighted Average Life of the Securities.........................................................................16
Pool Factors and Trading Information............................................................................16
Use of Proceeds.................................................................................................17
The Company.....................................................................................................17
Description of the Notes........................................................................................17
Description of the Certificates.................................................................................22
Certain Information Regarding the Securities....................................................................23
Description of the Transfer and Servicing Agreements............................................................31
Certain Legal Aspects of the Receivables........................................................................40
Material Federal Income Tax Consequences........................................................................44
ERISA Considerations............................................................................................56
Plan of Distribution............................................................................................58
Legal Opinions..................................................................................................58
Index of Terms..................................................................................................59
ANNEX I: Global Clearance, Settlement and
Tax Documentation Procedures...............................................................................I-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF TERMS
The following description is only a summary of the main terms of the Securities. For this reason, it does not contain all the
information that may be important to you. You will find a detailed description of the terms of the Securities following this summary
and in the Prospectus.
<S> <C>
Issuer........................................... BMW Vehicle Owner Trust 1999-A (the "Trust"), a Delaware business trust.
Sellers of the Receivables....................... BMW Financial Services NA, Inc., a Delaware
corporation ("BMW FS"), and BMW FS Funding
Corporation, a Delaware corporation ("BMW Funding"
and, together with BMW FS, the "Sellers").
Servicer of the Receivables...................... BMW FS (in such capacity, the "Servicer").
Depositor........................................ SSB Vehicle Securities Inc. (the "Depositor"), a
bankruptcy-remote, special-purpose Delaware
corporation.
Indenture Trustee................................ The Chase Manhattan Bank, a New York banking
corporation (the "Indenture Trustee").
Owner Trustee.................................... Wilmington Trust Company, a Delaware banking
corporation (the "Owner Trustee").
Residual Holder.................................. BMW FS Receivables Corporation, a Delaware corporation
and an affiliate of BMW FS.
Securities Issued by the Trust................... The Trust will issue the Notes and Certificates
described on the cover page (collectively, the
"Securities"). The assets of the Trust will secure the
Securities.
The Receivables.................................. The Trust's main source of funds for making payments
on the Securities will be collections on its motor
vehicle retail installment sales contracts (the
"Receivables"). All of the Initial Receivables (as
defined below) are, and substantially all of the
Subsequent Receivables (as defined below) will be,
secured by motor vehicles manufactured by subsidiaries
of Bayerische Motoren Werke Aktiengesellschaft ("BMW
AG") (together with all other BMW group companies, BMW
AG shall be referred to in this document as the "BMW
Group").
Initially, the Trust\ will own Receivables (the "Initial
Receivables") having an aggregate principal balance of
approximately $1,000,392,272 as of the close of business
on August 31, 1999 (the "Cutoff Date"). As of the Cutoff
Date, the weighted average annual percentage rate (the
"APR") of the Initial Receivables was approximately
7.90%, the weighted average remaining maturity of the
Initial Receivables was approximately 44 months, and the
weighted average original maturity of the Initial
Receivables was approximately 54 months. No Initial
Receivable has a scheduled maturity later than October
28, 2004.
The Trust will own two types of Receivables:
o Receivables that provide for equal monthly
payments over the terms of the Receivables; and
o Receivables that provide for equal monthly
payments plus substantially larger final balloon
payments on those Receivables' maturity dates (the
"Balloon Payment Receivables").
See "The Receivables Pool" in this Prospectus
Supplement.
Funding Period................................... During the period from the Closing Date through the
end of the Collection Period in March 2000 (the "Funding
Period"), the Trust can use funds on deposit in an
account (the "Pre-Funding Account") to purchase
additional receivables (the "Subsequent Receivables")
from the Depositor in an amount up to approximately
$112,777,957.
Closing Date..................................... On or about September [o], 1999.
Terms of the Notes
A. Distribution Dates.................... Payments of interest and principal on the Notes will
be made on the 25th 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
on October 25, 1999. Each reference to a "Payment Date"
in the Prospectus shall refer to a Distribution Date
herein.
B. Per Annum Interest Rates.............. Class A-1 Rate.....................................[o]%
Class A-2 Rate.....................................[o]%
Class A-3 Rate.....................................[o]%
Class A-4 Rate.....................................[o]%
C. Interest Accrual Period............... The Interest Accrual Period for the Class A-1 Notes,
with respect to any Distribution Date, will be the
period from the preceding Distribution Date through the
day immediately prior to such Distribution Date with
interest calculated on the basis of the actual number of
days in the related Interest Accrual Period and a
360-day year. The Interest Accrual Period for the Notes
(other than the Class A-1 Notes), with respect to any
Distribution Date, will be the period from and including
the 25th day of the preceding calendar month to and
including the 24th day of the calendar month in which
such Distribution Date occurs, with interest calculated
on the basis of a 360-day year consisting of twelve
30-day months. Notwithstanding the foregoing, the first
Interest Accrual Period for the Notes will begin on and
include the Closing Date and will end on the day before
the first Distribution Date.
D. Principal
(1) Sequential Payment among Classes... Principal will be paid to the Noteholders in
sequential order. No principal payments will be made on
the Class A-2 Notes until the Class A-1 Notes have been
paid in full. No principal payments will be made on the
Class A-3 Notes until the Class A-2 Notes have been paid
in full. No principal payments will be made on the Class
A-4 Notes until the Class A-3 Notes have been paid in
full.
(2) Final Scheduled Distribution Dates. The Trust must pay the outstanding principal amount of a
Class of Notes, to the extent not previously paid, by
the following date:
Class Final Scheduled Distribution Date
A-1 ...........................August 2000
A-2............................December 2001
A-3............................April 2003
A-4............................April 2004
(3) Amount of Principal Payable on Each
Distribution Date.................. In general, the Trust will make payments of principal
of the Notes on a Distribution Date, to the extent of
available funds, in an amount equal to the sum of the
following:
o the principal collections from the Receivables
(including any payments in respect of Balloon
Payments for the Balloon Payment Receivables)
during the prior month (as adjusted to take
into account the adjustment of the Yield Supplement
Overcollateralization Amount),
o unrecovered principal of any defaulted Receivable
that was liquidated during that month,
o the portion allocable to principal of the amount
collected on any Receivable that was repurchased by
the Servicer pursuant to the Sale and Servicing
Agreement or by the Sellers pursuant to the Receivables
Purchase Agreement, and
o on the Distribution Date immediately following the end
of the Funding Period, any money on deposit in the
Pre-Funding Account not used to acquire Subsequent
Receivables.
Terms of the Certificates
A. Distribution Dates.................... Distributions of interest and principal on the
Certificates will be made on each Distribution Date,
commencing on October 25, 1999, to the extent of funds
available for those distributions.
B. Per Annum Interest Rate............... Pass-Through Rate.................................[o]%
C.Interest Accrual Period................ The Interest Accrual Period for the Certificates, with
respect to any Distribution Date, will be the period
from and including the 25th day of the preceding
calendar month to and including the 24th day of the
calendar month in which such Distribution Date occurs.
However, the first Interest Accrual Period for the
Certificates will begin on and include the Closing Date
and will end on the day before the first Distribution
Date. Interest on the Certificates will be calculated on
the basis of a 360-day year consisting of twelve 30-day
months. D. Principal
(1) Final Scheduled Distribution Date... The Trust must pay the outstanding principal amount of
the Certificates, to the extent not previously paid, by
[o].
(2) Amount of Principal Payable on
Each Distribution Date.............. The Trust will not distribute principal payments on
the Certificates until the Notes are paid in full. On
and after the Distribution Date on which the Notes have
been paid in full, the Certificates will receive
distributions of principal until the Certificates have
been paid in full.
Priority of Payments............................. On each Distribution Date, the Indenture Trustee based
solely on information provided to it by the Servicer
will apply the Trust's available funds, as described in
this Prospectus Supplement, as follows:
o first, to pay the servicing fee and certain
Servicer expenses,
o second, to pay interest on the Notes,
o third, to pay the outstanding principal amount of
the Notes, up to the amount distributable on the
Notes as of such Distribution Date, in the order
described herein,
o fourth, to pay interest on the Certificates,
o fifth, but only after the Notes are paid in full) to
pay the outstanding principal amount of the Certificates
up to the amount distributable on the Certificates as
of such Distribution Date,
o sixth, to deposit into the Reserve Account an amount
equal to the deficiency, if any, in the required
amount for the Reserve Account,
o seventh, to deposit into the Certificate Interest
Reserve Account, in an amount up to the Certificate
Interest Reserve Account Required Amount,
o eighth, to pay the trustee fees and other accrued
and unpaid fees to the extent not otherwise paid, and
o ninth, to pay the remainder, if any, to BMW
FS Receivables Corporation.
Optional Redemption.............................. The outstanding Notes and Certificates will be subject
to early retirement on any Distribution Date on which
the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables
when the Pool Balance has declined to 10% or less of the
sum of the Initial Pool Balance and the amount on
deposit in the Pre-Funding Account on the Closing Date.
The redemption price of the Notes and Certificates will
be equal to the unpaid principal amount of those
Securities plus accrued and unpaid interest on those
Securities and will be distributed in the priority
described above under "Priority of Payments."
Credit Enhancement
A. Reserve Account...................... On the Closing Date, the initial amount in the
"Reserve Account" will be $37,514,710, which is 3.75% of
the Initial Pool Balance. Thereafter, on each
Distribution Date, the required amount for the Reserve
Account will be 5.00% of the sum of the Pool Balance and
the amount, if any, on deposit in the Pre-Funding
Account as of the end of the related Collection Period.
However, the required amount for the Reserve Account on
any Distribution Date will never be less than the lesser
of $11,131,702 (which is equal to 1.00% of the sum of
the Initial Pool Balance and the Pre-Funded Amount) and
the aggregate principal amount of the Securities after
giving effect to distributions on such Distribution
Date.
Additional deposits to the Reserve Account out of funds
available for distribution will occur on any
Distribution Date on which:
o the amount on deposit in the Reserve Account is less
than the required amount for the Reserve Account, and
o there are available funds remaining for distribution
after the required distributions for servicing fees and
payments to holders of the Securities on that
Distribution Date.
After the Closing Date, no additional deposits into the
Reserve Account will come from any source other than
deposits out of available funds to the extent described
above, out of any amounts deposited as a result of
purchasing Subsequent Receivables and, after the Notes
have been retired, from amounts on deposit in the
Certificate Interest Reserve Account.
To the extent of funds available in the Reserve Account,
the Indenture Trustee will apply such funds to make
distributions payable on the Securities that are not
covered by collections on the Receivables.
Amounts in the Reserve Account on any Distribution Date
in excess of the required amount will be released to BMW
FS Receivables Corporation and will no longer be
available to make payments on the Securities.
B. Subordination of Certificates........ Distributions on the Certificates are subordinated to
payments on the Notes as provided above. This
subordination of distributions on the Certificates is
intended to increase the likelihood that the Trust will
not default in making payments due on the Notes.
C. Certificate Interest
Reserve Account...................... On the Closing Date, the amount in the "Certificate
Interest Reserve Account" will be approximately $[o],
which is the Certificate Interest Reserve Account
Required Amount.
Additional deposits to the Certificate Interest Reserve
Account out of funds available for distribution will
occur on any Distribution Date on which:
o the amount on deposit in the Certificate
Interest Reserve Account is less than the
required amount for the Certificate Interest
Reserve Account, and
o there are available funds remaining for
distribution after the required distributions
for servicing fees, payments to holder of the
Securities and deposits to the Reserve Account
for such Distribution Date.
After the Closing Date, no additional deposit into the
Certificate Interest Reserve Account will come from any
source other than deposits out of available funds to the
extent described above.
Funds in the Certificate Interest Reserve Account, to
the extent available, will be used to make up shortfalls
in the Certificateholders' Interest Distributable Amount
on any Distribution Date, as described under
"--Accounts--Certificate Interest Reserve Account"
herein.
After the Notes have been retired, the amounts on
deposit in the Certificate Interest Reserve Account will
be withdrawn therefrom and deposited into the
Reserve Account.
Yield Supplement
Overcollateralization Amount..................... On the Closing Date, the sum of the Initial Pool
Balance and the amount on deposit in the Pre-Funding
Account will exceed the initial principal amount of the
Securities, by $18,170,230 (the "Initial
Overcollateralization Amount"), which is approximately
1.63% of the sum of the aggregate principal balance of
the Initial Receivables as of the Cutoff Date and the
amount on deposit in the Pre-Funding Account on the
Closing Date. The Yield Supplement Overcollateralization
Amount will decline on each Distribution Date, as
described under "Description of the Transfer and
Servicing Agreements--Yield Supplement
Overcollateralization Amount" in this Prospectus
Supplement. The Yield Supplement Overcollateralization
Amount is intended to compensate for the low APRs on
some of the Receivables.
Monthly Advances................................. In connection with each Distribution Date, the Servicer
will make cash advances (each, an "Advance") to the
Trust in the amount of the interest portion of all
delinquent monthly payments on the receivables for the
related Collection Period to the extent it deems, in its
reasonable judgement, those Advances to be recoverable
from future payments and collections on or in respect of
the Receivables. The Servicer will not be obligated to
make any advance with respect to the principal portion
of any delinquent monthly payment.
Tax Status....................................... In the opinion of Brown & Wood LLP ("Federal Tax Counsel"),
for federal income tax purposes, the Notes will be
characterized as debt, and the Trust will not be
characterized as an association (or a publicly traded
partnership) taxable as a corporation. Each Noteholder,
by the acceptance of a Note will agree to treat the
Notes as indebtedness. Each Certificateholder, by the
acceptance of a Certificate, will agree to treat the
Trust as a partnership in which the Certificateholders
and BMW FS Receivables Corporation are partners for
federal income tax purposes. Alternative
characterizations of the Trust and the Certificates are
possible, but would not result in materially adverse tax
consequences to the Noteholders or the
Certificateholders. See "Material Federal Income Tax
Consequences" in this Prospectus Supplement and
"Material Federal Income Tax Consequences" in the
Prospectus for additional information concerning the
application of federal income tax laws to the Trust and
the Securities.
Money Market Eligibility......................... The Class A-1 Notes will have a Final Scheduled Distribution
Date in August 2000. The Class A-1 Notes will be
eligible securities for purchase by money market funds
under Rule 2a-7 under the Investment Company Act of
1940. A fund should consult with its advisor regarding
the eligibility of the Class A-1 Notes under Rule 2a-7
and the fund's investment policies and objectives.
ERISA Considerations............................. Subject to the considerations discussed under "ERISA
Considerations" in this Prospectus Supplement and in the
Prospectus, the Notes are eligible for purchase by
employee benefit plans.
The Certificates may not be acquired by any employee
benefit plan subject to ERISA, or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"),
or by an individual retirement account. See "ERISA
Considerations" in this Prospectus Supplement
and in the Prospectus.
Rating of the Securities......................... It is a condition of the issuance of the Securities
that they be assigned the following ratings by Moody's
Investors Service, Inc. ("Moody's") and by Standard &
Poor's Ratings Services ("S&P") and, together with
Moody's, the "Rating Agencies").
Securities Moody's S&P
---------- ------- ---
Class A-1 Notes Prime-1 A-1+
Class A-2 Notes Aaa AAA
Class A-3 Notes Aaa AAA
Class A-4 Notes Aaa AAA
Certificates A3 A
A rating is not a recommendation to buy, sell or hold
securities. There can be no assurance that the ratings
will not be lowered or withdrawn at any time by either
of the Rating Agencies.
</TABLE>
<PAGE>
RISK FACTORS
The following information, which you should carefully consider before
investing in the Securities, identifies certain significant sources of risk
associated with an investment in the Securities. You should also carefully
consider the information set forth under "Risk Factors" in the Prospectus
before you invest in the Securities.
Your Ability to Resell the Securities is Limited
You might not be able to sell your Notes or Certificates when you
want. There is currently no secondary market for the Securities. The
Underwriters currently intend to participate in resales of the Securities, but
they are under no obligation to do so. There can be no assurance that a
secondary market will develop or, if a secondary market does develop, that you
will be able to resell your Notes or Certificates. If a secondary market for
the Securities does develop, it may not continue.
The Sellers' Obligations are Limited
The Sellers are not obligated to make any distributions of principal
or interest on the Securities. The Sellers' only obligation to make any
payment in respect of the Receivables is their obligation to repurchase from
the Trust those Receivables with respect to which they breached certain
representations, warranties or covenants. See "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables" in this Prospectus
Supplement. There is no assurance, however, that the Sellers will have the
financial ability to repurchase any of those Receivables.
Delays in Processing Payments May Occur if BMW FS Ceases to be the Servicer
The Servicer is not obligated to make any payments in respect of the
Securities or the Receivables. However, if BMW FS were to cease acting as
Servicer, delays in processing payments on the Receivables and information in
respect of the Receivables could occur and result in delays in payments to
you. See "Description of the Transfer and Servicing Agreements--Rights Upon
Servicer Termination Event" in this Prospectus Supplement.
Your Receipt of Payments on the Securities Depends on the Servicer's Ability
to Make Collections on the Receivables
The Trust's receipt of collections in respect of the Receivables,
from which to distribute the amounts payable on your Notes or Certificates,
will depend on the skill and diligence of the Servicer in making collections.
If the Servicer fails adequately to make collections for any reason, then
payments to the Trust in respect of the Receivables may be delayed or reduced.
In that event, it is likely that delays or reductions in the amounts
distributed on your Notes or Certificates would result.
Possibility of Losses because the Custodian will not Cause the Certificates
of Title to be Amended or Reissued
The Custodian will not cause the certificates of title of the
Financed Vehicles securing the Receivables to be amended or reissued. In the
absence of amendments to the certificates of title, the Trust may not have
perfected security interests in the Financed Vehicles securing the Receivables
originated in some states. The Trust not having a first priority perfected
security interest in some of the 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. See "Certain Legal
Aspects of the Receivables" in the Prospectus.
An Indenture Event of Default May Accelerate Liquidation of the Receivables
If an event of default occurs under the Indenture (an "Indenture
Event of Default"), the Indenture Trustee may and at the direction of the
holders of the majority of the outstanding principal balance of the Notes
shall declare the Notes to be immediately due and payable. If that event were
to occur, the Indenture Trustee will have the right, but not the obligation,
to liquidate the Receivables, in whole but not in part. That liquidation may
result in the redemption, in whole or in part, of the Notes. If the proceeds
from the liquidation of the Receivables were insufficient to cover the
aggregate principal amount of the Securities plus accrued and unpaid interest
thereon, you may incur a loss. See "Description of the Notes--Certain
Provisions of the Indenture--Indenture Events of Default; Rights upon
Indenture Event of Default" in this Prospectus Supplement.
Maturity and Prepayment Assumptions Are Estimates
The Obligors on the Receivables may prepay the Receivables at any
time without penalty. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors, as described in
this Prospectus Supplement under "Weighted Average Lives of the Securities."
In addition, the Sellers or the Servicer may be obligated to purchase
Receivables with respect to which representations, warranties or covenants
have been breached. Moreover, the Servicer has the right to purchase the
Receivables when the outstanding principal balance of the Receivables has been
reduced to 10% or less of the initial principal balance of the Receivables.
See "Description of the Notes--Optional Redemption" in this Prospectus
Supplement. Prepayments on the Receivables or purchases of the Receivables by
the Sellers or Servicer may affect the average lives of the Securities. BMW FS
is unable to predict the actual prepayment rates for the Receivables. You will
bear all of the reinvestment risk resulting from a faster or slower incidence
of prepayment of the Receivables.
From time to time and only with respect to balloon payment contracts
serviced by BMW FS, BMW FS in conjunction with BMW of North America, Inc. and
Land Rover N.A. Inc. offer incentive programs to obligors. The incentive
programs in some cases permit obligors to deliver their financed vehicles to
BMW FS earlier than the scheduled maturity date of the Contract in
satisfaction of their outstanding loan balances if they purchase another
vehicle manufactured by the BMW Group. This incentive could encourage a higher
level of prepayments on balloon payment contracts than otherwise would be the
case and may result in losses on Balloon Payment Receivables held by the Trust
if the net disposition proceeds on the Financed Vehicles are less than the
remaining balances of the related Balloon Payment Receivables.
Subordination of the Certificates
Distributions on the Certificates will be subordinated in priority of
payment to distributions on the Notes as described in this Prospectus
Supplement. The Certificateholders will not receive any distributions of
principal on a Distribution Date until after the Notes have been paid in full.
This subordination has the effect of increasing the likelihood of payment on
the Notes and therefore decreasing the likelihood of payment on the
Certificates.
Sources of Funds to Make Payments on the Securities
The Trust will not have any significant assets or sources of funds to
make payments on the Securities other than the Receivables, the Reserve
Account, the Capitalized Interest Account and the Certificate Interest Reserve
Account. You must rely for repayment of your Notes or Certificates upon
payments on the Receivables and amounts, if any, in the Reserve Account, the
Capitalized Interest Account or, for certain shortfalls in payments to the
Certificates, the Certificate Interest Reserve Account. Although funds in the
Reserve Account may be available on each Distribution Date to cover shortfalls
in distributions of interest and principal on the Securities, the amounts
available in the Reserve Account are limited. Although funds in the
Capitalized Interest Account may be available on each Distribution Date during
the Funding Period to cover shortfalls in distributions of interest on the
Securities resulting from the pre-funding feature of the Trust, the amounts
available in the Capitalized Interest Account are limited. Although funds in
the Certificate Interest Reserve Account may be available on each Distribution
Date to cover shortfalls in distributions of interest on the Certificates, the
amounts available in the Certificate Interest Reserve Account are limited. If
the Reserve Account, the Capitalized Interest Account and the Certificate
Interest Reserve Account become depleted, the Trust will depend solely on
current collections on the Receivables to make payments on the Securities. If
the collections on the Receivables are insufficient to make payments on the
Securities, you may incur a loss.
Possible Effects of Insolvency or Bankruptcy of the Sellers and the Servicer
The transfer of the Receivables from the Sellers to the Depositor
will be treated by the Sellers, the Depositor and the Trust as a sale of the
Receivables. In the event of an insolvency of either Seller, the
trustee-in-bankruptcy of that Seller may attempt to recharacterize the sale of
the Receivables by that Seller as a borrowing by that Seller secured by a
pledge of the Receivables. If the trustee-in-bankruptcy decided to legally
challenge that transfer, delays in payments on the Securities and possible
reductions in the amount payable under the Receivables could occur. That
attempt, even if unsuccessful, could result in delays in distributions to you.
In addition, if a Servicer Event of Default occurs solely because a
trustee-in-bankruptcy is appointed for the Servicer, the trustee-in-bankruptcy
might have the power to prevent either the Indenture Trustee or the Owner
Trustee from appointing a new Servicer under the Sale and Servicing Agreement.
Potential Losses on Securities from Sales of Financed Vehicles and Non-
Refinancing of Balloon Payments
Obligors on the Balloon Payment Receivables have the option to return
the Financed Vehicle to BMW FS at the end of the term of the Receivable in
satisfaction of the balloon payment. BMW FS will sell the returned vehicle on
behalf of the Trust. The proceeds from the sale of the vehicle will be used by
the Trust to make payments on the Securities. You may experience delays or
losses in the payments on the Securities when the sale proceeds from the
returned vehicles are less than the amount of the related balloon payments.
BMW FS will have no obligation to make any payment to the Trust in respect of
losses incurred on Receivables as a result of such sales. BMW FS expects the
proceeds from the sale of returned Financed Vehicles to be less than the
related balloon payments. A downturn in economic conditions that reduced the
market values of used luxury vehicles would increase the losses on the Balloon
Payment Receivables.
If an Obligor on a Balloon Payment Receivable elects at maturity of
the Receivable to refinance the balloon payment with BMW FS, the new financing
is subject to satisfaction of BMW FS' underwriting criteria. If a refinancing
option is no longer available because an Obligor does not satisfy BMW FS'
underwriting criteria, that Obligor may be more likely to return the Financed
Vehicle at maturity of the Receivable rather than making the balloon payment.
As a result, BMW FS may be required to sell more returned vehicles on behalf
of the Trust.
The Rating Agencies May Downgrade the Ratings of the Securities
It is a condition to the issuance of the Securities that the Rating
Agencies give the Securities the ratings set forth in "Summary--Ratings" in
this Prospectus Supplement. A rating is not a recommendation to purchase, hold
or sell Securities, to the extent that a rating does not reflect an evaluation
of market price or suitability for a particular investor. The Rating Agencies
do not evaluate, and the ratings do not address, the possibility that you may
receive a lower than anticipated yield on your Notes or Certificates. There is
no assurance that a rating will remain for any given period of time or that a
Rating Agency will not lower or withdraw its rating in the future if that
Rating Agency determines that circumstances so warrant. Any reduction or
withdrawal of a rating might have an adverse effect on the liquidity and
market price of your Notes or Certificates.
Significant Geographic Concentration May Expose the Trust to Economic
Conditions in Certain States
As of the Cutoff Date approximately 21.3%, 15.7%, 6.4% and 6.4% of
the Receivables (based on principal balance and location of the Obligor) were
located in California, Texas, Illinois and New York, respectively.
Accordingly, adverse economic conditions or other factors particularly
affecting any of these states could adversely affect the delinquency or loan
loss experience with respect to the Receivables. No other state represented
more than 5.00% of the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
<PAGE>
Possible Prepayment Due To Inability To Acquire Subsequent Receivables
The Trust will buy Subsequent Receivables from the Depositor during
the Funding Period and the Depositor will buy Subsequent Receivables from BMW
FS during this same time period to the extent that BMW FS has receivables to
sell to the Depositor. The number of receivables that BMW FS has to sell
depends on its ability to originate and acquire additional receivables which,
in turn, is affected by the number of Financed Vehicles sold. The number of
Financed Vehicles sold is affected by a variety of factors, including interest
rates, unemployment levels, the rate of inflation and consumer perception of
economic conditions generally. If the full amount deposited in the Pre-Funding
Account for the purpose of purchasing Subsequent Receivables from BMW FS
cannot be used for that purpose during the Funding Period, any remaining
amounts will be paid on the Notes as a prepayment of principal on the
following Distribution Date. If the amount on deposit in the Pre-Funding
Account exceeds $100,000, then such amount will be applied in reduction of the
principal balance of each class of Notes based on the respective payment
balances thereon as of the preceding Distribution Date. If the amount on
deposit in the Pre-Funding Account is less than $100,000, then such amount
will be applied in reduction of the principal balance of the Class A-1 Notes.
See "Description of the Transfer and Servicing
Agreements--Distributions--Payments to Noteholders."
In addition, the Subsequent Receivables will have different
characteristics than those described in this Prospectus Supplement. However,
BMW FS will not select any Subsequent Receivables to adversely affect the
interests of the Noteholders and Certificateholders.
Risks Associated with Year 2000 Compliance
The Servicer is faced with the task of completing its goals for
compliance in connection with the year 2000 issue. The year 2000 issue is the
result of prior computer programs being written using two digits to define the
applicable year. Any computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Any
such error could result in a major computer system failure or miscalculations.
The Servicer is currently in the process of ensuring that its computer systems
are year 2000 compliant and expects to achieve such compliance prior to the
year 2000. If the Servicer does not become year 2000 compliant prior to the
year 2000, however, there could be a substantial adverse effect upon the
Servicer's ability to perform its obligations under the Sale and Servicing
Agreement. Such an event could result in delays or reductions in payments on
your Notes or Certificates.
In addition, because your Securities are book-entry securities that
may be held through DTC or, in Europe, through Cedelbank or the Euroclear
System, delays or reductions in payments on your Securities may result if
those institutions or their third-party service providers fail to ensure that
their computer systems are year 2000 compliant.
THE SELLERS
BMW Financial Services NA, Inc.
BMW Financial Services NA, Inc. ("BMW FS"), a wholly-owned subsidiary
of BMW of North America, Inc. ("BMW NA"), was incorporated on April 23, 1984
in the State of Delaware. BMW NA is based in Woodcliff Lake, New Jersey and is
engaged in the wholesale distribution of BMW motor vehicles and motorcycles
throughout the United States. BMW NA is an indirectly wholly-owned subsidiary
of Bayerische Motoren Werke Aktiengesellschaft ("BMW AG"), a German
corporation that is an international manufacturer and distributor of high
performance luxury automobiles, sport utility vehicles and motorcycles.
BMW FS provides retail and wholesale financing, retail leasing and
certain other financial services to authorized BMW and Land Rover dealers and
their customers throughout the United States.
The national executive headquarters of BMW FS are located at 300
Chestnut Ridge Road, Woodcliff Lake, New Jersey 07675. Its telephone number
is: (201) 307-4000. Its Customer Service Center is located at 5515 Park Center
Circle, Dublin, Ohio 43017.
BMW FS Funding Corporation
BMW FS Funding Corporation ("BMW Funding"), a wholly-owned subsidiary
of BMW FS, was incorporated on December 1, 1997. BMW Funding, a Delaware
corporation, was organized for limited purposes including purchasing of
receivables from BMW FS and transferring such receivables to third parties and
any other activities incidental to and necessary or convenient for the
accomplishment of such purposes.
BMW Funding's principal executive office is located at 300 Chestnut
Ridge Road, Woodcliff Lake, New Jersey 07675. The telephone number of such
office is: (201) 307-4000.
BMW FS' VEHICLE FINANCING PROGRAMS
General
BMW FS currently purchases motor vehicle retail installment sale
contracts (the "Motor Vehicle Contracts", or "Contracts") directly from
authorized BMW, Land Rover and BMW motorcycle dealers (the "Dealers")
throughout the United States. The Contracts are originated by Dealers who
regularly sell such Contracts to BMW FS or other finance sources. BMW FS
purchases Contracts in accordance with its established underwriting
procedures, subject to the terms of its agreement (each, a "Dealer Agreement")
with each Dealer.
Each Dealer Agreement, among other things, obligates the related
Dealer to repurchase any Motor Vehicle Contract it sold to BMW FS for the
outstanding principal balance thereof, if the Dealer breaches certain
representations and warranties as set forth in the Dealer Agreement. The
representations and warranties typically relate to the origination of the
Contract and the security interest in the related Financed Vehicle and not the
creditworthiness of the Obligor under the Contract.
BMW FS currently purchases Contracts relating to new vehicles
manufactured by BMW AG, used vehicles originally manufactured by BMW AG and
other motor vehicle manufacturers. BMW FS applies the same underwriting
standards to its purchases of Contracts whether or not the Contract relates to
a vehicle manufactured by BMW AG. See "-Underwriting".
Underwriting
Contracts are originated or purchased by BMW FS in accordance with
underwriting procedures that are intended to assess the applicant's ability to
repay the amounts due on the contract and the adequacy of the financed vehicle
as collateral. BMW FS utilizes predetermined credit score cutoffs and approval
authority levels as credit controls.
BMW FS requires applicants to complete an application form providing
various items of financial information, credit and employment history and
other personal information. Applications are accepted for new and used
vehicles from approved retailers via U.S. Mail, facsimile, personal delivery,
InfoBahn or InfoTrail - a BMW and Land Rover intranet system linking Dealers,
BMW NA, Land Rover NA and BMW FS. The application is reviewed for
completeness. Independent verification of information in the application
generally is not required. However, BMW FS will seek verification of some
information, such as employment, income and/or residence, under some
circumstances, such as discovery of a discrepancy between information in the
application and information in a credit bureau report.
A credit buyer reviews each application. Credit buyers have credit
authority levels of "I" or "II." The credit buyer's review includes an
evaluation of a credit bureau report on the applicant from an independent
credit bureau and the applicant's credit score based on credit scoring system
or "scorecard" developed for BMW FS. This system, which has been in use since
1996, calculates a score based on data in a credit application that, based on
past performance of BMW FS' portfolio, appear to be indicative of the degree
of likelihood that an applicant will make scheduled payments to BMW FS.
Upon review of the application, the applicant's credit score and
credit bureau report, an assessment is made regarding the relative degree of
credit risk. BMW FS' guidelines provide that an applicant's credit score will
be highly considered by the credit buyer in determining whether to extend
credit. Besides the credit score, BMW FS also considers the applicant's income
to debt ratio, the applicant's equity in the financed vehicle and other
attributes as part of the decision making process. BMW FS' management sets
limits on the approval of applications scoring below the company's minimum
scores. In the case of a complete application scoring above a certain level of
the scoring system, the application may be subject to an automated credit
approval process which does not require the review and approval by a credit
buyer. Applicants that score below a minimum score established by BMW FS
management may not be approved by credit buyers with Level I credit authority.
Such applicants may be approved by a credit buyer with Level II credit
authority (or in some cases only by one of four regional credit managers)
based on the presence of certain factors, such as a guarantee by the Dealer. A
credit buyer with Level I credit authority may not disapprove without
management review applicants that score above the specified minimum.
In case of a commercial applicant, BMW FS obtains a Dun and
Bradstreet report and reviews information concerning bank accounts, credit
references and recent financial results of each business entity. BMW FS may
require an individual to guarantee the business' obligation under the
Contract.
BMW FS generally does not provide financing to applicants with
previous bankruptcies. However, BMW FS' guidelines do permit such financing
under some circumstances, such as if the customer has re-established credit
for at least 24 months and has had no 30-day delinquencies in that period.
The amount of a contract generally will not exceed (1) when secured
by a new vehicle, 100% of the manufacturer's suggested retail price for the
vehicle, or (2) when secured by a used vehicle, 100% of the retail price
reported for the vehicle that is stated in the most recent edition of the
National Automotive Dealers Association Used Car Guide or the Kelly Blue Book,
plus in each case options, various taxes and fees incurred in connection with
the sale and, in some cases, insurance policies, extended service contracts
and other items. Regional credit managers may approve contracts up to 105% of
the above amounts, and the national credit manager may approve contracts up to
110% of the above amounts.
If an application is approved, it is assigned to one of three credit
categories reflecting the degree of credit risk, and the interest rate for the
contract is determined based upon the credit category of the applicant.
Upon the maturity of a lease financing, the customer has the option
to refinance and purchase the financed vehicle from BMW FS. The same
underwriting and credit procedures described above apply to these obligors. A
certain portion of the Receivables are secured by used vehicles that derive
from this lease to loan program.
Dealer Agreements
Each Dealer that originates Motor Vehicle Contracts sold to BMW FS
pursuant to a Dealer Agreement has made representations and warranties with
respect to the Motor Vehicle Contracts and the security interests in the motor
vehicles relating thereto. These representations and warranties typically do
not relate to the creditworthiness of the Obligors or the collectability of
the Motor Vehicle Contracts. Upon breach of any representation or warranty
made by a Dealer, BMW FS would have a right of recourse against such Dealer to
require it to repurchase such loan. Generally, the Dealer Agreements do not
provide for recourse against the Dealer in the event of a default by the
obligor.
Servicing
BMW FS measures delinquency by the number of days elapsed from the
date a payment is due under the Contract ("Due Date"). BMW FS considers a
payment to be past due or delinquent when an obligor fails to make at least
80% of a scheduled payment by the related Due Date. BMW FS generally begins
collection activities with respect to a delinquent Contract through telephone
contact. An automated system supports BMW FS' collection activities to monitor
delinquencies and to track the contacts with the obligors.
BMW FS assigns collectors to specific obligors and attempts to
contact the delinquent obligor by telephone or by letter based on the term of
delinquency and the history of the account. Repossession procedures typically
begin when a contract becomes 60 to 90 days delinquent. Repossessions are
carried out pursuant to applicable state law and specific procedures adopted
by BMW FS.
BMW FS' deferment policy allows a total of four deferments over the
life of the Contract.
BMW FS' current policy is to generally charge off the Contract on the
earlier of (a) the date on which the proceeds of sale of the financed vehicle
are applied to the Contract balance and (b) and the 150th day of delinquency.
Any deficiencies remaining after repossession and sale of the related
financed vehicle or after full charge-off of the related Contract are pursued
by BMW FS to the extent practicable and legally permitted. 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.
Physical Damage and Liability Insurance
Each Contract generally requires the obligor to obtain physical
damage insurance covering loss or damage to the financed vehicle. The Dealer
Agreements include a requirement that the Dealers provide BMW FS with written
evidence that physical damage and liability insurance covers the financed
vehicle at least in the amount required by the Contract at the time the
Contract is purchased by BMW FS. BMW FS tracks the ongoing status of insurance
by the obligors, and attempts to cause the obligors to reinstate such
insurance in the event that it is allowed to lapse; nevertheless, there can be
no assurance that each financed vehicle will continue to be covered by
physical damage insurance for the entire term during which the related
Contract is outstanding. BMW FS generally does not "force place" insurance.
<PAGE>
Delinquency and Loss Experience
The following tables set forth the historical delinquency experience
and net credit loss and repossession experience of BMW FS' portfolio of
contracts. There is no assurance that the behavior of the Receivables will be
comparable to BMW FS' experience shown in the following tables.
<TABLE>
<CAPTION>
Delinquency Experience(1)
At June 30, At December 31,
1999 1998 1997
------------------------------ -------------------------- -----------------------
Principal Number of Principal Number of Principal Number of
Amount Contracts Amount Contracts Amount Contracts
----- --------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Portfolio $1,693,671 90,383 $1,627,533 89,431 $1,563,687 87,222
Delinquency
30-59 Days 1.71% 1.84% 1.63% 1.84% 2.04% 2.08%
60-89 Days 0.32% 0.35% 0.34% 0.36% 0.60% 0.61%
90 Days or more 0.26% 0.28% 0.25% 0.24% 0.32% 0.35%
Total 2.29% 2.47% 2.22% 2.44% 2.96% 3.04%
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1996 1995
---------------------------- --------------------------
Principal Number of Principal Number of
Amount Contracts Amount Contracts
<S> <C> <C> <C> <C>
Portfolio $1,432,160 77,525 $1,197,138 62,851
Delinquency
30-59 Days 1.80% 1.81% 1.25% 1.29%
60-89 Days 0.47% 0.44% 0.16% 0.16%
90 Days or more 0.76% 0.72% 0.26% 0.25%
Total 3.03% 2.97% 1.67% 1.71%
</TABLE>
- ----------------------
(1) The information in the table includes contracts for new and used
automobiles, motorcycles and sport utility vehicles.
(2) An account is considered delinquent if 20% or more of the scheduled
payment is past due.
<PAGE>
<TABLE>
<CAPTION>
Net Credit Loss and Repossession Experience(1)
(Dollars in thousands)
At or For
Six Months
Ended At or For Twelve Months Ended
June 30, December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Principal Amount Outstanding..................... $ 1,693,671 $ 1,627,533 $ 1,563,687 $ 1,432,160 $ 1,197,138
Average Principal Amount Outstanding............. $ 1,660,602 $ 1,595,610 $ 1,497,924 $ 1,314,649 $ 1,042,400
Number of Contracts Outstanding.................. 90,383 89,431 87,222 77,525 62,851
Average Number of Contracts Outstanding.......... 89,907 88,327 82,374 70,188 53,596
Number of Repossessions Sold as a
Percent of the Average Number of Contracts
Outstanding (2)............................... 1.29% 0.95% 0.89% 0.68% 1.50%
Charge-offs (3).................................. $ 5,445 $ 11,658 $ 9,958 $ 7,435 $ 3,997
Recoveries (4)................................... $ 1,980 $ 3,485 $ 2,852 $ 1,960 $ 788
----------- ----------- ----------- ------------ ------------
Net Losses....................................... $ 3,465 $ 8,173 $ 7,106 $ 5,475 $ 3,209
=========== =========== =========== ============ ============
Net Losses as a Percent of Average
Principal Amount Outstanding.................. 0.42% 0.51% 0.47% 0.42% 0.31%
</TABLE>
(1) The information in the table includes contracts for new and used
automobiles, motorcycles and sport utility vehicles. All amounts and
percentages, except as indicated, are based on the principal balances
of the contracts net of unearned finance and other charges. Averages
are computed by taking a simple average of year end outstanding
amounts for each period presented.
(2) Number of Repossessions Sold means the number of repossessed financed
vehicles that have been sold by BMW FS in a given period.
(3) Charge-offs represent the total aggregate net principal balance of
contracts determined to be uncollectible in the period less proceeds
from disposition of related vehicles, other than recoveries described
in Note (4).
(4) Recoveries generally include amounts received with respect to
contracts previously charged off, net of the proceeds realized in
connection with the sale of the financed vehicles.
BMW FS' retail loss experience is dependent upon receivables levels,
the number of repossessions, the amount outstanding at the time of
repossession, and the resale value of repossessed vehicles.
Credit losses on defaulted contracts are adversely affected by the
inability to realize full contract value on repossessed vehicles sold at
auction due to declining prices paid at auction for used vehicles which are
affected by such factors as seasonality and market/dealer demand.
THE TRUST
General
BMW Vehicle Owner Trust 1999-A (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 in this Prospectus Supplement. After its
formation, the Trust will not engage in any activity other than (1) acquiring,
holding and managing the Initial Receivables and the Subsequent Receivables
and the other assets of the Trust and proceeds therefrom, (2) issuing the
Securities, (3) making payments on the Securities and (4) engaging in other
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
The proceeds from the initial sale of the Securities will be used by
the Trust to purchase the Receivables from the Depositor pursuant to the Sale
and Servicing Agreement and to fund the initial deposit to the Reserve
Account, to the Pre-Funding Account and to the Capitalized Interest Account.
The Servicer will service the Receivables pursuant to the Sale and Servicing
Agreement and will be compensated for acting as Servicer. See "Description of
the Transfer and Servicing Agreements--Servicing Compensation" herein. Under
the Sale and Servicing Agreement, the Servicer will be appointed custodian of
the Receivables by the Trust (the "Custodian"). The Custodian will not cause
the certificates of title of the Financed Vehicles securing the Receivables to
be amended or reissued. In the absence of amendments to the certificates of
title, the Trust may not have perfected security interests in the Financed
Vehicles securing the Receivables originated in some states. See "Certain
Legal Aspects of the Receivables" in the Prospectus.
If the protection provided to the Securityholders by the Reserve
Account and, with respect to interest distributions to the Certificateholders,
the Certificate Interest Reserve Account, are insufficient, the Trust will
look only to the Obligors on the Receivables and the proceeds from the
repossession and sale of Financed Vehicles that secure defaulted Receivables
to fund distributions of principal and interest on the Securities. In such
event, certain factors, such as the Trust not having a first priority
perfected security interest in some of the 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. See "Description
of the Notes--Credit Enhancement," "Description of the Transfer and Servicing
Agreements--Distributions" herein and "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust's principal office is located in Wilmington, Delaware, in
care of Wilmington Trust Company, as Owner Trustee, at the address listed
below under "--The Owner Trustee."
The Owner Trustee
Wilmington Trust Company is the Owner Trustee under the Trust
Agreement (the "Owner Trustee"). Wilmington Trust Company is a Delaware
banking corporation and its principal offices are located at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration. The Owner Trustee's liability in connection
with the issuance and sale of the Securities is limited solely to the express
obligations of the Owner Trustee set forth in the Trust Agreement and the Sale
and Servicing Agreement. BMW FS, BMW Funding, the Depositor and their
respective affiliates may maintain normal commercial banking relations with
the Owner Trustee and its affiliates.
THE RECEIVABLES POOL
Assets of the Trust
On the Closing Date, the assets of the Trust will include:
(1) a pool of motor vehicle retail installment sale contracts (the
"Initial Receivables") having an aggregate principal balance as
of the close of business on August 31, 1999 (the "Cutoff Date")
of approximately $1,000,392,272 (the "Cutoff Date Pool Balance")
and any additional motor vehicle retail installment sale
contracts purchased during the Funding Period (the "Subsequent
Receivables" and together with the Initial Receivables, the
"Receivables");
(2) all rights, benefits, obligations and proceeds arising from or
in connection with the Receivables, including the right to
receive payments collected thereon after the Cutoff Date with
respect to the Initial Receivables and on or after the
Subsequent Cutoff Date with respect to any Subsequent
Receivables;
(3) security interests in the new or used automobiles, motorcycles
and sport utility vehicles (the "Financed Vehicles") securing
each Receivable;
(4) the related Receivable files;
(5) all rights to insurance proceeds and liquidation proceeds with
respect to the Receivables;
(6) certain rights under the Receivables Purchase Agreement dated as
of September 1, 1999 (the "Receivables Purchase Agreement")
between the Depositor and the Sellers and any Subsequent
Purchase Agreement between the Depositor and BMW FS;
(7) funds on deposit from time to time in the Reserve Account;
(8) funds on deposit from time to time in the Certificate Interest
Reserve Account;
(9) funds on deposit in the Collection Account;
(10) funds on deposit in the Pre-Funding Account; and
(11) funds on deposit in the Capitalized Interest Account.
The Motor Vehicle Contracts that comprise the Receivables are secured
by new or used automobiles, motorcycles and sport utility vehicles
manufactured primarily by the BMW Group. The Contracts were originated by
Dealers who participate in BMW FS' vehicle financing program and were acquired
by BMW FS from such Dealers. See "BMW FS' Vehicle Financing Programs."
The Trust will purchase the Initial Receivables from the Depositor on
or about September [o], 1999 (the "Closing Date") pursuant to a Sale and
Servicing Agreement, dated as of September 1, 1999 (the "Sale and Servicing
Agreement"), among the Trust, the Depositor, the Sellers, the Custodian, the
Administrator, the Servicer and the Indenture Trustee.
The Depositor will have purchased the Initial Receivables from the
Sellers pursuant to the Receivables Purchase Agreement. In the Receivables
Purchase Agreement, the Sellers make certain representations and warranties as
of the Closing Date with respect to the Receivables and agree to repurchase
any Receivable with respect to which there is a breach of any such
representation and warranty if that breach has a material and adverse effect
on the interests of the Depositor or the Trust in the related Receivable.
Under the Sale and Servicing Agreement, the Depositor will assign all of its
rights under the Receivables Purchase Agreement, including its right to
enforce the Sellers' repurchase obligations, to the Trust.
The Receivables may be prepaid at any time without penalty by the
purchaser or co-purchasers of the Financed Vehicle or any other person or
persons who are obligated to make payments thereunder (each, an "Obligor").
Eligibility Criteria
The Receivables were or will be selected from the Sellers' respective
portfolios of motor vehicle retail installment sale contracts based on several
criteria, including the requirement that each Receivable:
(1) has an original term of not more than 66 months;
(2) has a current principal balance of at least $100;
(3) either provides for level monthly payments that fully amortize
the amount financed over the original term of the related
Contract or provides for level monthly payments and a balloon
payment at the maturity of the related Contract;
(4) be not more than 30 days past due as of the Cutoff Date or
Subsequent Cutoff Date, as applicable;
(5) not have a final scheduled payment date later than six months
prior to the Final Scheduled Distribution Date of the
Certificates; and
(6) not have any notation in the Servicer's records indicating the
Obligor is the subject of a bankruptcy proceeding.
No selection procedures believed by BMW FS or BMW Funding to be
adverse to the Securityholders were used in selecting the Receivables.
During the Funding Period, pursuant to the Receivables Purchase
Agreement, the Depositor is obligated to purchase from BMW FS and, pursuant to
the Sale and Servicing Agreement, to sell to the Trust, Subsequent Receivables
to the extent they are available. On the Closing Date, the amount available to
purchase Subsequent Receivables will be approximately $112,777,957. On each
date on which Subsequent Receivables are transferred to the Trust (each, a
"Subsequent Transfer Date"), BMW FS will convey Subsequent Receivables to the
Depositor pursuant to an agreement (a "Subsequent Purchase Agreement") between
BMW FS and the Depositor. The Depositor will convey such Subsequent
Receivables to the Trust on the related Subsequent Transfer Date pursuant to
the Sale and Servicing Agreement and an agreement (a "Subsequent Transfer
Agreement") between the Depositor and the Trust. The purchase price for each
Subsequent Receivable will be withdrawn from the Pre-Funding Account, a
portion of such amount will be deposited into the Reserve Account, if
necessary, and the remainder of the purchase price will be paid to the
Depositor by the Trust and then to BMW FS by the Depositor.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others:
(1) as of the Subsequent Cutoff Date, each such Subsequent
Receivable must satisfy the eligibility criteria specified under
"The Receivables Pools--General" in the Prospectus and in the
Sale and Servicing Agreement;
(2) BMW FS will have selected such Subsequent Receivables in a
manner that it believes is not adverse to the interests of the
Noteholders or Certificateholders;
(3) BMW FS and the Depositor will deliver certain opinions of
counsel to the Trust, the Indenture Trustee and the Rating
Agencies with respect to the validity of the conveyance of such
Subsequent Receivables;
(4) none of the Subsequent Receivables will have an APR of less than
8%;
(5) none of the Subsequent Receivables will be a Balloon Payment
Receivable; and
(6) the Rating Agencies shall confirm that the ratings on the
Securities will not be withdrawn or reduced as a result
of the transfer of such Subsequent Receivables to the Trust.
In addition, the obligation of the Trust to purchase Subsequent
Receivables on a Subsequent Transfer Date is subject to the condition that the
Receivables in the Trust, including such Subsequent Receivables to be conveyed
to the Trust on such Subsequent Transfer Date, meet certain criteria set forth
in the Sale and Servicing Agreement and the Receivables Purchase Agreement.
Because the Subsequent Receivables may be originated after the Initial
Receivables, following the conveyance of Subsequent Receivables to the Trust
the characteristics of the Receivables are likely to vary from those of the
Initial Receivables.
Description of Initial Receivables
All of the Initial Receivables were originated by BMW FS or purchased
by BMW FS from Dealers. As of the Cutoff Date, approximately 53.0% of the
Initial Receivables by aggregate principal balance represented financing of
new vehicles and 47.0% of the Initial Receivables by aggregate principal
balance represented financing of used vehicles.
As of the Cutoff Date, approximately 84.1%, 7.5% and 8.5% of the
Initial Receivables by aggregate principal balance were BMW automobiles, BMW
motorcycles and Land Rover sport utility vehicles, respectively.
Balloon Payment Receivables comprise approximately 17.8% of the
Cutoff Date Pool Balance. The weighted average of the Balloon Payments due at
maturity of the Balloon Payment Receivables is approximately 64.1% of the
original principal balances of the Balloon Payment Receivables. The aggregate
Balloon Payment portion of the Balloon Payment Receivables represents
approximately 13.1% of the Cutoff Date Pool Balance. The related Contracts
provide that on the maturity date, the Obligor may pay the Balloon Payment,
refinance the Balloon Payment, or exercise the "Sale Option". Under the Sale
Option, the Obligor sells the related Financed Vehicle for the "Sale Price" as
of the due date of the Balloon Payment to BMW FS. The Contracts further
provide that the Obligors may exercise this Sale Option only if they are not
in default under the related Contract, they have paid all amounts due under
the related Contract except the Balloon Payment and they deliver the Financed
Vehicle to a location specified by BMW FS. The "Sale Price" is defined in the
Contracts as: (i) the Balloon Payment; less (ii) a disposition fee; less (iii)
any excess wear and use charge; and less (iv) any excess mileage charge. The
"Sale Price" is applied to the amount of the Balloon Payment due. The Obligor
is responsible for any difference between the Balloon Payment and the Sale
Price, but is not responsible for any difference between the Balloon Payment
and the market value of the Financed Vehicle. Pursuant to the Sale and
Servicing Agreement, BMW FS, as Servicer, is obligated to dispose of Financed
Vehicles relating to Balloon Payment Receivables for which the Sale Option has
been exercised and to remit the net disposition proceeds to the Trust. The
Trust will sustain a loss on any Balloon Payment Receivable for which the Sale
Option is exercised to the extent that the net disposition proceeds of the
Financed Vehicle are less than the amount of the Balloon Payment due. BMW FS
and its affiliates have no responsibility for shortfalls resulting from any
failure of net disposition proceeds to satisfy the Balloon Payment due. Such
shortfalls on Balloon Payment Receivables will be borne by the Trust.
The composition and distribution by APR, geographic location,
remaining term, and remaining principal balance of the Initial Receivables as
of the Cutoff Date are set forth in the following tables.
Composition of the Initial Receivables
Aggregate principal balance................... $1,000,392,272.35
Number of Contracts........................... 49,553
Average principal balance outstanding......... $20,188.33
Average original amount financed.............. $25,703.84
Original amount financed (range)..............$1,500.00 to $110,038.81
Weighted average APR.......................... 7.90%
APR (range)................................... 0% to 23.70%
Weighted average original term................ 54.2 mos.
Original term (range)......................... 12 to 63 mos.
Weighted average remaining term............... 44.5 mos.
Remaining term (range)........................ 2 to 62 mos.
<PAGE>
<TABLE>
<CAPTION>
Distribution of the Initial Receivables by APR
Percentage of
Aggregate
Number of Aggregate Principal
APR Range Receivables Principal Balance Balance(1)
- --------- ----------- ----------------- ------------
<S> <C> <C> <C>
0.00 - 2.50............................................. 1,738 $22,408,233.59 2.24%
2.51 - 3.00............................................. 1,462 $55,767,918.44 5.57
3.51 - 4.00............................................. 3 $104,809.54 0.01
4.01 - 4.50............................................. 2,584 $36,667,506.87 3.67
4.51 - 5.00............................................. 596 $9,391,110.66 0.94
5.01 - 5.50............................................. 72 $1,496,804.24 0.15
5.51 - 6.00............................................. 4,145 $86,987,047.54 8.70
6.01 - 6.50............................................. 204 $2,062,165.73 0.21
6.51 - 7.00............................................. 3,310 $47,704,217.04 4.77
7.01 - 7.50............................................. 2,228 $49,296,870.77 4.93
7.51 - 8.00............................................. 7,198 $160,757,632.66 16.07
8.01 - 8.50............................................. 6,267 $154,695,010.72 15.46
8.51 - 9.00............................................. 5,532 $110,354,181.45 11.03
9.01 - 9.50............................................. 3,307 $68,847,934.56 6.88
9.51 - 10.00............................................ 3,561 $74,392,125.11 7.44
10.01 - 10.50........................................... 1,646 $29,185,039.00 2.92
10.51 - 11.00........................................... 1,859 $33,656,667.75 3.36
11.01 - 11.50........................................... 800 $12,905,974.27 1.29
11.51 - 12.00........................................... 1,075 $15,824,530.33 1.58
12.01 - 12.50........................................... 481 $7,241,627.12 0.72
12.51 - 13.00........................................... 664 $9,097,813.21 0.91
13.01 - 13.50........................................... 226 $3,368,999.99 0.34
13.51 - 14.00........................................... 268 $3,445,143.12 0.34
14.01 - 14.50........................................... 57 $792,754.46 0.08
14.51 - 15.00........................................... 94 $1,321,469.98 0.13
Greater than 15.00...................................... 176 $2,618,684.20 0.26
------ ------------------- -------
Totals......................................... 49,553 $1,000,392,272.35 100.00%
====== ================ ======
</TABLE>
- ----------------------
(1) Percentages may not add to 100% because of rounding.
<PAGE>
<TABLE>
<CAPTION>
Distribution of the Initial Receivables by Geographic Location(1)
Percentage of
Aggregate
Number of Aggregate Principal
State Receivables Principal Balance Balance(2)
----- ----------- ----------------- -------------
<S> <C> <C> <C>
Alabama.................................................. 325 $6,048,068.07 0.60%
Alaska................................................... 35 $564,211.06 0.06
Arizona.................................................. 730 $13,862,786.63 1.39
Arkansas................................................. 218 $5,165,243.66 0.52
California............................................... 10,701 $212,801,943.71 21.27
Colorado................................................. 768 $13,131,388.32 1.31
Connecticut.............................................. 981 $17,908,404.28 1.79
Delaware................................................. 314 $6,568,683.01 0.66
District of Columbia..................................... 204 $4,246,567.43 0.42
Florida.................................................. 2,462 $46,209,444.83 4.62
Georgia.................................................. 1,715 $34,254,645.52 3.42
Hawaii................................................... 241 $4,406,842.97 0.44
Idaho.................................................... 43 $611,656.13 0.06
Illinois................................................. 2,997 $64,214,365.08 6.42
Indiana.................................................. 385 $6,876,241.77 0.69
Iowa..................................................... 152 $2,523,342.05 0.25
Kansas................................................... 241 $4,822,205.72 0.48
Kentucky................................................. 212 $3,777,688.49 0.38
Louisiana................................................ 483 $9,638,173.23 0.96
Maine.................................................... 100 $1,608,101.67 0.16
Maryland................................................. 1,295 $22,915,219.96 2.29
Massachusetts............................................ 1,238 $23,881,821.90 2.39
Michigan................................................. 1,005 $20,584,816.55 2.06
Minnesota................................................ 293 $5,684,022.36 0.57
Mississippi.............................................. 112 $2,007,289.94 0.20
Missouri................................................. 689 $12,954,219.24 1.29
Montana.................................................. 23 $381,988.16 0.04
Nebraska................................................. 86 $1,560,883.85 0.16
Nevada................................................... 286 $5,919,627.66 0.59
New Hampshire............................................ 187 $3,191,341.33 0.32
New Jersey............................................... 2,492 $44,787,487.52 4.48
New Mexico............................................... 185 $3,813,865.42 0.38
New York................................................. 3,489 $63,620,084.17 6.36
North Carolina........................................... 917 $19,038,218.88 1.90
North Dakota............................................. 5 $110,496.45 0.01
Ohio..................................................... 966 $15,980,016.24 1.60
Oklahoma................................................. 253 $5,604,322.86 0.56
Oregon................................................... 536 $10,142,362.73 1.01
Pennsylvania............................................. 1,984 $38,844,082.60 3.88
Rhode Island............................................. 158 $3,221,998.17 0.32
South Carolina........................................... 660 $13,654,790.80 1.36
South Dakota............................................. 13 $151,654.20 0.02
Tennessee................................................ 613 $11,988,983.15 1.20
Texas.................................................... 5,892 $156,559,994.89 15.65
Utah..................................................... 233 $4,212,022.49 0.42
Vermont.................................................. 50 $761,719.59 0.08
Virginia................................................. 1,353 $26,612,367.68 2.66
Washington............................................... 988 $19,034,874.86 1.90
West Virginia............................................ 44 $637,916.72 0.06
Wisconsin................................................ 186 $3,081,689.36 0.31
Wyoming.................................................. 15 $212,088.99 0.02
-------- -------------------- -------
Totals........................................ 49,553 $1,000,392.272.35 100.00%
====== ================= ======
</TABLE>
- -----------------------
(1) Based on the location of the Obligor.
(2) Percentages may not add to 100% because of rounding.
<PAGE>
Distribution of the Initial Receivables by Remaining Term to Scheduled Maturity
<TABLE>
<CAPTION>
Percentage of
Aggregate
Number of Aggregate Principal
Remaining Term to Scheduled Maturity Receivables Principal Balance Balance(1)
------------------------------------ ----------- ----------------- -------------
<S> <C> <C> <C>
6 months or less.......................................... 1,919 $4,948,735.06 0.49%
7 to 12 months............................................ 2,428 $20,760,259.90 2.08
13 to 18 months........................................... 3,201 $44,013,205.34 4.40
19 to 24 months........................................... 2,744 $70,723,332.40 7.07
25 to 30 months.......................................... 2,612 $66,535,960.41 6.65
31 to 36 months.......................................... 2,729 $50,132,301.84 5.01
37 to 42 months.......................................... 3,945 $74,183,394.32 7.42
43 to 48 months.......................................... 9,491 $180,754,772.39 18.07
49 to 54 months.......................................... 7,045 $155,795,049.91 15.57
55 to 60 months.......................................... 13,084 $323,096,390.91 32.30
Greater than 60 months................................... 355 $9,448,869.87 0.94
-------- ------------------ --------
Totals.......................................... 49,553 $1,000,392,272.35 100.00%
====== ================ ======
</TABLE>
- ------------------
(1) Percentages may not add to 100% because of rounding.
<TABLE>
<CAPTION>
Distribution by Remaining Principal Balance of the Initial Receivables
Percentage of
Aggregate
Number of Aggregate Principal
Range of Remaining Principal Balances Receivables Principal Balance Balance(1)
------------------------------------- ----------- ----------------- -------------
<S> <C> <C> <C>
$0 - 2,500................................................ 1,846 $2,745,610.20 0.27%
$2,501 - 5,000............................................ 2,562 $9,750,711.45 0.97
$5,001 - 7,500............................................ 3,315 $20,771,298.62 2.08
$7,501 - 10,000........................................... 3,456 $30,325,562.96 3.03
$10,001 - 12,500.......................................... 3,729 $42,033,262.53 4.20
$12,501 - 15,000.......................................... 4,054 $55,896,792.58 5.59
$15,001 - 17,500.......................................... 3,996 $64,913,051.49 6.49
$17,501 - 20,000.......................................... 4,004 $75,045,643.33 7.50
$20,001 - 22,500.......................................... 3,509 $74,572,036.82 7.45
$22,501 - 25,000.......................................... 3,547 $84,193,662.84 8.42
$25,001 - 27,500.......................................... 2,881 $75,597,500.45 7.56
$27,501 - 30,000.......................................... 2,709 $77,847,485.93 7.78
$30,001 - 32,500.......................................... 2,236 $69,772,551.16 6.97
$32,501 - 35,000.......................................... 1,823 $61,477,392.91 6.15
$35,001 - 37,500.......................................... 1,456 $52,746,397.34 5.27
$37,501 - 40,000.......................................... 1,128 $43,670,499.78 4.37
$40,001 - 42,500.......................................... 833 $34,311,369.51 3.43
$42,501 - 45,000.......................................... 560 $24,449,969.78 2.44
$45,001 - 47,500.......................................... 502 $23,209,094.62 2.32
$47,501 - 50,000.......................................... 408 $19,872,989.32 1.99
$50,001 - 52,500.......................................... 285 $14,583,558.03 1.46
$52,501 - 55,000.......................................... 194 $10,424,007.27 1.04
$55,001 - 57,500.......................................... 145 $8,137,677.11 0.81
$57,501 - 60,000.......................................... 139 $8,164,823.36 0.82
$60,001 - 62,500.......................................... 82 $5,013,771.10 0.50
$62,501 - 65,000.......................................... 37 $2,352,350.31 0.24
Greater than 65,000....................................... 117 $8,513,201.55 0.85
---------- ------------------- ----
Totals............................................ 49,553 $1,000,392,272.35 100.00%
====== ================= ======
</TABLE>
- ---------------------
(1) Percentages may not add to 100% because of rounding.
<PAGE>
Other than the Balloon Payment Receivables, all of the Receivables
provide for the payment by the related Obligor of a specific total amount of
payments, payable in substantially equal monthly installments on each
scheduled payment date, which total represents the amount financed plus
interest charges on the amount financed for the term of such Receivable. The
Balloon Payment Receivables provide for the payment by the related Obligor of
substantially equal monthly payments with a substantially larger payment due
at the end of the term of that Receivable. Each Receivable provides for
allocation of payments according to the simple interest method.
Payments on the Receivables will be applied first to interest accrued
through the date immediately preceding the day of payment and then to unpaid
principal. Accordingly, if an Obligor pays an installment before its due date,
the portion of the payment allocated to interest for the payment period will
be less than if the payment had been made on the due date and 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 the prepayment in full (voluntarily or by
acceleration) of a Receivable, the Obligor will be required to pay interest
only to the date immediately preceding the date of prepayment.
THE DEPOSITOR
The Depositor is a bankruptcy-remote, special purpose Delaware
corporation. The Depositor was incorporated in the State of Delaware on
November 7, 1997. The principal executive offices of the Depositor are located
at Seven World Trade Center, New York, New York 10048; telephone (212)
783-7000.
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by
the Trust to purchase the Initial Receivables from the Depositor and to fund
the initial deposit to the Reserve Account, the Certificate Interest Reserve
Account, the Pre-Funding Account and the Capitalized Interest Account. The
Depositor will apply the net proceeds to it to purchase the Initial
Receivables from the Sellers.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Holders of the Class A-2 Notes will not receive any principal
payments until the Class A-1 Notes have been paid in full. Holders of the
Class A-3 Notes will not receive any principal payments until the Class A-1
Notes and the Class A-2 Notes have been paid in full. Holders of the Class A-4
Notes will not receive any principal payments until the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes have been paid in full. Holders of the
Certificates will not receive any principal payments until the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes have
been paid in full. See "Description of the Notes--Payments of Principal" and
"Description of the Certificates" herein. Final payment of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes or the
Certificates could occur significantly earlier than the Class A-1 Final
Scheduled Distribution Date, the Class A-2 Final Scheduled Distribution Date,
the Class A-3 Final Scheduled Distribution Date, the Class A-4 Final Scheduled
Distribution Date or the Certificate Final Scheduled Distribution Date, as
applicable, since the rate of payment of principal of each Class of Notes and
the Certificates will depend on the rate of payment (including prepayments) of
the principal balance of the Receivables.
Payments on the Receivables may be in the form of scheduled payments
or prepayments. Prepayments will include prepayments in full, partial
prepayments, liquidations due to defaults, losses caused by the issuance of an
order by a court in any insolvency proceeding reducing the amount owed under a
Receivable, as well as receipts of proceeds from physical damage, loss upon
repossession, credit life and credit accident and health insurance policies
and the Purchase Amounts of purchased receivables. The Receivables may be
prepaid at any time without penalty to the Obligors. The rate of prepayment of
the Receivables may be influenced by a variety of economic, social and other
factors. The rate of prepayments on the Receivables also may be affected by
the nature of the Obligors and the Financed Vehicles and servicing decisions.
In addition, under certain circumstances, the Sellers or the Servicer may be
obligated to purchase Receivables with respect to which they are in breach of
certain representations, warranties or covenants under the Receivables
Purchase Agreement or Sale and Servicing Agreement, as applicable. See also
"Description of the Notes--Optional Redemption" regarding the Servicer's
option to purchase the Receivables when the Pool Balance is reduced to 10% or
less of the sum of the Initial Pool Balance and the amount on deposit in the
Pre-Funding Account on the Closing Date.
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of the Receivables will be borne entirely by the Securityholders.
Prepayments on automotive, motorcycle and sport utility receivables
can be measured relative to a prepayment standard or model. The model used
herein, the Absolute Prepayment Model ("ABS"), represents an assumed rate of
prepayment each month relative to the original number of receivables in a pool
of receivables. ABS further assumes that all the receivables are the same size
and amortize at the same rate and that each receivable in each month of its
life will either be paid as scheduled or be prepaid in full. For example, in a
pool of receivables originally containing 10,000 receivables, a 1% ABS rate
means that 100 receivables prepay each month. ABS does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of receivables, including the
Receivables.
The table captioned "Percent of Initial Security Principal Balance at
Various ABS Percentages" (the "ABS Table") has been prepared on the basis of
the following assumptions:
(1) the Trust includes 20 pools of Initial Receivables and 1 pool of
Subsequent Receivables with the characteristics set forth in
the following table;
(2) the Receivables prepay in full at the specified constant
percentage of ABS monthly;
(3) each scheduled monthly payment on the Receivables is made
on the last day of each month and each month has 30 days;
(4) the initial principal amount of each Class of Notes and
the Certificates are as set forth on the cover page hereof;
(5) interest accrues during each Interest Period at the applicable
Note Rate or Pass-Through Rate;
(6) payments on the Securities are made on the 25th day of each
month whether or not a Business Day;
(7) the Securities are purchased on the Closing Date;
(8) the scheduled monthly payment for each Receivable has been
calculated on the basis of the assumed characteristics in the
following table such that each Receivable will amortize in
amounts sufficient to repay the principal balance of such
Receivable by its indicated remaining term to maturity;
(9) the assumed cutoff date for each Initial Receivable is the close
of business on August 31, 1999;
(10) the entire Pre-Funded Amount is used to purchase Subsequent
Receivables on the last day of the Collection Period in
December 1999; and
(11) the Servicer does not exercise its option to purchase the
Receivables, except as described therein.
<PAGE>
Initial Receivables
<TABLE>
<CAPTION>
Amortized Number
Original Stated Remaining Remaining Of Months
Aggregate Principal Term Term Term Payment
Pool Balance APR in Months) (in Months) (in Months) Delay
---- ------------------- --- ---------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 $143,606,941.43 9.572% 40 25 81 0
2 4,506,501.95 9.168% 26 20 20 0
3 8,196,678.14 9.129% 35 19 18 0
4 8,489,733.37 9.718% 60 10 10 0
5 54,574,744.88 9.374% 48 41 41 0
6 114,723,832.34 9.435% 58 42 42 0
7 204,875,411.53 9.482% 60 55 55 0
8 34,865,895.28 7.043% 35 21 78 0
9 2,452,198.81 6.334% 25 20 22 0
10 3,635,145.98 7.029% 35 19 19 0
11 17,075,465.06 6.834% 60 12 12 0
12 49,501,031.96 6.531% 48 42 41 0
13 73,538,328.25 6.516% 59 43 43 0
14 270,005,375.24 5.629% 60 56 56 0
15 3,231,898.49 9.255% 60 60 60 1
16 496,965.93 8.807% 42 42 42 1
17 388,954.12 5.717% 44 44 44 1
18 5,799,175.79 4.408% 60 60 60 1
19 144,123.05 8.882% 58 58 57 2
20 283,870.75 3.005% 60 60 60 2
----------
Total $1,000,392,272.35
=================
</TABLE>
Subsequent Receivables
<TABLE>
<CAPTION>
Amortized Number
Original Stated Remaining Remaining Of Months
Aggregate Principal Term Term Term Payment
Pool Balance APR in Months) (in Months) (in Months) Delay
---- ------------------- --- ---------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 $112,777,957.15 9.250% 54 52 52 0
</TABLE>
The ABS Table indicates, based on the assumptions set forth above,
the percentages of the initial principal amount of each Class of Notes and the
Certificates that would be outstanding after each of the Distribution Dates
shown at various percentages of ABS and the corresponding weighted average
lives of such Securities. The actual characteristics and performance of the
Receivables will differ from the assumptions used in constructing the ABS
Table. The assumptions used are hypothetical and have been provided only to
give a general sense of how the principal cash flows might behave under
varying prepayment scenarios. For example, it is very unlikely that the
Receivables will prepay at a constant level of ABS until maturity or that all
of the Receivables will prepay at the same level of ABS. Moreover, the diverse
terms of the Receivables could produce slower or faster principal
distributions than indicated in the ABS Table at the various constant
percentages of ABS specified.
<PAGE>
Percent of Initial Security Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A-1 Class A-2
Notes Notes
Distribution Date 0.50% 1.00% 1.50% 2.00% 2.50% 0.50% 1.00% 1.50% 2.00% 2.50%
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date........... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
October 1999 88 85 81 70 62 100 100 100 100 100
November 1999 76 70 62 45 37 100 100 100 100 100
December 1999 63 55 44 25 13 100 100 100 100 100
January 2000 51 40 26 5 0 100 100 100 100 96
February 2000 38 24 7 0 0 100 100 100 93 84
March 2000 25 8 0 0 0 100 100 95 83 72
April 2000 11 0 0 0 0 100 97 86 73 60
May 2000 0 0 0 0 0 100 90 78 64 49
June 2000 0 0 0 0 0 94 83 70 55 38
July 2000 0 0 0 0 0 88 76 61 46 28
August 2000 0 0 0 0 0 82 69 54 37 17
September 2000 0 0 0 0 0 76 62 46 28 7
October 2000 0 0 0 0 0 71 56 39 19 0
November 2000 0 0 0 0 0 65 49 31 11 0
December 2000 0 0 0 0 0 60 43 24 3 0
January 2001 0 0 0 0 0 55 37 17 0 0
February 2001 0 0 0 0 0 49 31 10 0 0
March 2001 0 0 0 0 0 44 25 4 0 0
April 2001 0 0 0 0 0 38 19 0 0 0
May 2001 0 0 0 0 0 33 13 0 0 0
June 2001 0 0 0 0 0 22 3 0 0 0
July 2001 0 0 0 0 0 17 0 0 0 0
August 2001 0 0 0 0 0 12 0 0 0 0
September 2001 0 0 0 0 0 7 0 0 0 0
October 2001 0 0 0 0 0 0 0 0 0 0
Avg.Life (years)(1)
To Maturity.. 0.37 0.31 0.26 0.19 0.17 1.42 1.20 1.00 0.83 0.70
To 10% Call.. 0.37 0.31 0.26 0.19 0.17 1.42 1.20 1.00 0.83 0.70
</TABLE>
- ---------------------
(1) The weighted average life of a Note is determined by (1) multiplying
the amount of each principal payment on a Note by the number of years
from the date of the issuance of the Note to the related Distribution
Date, (2) adding the results and (3) dividing the sum by the related
initial principal amount of the Note.
<PAGE>
<TABLE>
<CAPTION>
Class A-3 Class A-4
Notes Notes
Distribution Date 0.50% 1.00% 1.50% 2.00% 2.50% 0.50% 1.00% 1.50% 2.00% 2.50%
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date........... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
October 1999 100 100 100 100 100 100 100 100 100 100
November 1999 100 100 100 100 100 100 100 100 100 100
December 1999 100 100 100 100 100 100 100 100 100 100
January 2000 100 100 100 100 100 100 100 100 100 100
February 2000 100 100 100 100 100 100 100 100 100 100
March 2000 100 100 100 100 100 100 100 100 100 100
April 2000 100 100 100 100 100 100 100 100 100 100
May 2000 100 100 100 100 100 100 100 100 100 100
June 2000 100 100 100 100 100 100 100 100 100 100
July 2000 100 100 100 100 100 100 100 100 100 100
August 2000 100 100 100 100 100 100 100 100 100 100
September 2000 100 100 100 100 100 100 100 100 100 100
October 2000 100 100 100 100 97 100 100 100 100 100
November 2000 100 100 100 100 84 100 100 100 100 100
December 2000 100 100 100 100 72 100 100 100 100 100
January 2001 100 100 100 94 60 100 100 100 100 100
February 2001 100 100 100 83 49 100 100 100 100 100
March 2001 100 100 100 74 38 100 100 100 100 100
April 2001 100 100 96 64 27 100 100 100 100 100
May 2001 100 100 88 55 17 100 100 100 100 100
June 2001 100 100 74 42 5 100 100 100 100 100
July 2001 100 96 67 34 0 100 100 100 100 94
August 2001 100 89 59 26 0 100 100 100 100 79
September 2001 100 82 52 18 0 100 100 100 100 64
October 2001 72 50 26 0 0 100 100 100 100 53
November 2001 66 44 20 0 0 100 100 100 90 44
December 2001 60 38 15 0 0 100 100 100 80 36
January 2002 54 32 9 0 0 100 100 100 71 28
February 2002 49 27 4 0 0 100 100 100 62 21
March 2002 43 21 0 0 0 100 100 97 53 14
April 2002 37 16 0 0 0 100 100 88 45 8
May 2002 31 11 0 0 0 100 100 80 38 2
June 2002 26 5 0 0 0 100 100 72 31 0
July 2002 20 0 0 0 0 100 100 64 24 0
August 2002 14 0 0 0 0 100 92 56 19 0
September 2002 9 0 0 0 0 100 83 49 14 0
October 2002 3 0 0 0 0 100 75 42 9 0
November 2002 0 0 0 0 0 96 67 36 4 0
December 2002 0 0 0 0 0 86 59 30 0 0
January 2003 0 0 0 0 0 76 51 24 0 0
February 2003 0 0 0 0 0 67 43 18 0 0
March 2003 0 0 0 0 0 59 37 14 0 0
April 2003 0 0 0 0 0 52 31 10 0 0
May 2003 0 0 0 0 0 46 27 6 0 0
June 2003 0 0 0 0 0 40 22 3 0 0
July 2003 0 0 0 0 0 35 18 0 0 0
August 2003 0 0 0 0 0 29 13 0 0 0
September 2003 0 0 0 0 0 23 9 0 0 0
October 2003 0 0 0 0 0 18 5 0 0 0
November 2003 0 0 0 0 0 12 1 0 0 0
December 2003 0 0 0 0 0 6 0 0 0 0
January 2004 0 0 0 0 0 1 0 0 0 0
February 2004 0 0 0 0 0 0 0 0 0 0
Avg.Life (years)(1)
To Maturity........ 2.48 2.25 2.00 1.73 1.45 3.69 3.43 3.06 2.61 2.19
To 10% Call........ 2.48 2.25 2.00 1.73 1.45 3.56 3.26 2.91 2.49 2.10
</TABLE>
- -------------------
(1) The weighted average life of a Note is determined by (1) multiplying
the amount of each principal payment on a Note by the number of years
from the date of the issuance of the Note to the related Distribution
Date, (2) adding the results and (3) dividing the sum by the related
initial principal amount of the Note.
<PAGE>
<TABLE>
<CAPTION>
Certificates
Distribution Date 0.50% 1.00% 1.50% 2.00% 2.50%
----------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date........... 100% 100% 100% 100% 100%
October 1999 100 100 100 100 100
November 1999 100 100 100 100 100
December 1999 100 100 100 100 100
January 2000 100 100 100 100 100
February 2000 100 100 100 100 100
March 2000 100 100 100 100 100
April 2000 100 100 100 100 100
May 2000 100 100 100 100 100
June 2000 100 100 100 100 100
July 2000 100 100 100 100 100
August 2000 100 100 100 100 100
September 2000 100 100 100 100 100
October 2000 100 100 100 100 100
November 2000 100 100 100 100 100
December 2000 100 100 100 100 100
January 2001 100 100 100 100 100
February 2001 100 100 100 100 100
March 2001 100 100 100 100 100
April 2001 100 100 100 100 100
May 2001 100 100 100 100 100
June 2001 100 100 100 100 100
July 2001 100 100 100 100 100
August 2001 100 100 100 100 100
September 2001 100 100 100 100 100
October 2001 100 100 100 100 100
November 2001 100 100 100 100 100
December 2001 100 100 100 100 100
January 2002 100 100 100 100 100
February 2002 100 100 100 100 100
March 2002 100 100 100 100 100
April 2002 100 100 100 100 100
May 2002 100 100 100 100 100
June 2002 100 100 100 100 80
July 2002 100 100 100 100 54
August 2002 100 100 100 100 31
September 2002 100 100 100 100 18
October 2002 100 100 100 100 13
November 2002 100 100 100 100 9
December 2002 100 100 100 100 5
January 2003 100 100 100 83 2
February 2003 100 100 100 66 0
March 2003 100 100 100 51 0
April 2003 100 100 100 37 0
May 2003 100 100 100 25 0
June 2003 100 100 100 15 0
July 2003 100 100 100 8 0
August 2003 100 100 85 6 0
September 2003 100 100 71 4 0
October 2003 100 100 58 2 0
November 2003 100 100 46 1 0
December 2003 100 85 36 0 0
January 2004 100 66 26 0 0
February 2004 76 47 18 0 0
March 2004 48 29 10 0 0
April 2004 20 12 4 0 0
May 2004 2 1 0 0 0
June 2004 2 1 0 0 0
July 2004 1 1 0 0 0
August 2004 1 0 0 0 0
September 2004 0 0 0 0 0
October 2004 0 0 0 0 0
November 2004 0 0 0 0 0
Avg.Life (years)(1)
To Maturity........ 4.53 4.44 4.20 3.57 2.92
To 10% Call........ 3.74 3.41 3.07 2.66 2.24
</TABLE>
- -----------------
(1) The weighted average life of a Certificate is determined by (1)
multiplying the amount of each principal payment on a Certificate by
the number of years from the date of the issuance of the Certificate
to the related Distribution Date, (2) adding the results and (3)
dividing the sum by the related initial principal amount of the
Certificate.
<PAGE>
DESCRIPTION OF THE NOTES
General
The Trust will issue its [o]% Asset Backed Notes, Class A-1 (the
"Class A-1 Notes") in an aggregate initial principal amount of $190,000,000
(the "Initial Class A-1 Note Balance"), its [o]% Asset Backed Notes, Class A-2
(the "Class A-2 Notes") in an aggregate initial principal amount of
$400,000,000 (the "Initial Class A-2 Note Balance"), its [o]% Asset Backed
Notes, Class A-3 (the "Class A-3 Notes") in an aggregate initial principal
amount of $300,000,000 (the "Initial Class A-3 Note Balance") and its [o]%
Asset Backed Notes, Class A-4 (the "Class A-4 Notes" and, together with the
Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, the "Notes") in
an aggregate initial principal amount of $171,600,000 (the "Initial Class A-4
Note Balance") pursuant to an Indenture dated as of September 1, 1999 (the
"Indenture"), between the Trust and the Indenture Trustee, a form of which has
been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Notes. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is subject to, and
qualified by reference to, all the provisions of the Notes and the Indenture.
The following summary supplements and, to the extent inconsistent therewith,
replaces the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the Prospectus, to
which description reference is hereby made.
Payments of Interest
Interest with respect to each Distribution Date will accrue on the
principal balance of the Class A-1 Notes (the "Class A-1 Monthly Interest
Distributable Amount") at the Class A-1 Rate. Interest with respect to each
Distribution Date will accrue on the principal balance of the Class A-2 Notes
(the "Class A-2 Monthly Interest Distributable Amount") at the Class A-2 Rate.
Interest with respect to each Distribution Date will accrue on the principal
balance of the Class A-3 Notes (the "Class A-3 Monthly Interest Distributable
Amount") at the Class A-3 Rate. Interest with respect to each Distribution
Date will accrue on the principal balance of the Class A-4 Notes (the "Class
A-4 Monthly Interest Distributable Amount") at the Class A-4 Rate. Such
interest will be payable to the holders of the Notes on each Distribution
Date, commencing on October 25, 1999. Interest on the Class A-1 Notes, with
respect to any Distribution Date, will accrue from the preceding Distribution
Date through the day immediately preceding such Distribution Date. Interest on
the Notes (other than the Class A-1 Notes), with respect to any Distribution
Date, will accrue from and including the 25th day of the preceding calendar
month (or, in the case of the first Distribution Date, from and including the
Closing Date) to and including the 24th day of the calendar month in which
such Distribution Date occurs. Interest on the Class A-1 Notes will be
calculated on the basis of the number of days in the related Interest Accrual
Period and a 360-day year. Interest on the Notes (other than the Class A-1
Notes) will be calculated on the basis of a 360-day year consisting of twelve
30-day months. Interest accrued as of any Distribution Date but not paid on
such Distribution Date will be due on the next Distribution Date, together
with interest on such overdue interest (to the extent lawful) at the Class A-1
Rate, the Class A-2 Rate, the Class A-3 Rate or the Class A-4 Rate, as
applicable (the "Class A-1 Interest Carryover Shortfall", "Class A-2 Interest
Carryover Shortfall", "Class A-3 Interest Carryover Shortfall" and "Class A-4
Interest Carryover Shortfall", respectively).
The Class A-1 Monthly Interest Distributable Amount and the Class A-1
Interest Carryover Shortfall are referred to herein collectively as the "Class
A-1 Interest Distributable Amount"; the Class A-2 Monthly Interest
Distributable Amount and the Class A-2 Interest Carryover Shortfall are
referred to herein collectively as the "Class A-2 Interest Distributable
Amount"; the Class A-3 Monthly Interest Distributable Amount and the Class A-3
Interest Carryover Shortfall are referred to herein collectively as the "Class
A-3 Interest Distributable Amount"; and the Class A-4 Monthly Interest
Distributable Amount and the Class A-4 Interest Carryover Shortfall are
referred to herein collectively as the "Class A-4 Interest Distributable
Amount."
Interest payments on the Notes will generally be made from the Total
Distribution Amount remaining after payment of the Servicing Fee. In the event
such remaining amount is insufficient to pay the Noteholders' Interest
Distributable Amount in full, that shortfall will be paid from amounts, if
any, available in the Reserve Account. See "Description of the Transfer and
Servicing Agreements--Distributions." Interest payments to holders of the
Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4
Notes will have the same priority. Under limited circumstances, amounts
available to make interest payments on the Notes could be less than the full
amount of interest payable on the Notes on a Distribution Date, in which case
the Noteholders will receive their ratable share of that amount, based on the
aggregate amount of interest due on that date on each class of the Notes.
The "Class A-1 Rate" will be [o]% per annum. The "Class A-2 Rate"
will be [o]% per annum. The "Class A-3 Rate" will be [o]% per annum. The
"Class A-4 Rate" will be [o]% per annum.
"Distribution Date" means, with respect to each Collection Period,
the twenty-fifth day of the following month or, if such day is not a Business
Day, the immediately following Business Day, commencing on October 25, 1999.
Payments on the Notes will be made on each Distribution Date to holders of
record of the Notes (the "Noteholders") as of the close of business on the day
immediately preceding such Distribution Date (the "Record Date").
The "Collection Period" with respect to any Distribution Date will be
the calendar month preceding the month in which that Distribution Date occurs.
As used herein, "Business Day" means any day other than a Saturday, a
Sunday, a legal holiday or any other day on which national banking
institutions or commercial banking institutions in the States of New York, New
Jersey, Ohio or Delaware are authorized or required by law, executive order or
governmental decree to be closed.
Payments of Principal
Principal payments will be made to the Noteholders on each
Distribution Date in an amount generally equal to the Noteholders' Principal
Distributable Amount for such Distribution Date.
The "Noteholders' Principal Distributable Amount" means, with respect
to any Distribution Date, the greater of (1) the lesser of (a) the Regular
Principal Distribution Amount on such Distribution Date and (b) the principal
balance of the Class A-1 Notes immediately prior to that Distribution Date and
(2) the excess, if any, of (x) the aggregate outstanding principal amount of
the Securities as of the day immediately preceding such Distribution Date over
(y) the sum of the Pool Balance at the end of the related Collection Period
and the amount, if any, on deposit in the Pre-Funding Account less the Yield
Supplement Overcollateralization Amount with respect to such Distribution
Date; provided, however, that the Noteholders' Principal Distributable Amount
shall not exceed the outstanding principal balance of the Notes; and provided,
further, that:
(1) the Noteholders' Principal Distributable Amount on the
Class A-1 Final Scheduled Distribution Date shall not be less than
the amount that is necessary to reduce the outstanding principal
balance of the Class A-1 Notes to zero;
(2) the Noteholders' Principal Distributable Amount on the
Class A-2 Final Scheduled Distribution Date shall not be less than
the amount that is necessary to reduce the outstanding principal
balance of the Class A-2 Notes to zero;
(3) the Noteholders' Principal Distributable Amount on the
Class A-3 Final Scheduled Distribution Date shall not be less than
the amount that is necessary to reduce the outstanding principal
balance of the Class A-3 Notes to zero; and
(4) the Noteholders' Principal Distributable Amount on the
Class A-4 Final Scheduled Distribution Date shall not be less than
the amount that is necessary to reduce the outstanding principal
balance of the Class A-4 Notes to zero.
Principal payments will be made to the Noteholders in sequential
order. No principal payments will be made on the Class A-2 Notes until the
Class A-1 Notes have been paid in full. No principal payments will be made on
the Class A-3 Notes until the Class A-2 Notes have been paid in full. No
principal payments will be made on the Class A-4 Notes until the Class A-3
Notes have been paid in full.
The principal balance of the Class A-1 Notes, to the extent not
previously paid, will be due on the Distribution Date in August 2000 (the
"Class A-1 Final Scheduled Distribution Date"). The principal balance of the
Class A-2 Notes, to the extent not previously paid, will be due on the
Distribution Date in December 2001 (the "Class A-2 Final Scheduled
Distribution Date"). The principal balance of the Class A-3 Notes, to the
extent not previously paid, will be due on the Distribution Date in April 2003
(the "Class A-3 Final Scheduled Distribution Date"). The principal balance of
the Class A-4 Notes, to the extent not previously paid, will be due on the
Distribution Date in April 2004 (the "Class A-4 Final Scheduled Distribution
Date"). The actual date on which the aggregate outstanding principal amount of
any of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the
Class A-4 Notes is paid in full may be earlier than the applicable Final
Scheduled Distribution Date due to a variety of factors, including those
described herein under "Weighted Average Life of the Securities."
Mandatory Redemption
The Notes are subject to partial mandatory redemption on the
Mandatory Redemption Date if any portion of the Pre-Funded Amount remains on
deposit in the Pre-Funding Account after giving effect to the purchase of all
Subsequent Receivables, including those purchases, if any, made on the last
day of the Funding Period. If the amount on deposit in the Pre-Funding Account
is $100,000 or less, then such amount will be applied in reduction of the
principal balance of the Class A-1 Notes. If the amount on deposit in the
Pre-Funding Account exceeds $100,000, then such amount will be applied in
reduction of the principal balance of each Class of Notes based on the
respective principal balances thereof as of the preceding Distribution Date.
The "Mandatory Redemption Date" is the Distribution Date immediately following
the end of the Funding Period.
Optional Redemption
The Notes will be subject to early retirement, in whole but not in
part, on any Distribution Date on which the Servicer exercises its option to
purchase the Receivables. Under the terms of the Sale and Servicing Agreement,
the Servicer may purchase the Receivables when the Pool Balance has been
reduced to 10% or less of the sum of the Initial Pool Balance and the amount
on deposit in the Pre-Funding Account on the Closing Date. The "Pool Balance"
on any Distribution Date will equal the aggregate principal balance of the
Receivables at the end of the related Collection Period, after giving effect
to all payments of principal received from Obligors and Purchase Amounts to be
remitted by the Servicer or the Sellers, as the case may be, for such
Collection Period, and after reduction to zero of the aggregate outstanding
principal balance of all Receivables that became Liquidated Receivables during
such Collection Period. The "Initial Pool Balance" will equal the aggregate
principal balance of the Receivables as of the Cutoff Date. Any such purchase
of the Receivables by the Servicer will result in the early retirement of the
outstanding Notes at a purchase price equal to the outstanding principal
amounts thereof plus accrued and unpaid interest thereon.
Certain Provisions of the Indenture
Indenture Events of Default; Rights upon Indenture Event of Default.
"Events of Default" under the Indenture ("Indenture Events of Default") will
consist of:
(1) a default for five days or more in the payment of any
interest on any Note when the same becomes due and payable;
(2) a default in the payment of principal of any Note when
the same becomes due and payable upon maturity;
(3) a default in the observance or performance in any
material respect of any other covenant or agreement of the Trust made
in the Indenture 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 50% of the aggregate outstanding principal amount of the
Notes;
(4) 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 if such breach is not cured within 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 50% of the
aggregate outstanding principal amount of the Notes; or
(5) certain events of bankruptcy, insolvency, receivership,
conservatorship or liquidation with respect to the Trust. The amount
of principal required to be paid to Noteholders under the Indenture
on any Distribution Date will generally be limited to amounts
available to be deposited in the Note Distribution Account;
therefore, the failure to pay principal on a class of Notes will
generally not result in the occurrence of an Event of Default under
the Indenture until the applicable Final Scheduled Distribution Date
for such class of Notes.
If an Indenture Event of Default occurs, then the Indenture Trustee
may and at the direction of the holders of not less than a majority of the
outstanding principal amount of the Notes shall declare the Notes to be
immediately due and payable. Under such circumstances, the Indenture Trustee
may institute proceedings to foreclose on the Receivables, may exercise any
other remedies as a secured party, including selling the Receivables, or may
elect to maintain possession of the Receivables and continue to apply
collections on the Receivables as if there had been no declaration of
acceleration. The Indenture Trustee will be prohibited from selling the
Receivables following an Indenture Event of Default other than an Indenture
Event of Default listed in clauses (1) or (2) of the immediately preceding
paragraph, however, unless (a) the holders of all the outstanding Notes
consent to such sale; (b) the proceeds of such sale are sufficient to pay in
full the principal of and accrued interest on such outstanding Notes at the
date of such sale; or (c) the Indenture Trustee determines based solely on an
analysis provided by an independent accounting firm (which shall not be at the
expense of the Indenture Trustee) 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 the holders
of Notes representing a majority of the aggregate outstanding principal amount
of the Notes. Any proceeds received in connection with a sale of the
Receivables described in this paragraph shall be distributed to the
Securityholders in sequential order to the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes, in that order until each such Class is reduced to zero.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, if an Indenture Event of Default occurs and is
continuing with respect to the Notes, the Indenture Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Noteholders if the Indenture Trustee
believes it will not be adequately indemnified against the costs, expenses and
liabilities that it might incur in complying with such request. Subject to the
provisions for indemnification and certain limitations contained in the
Indenture, the holders of a majority of the aggregate outstanding principal
amount of the Notes will have the right to direct the time, method and place
of conducting any proceeding or exercising any remedy available to the
Indenture Trustee; in addition, the holders of Notes representing a majority
of the aggregate outstanding principal amount of the Notes may, in certain
cases, waive any Indenture Event of Default except a default in the payment of
principal of or interest on any Note or a default in respect of a covenant or
provision of the Indenture that cannot be modified or amended without the
waiver or consent of the holders of all the outstanding Notes.
No holder of a Note will have the right to institute any proceeding
with respect to the Indenture unless:
(1) such holder previously has given to the Indenture
Trustee written notice of a continuing Indenture Event of Default;
(2) the holders of not less than 25% of the outstanding
principal amount of the Notes have made written request to the
Indenture Trustee to institute such proceeding in its own name as
Indenture Trustee;
(3) such holder or holders have offered the Indenture
Trustee indemnity satisfactory to the Indenture Trustee;
(4) the Indenture Trustee has for 60 days failed to
institute such proceeding; and
(5) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
holders of a majority of the outstanding principal amount of the
Notes.
None of the Indenture Trustee or the Owner Trustee in its individual
capacity, any Certificateholder or any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors,
or assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of principal of or interest on the Notes or
for the agreements of the Trust contained in the Indenture.
Each Noteholder, by accepting a Note, and the Indenture Trustee will
covenant that they will not at any time institute against the Trust or the
Depositor any bankruptcy, reorganization or other proceeding under any federal
or state bankruptcy or similar law.
The Trust may not engage in any activity other than as described
herein. The Trust may not incur, assume or guarantee any indebtedness other
than indebtedness incurred pursuant to the Notes and the Indenture.
Certain Covenants. The Trust may not consolidate with or merge into
any other entity unless:
(1) 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;
(2) such entity expressly assumes the Trust's obligation to
make due and punctual payments on the Notes and to perform or observe
every agreement and covenant of the Trust under the Indenture;
(3) no Indenture Event of Default shall have occurred
immediately after such merger or consolidation;
(4) the Trust has been advised by each Rating Agency that
such merger or consolidation will not result in the qualification,
reduction or withdrawal of such Rating Agency's then-current rating
of any class of the Notes; and
(5) the Trust shall have received an opinion of counsel to
the effect that such consolidation or merger will have no material
adverse federal tax consequence to the Trust or to any
Securityholder.
The Trust will not:
(1) except as expressly permitted by the Indenture or the
Transfer and Servicing Agreements, sell, transfer, exchange or
otherwise dispose of any of the assets of the Trust;
(2) claim any credit on or make any deduction from the
principal and interest payable in respect of the Notes (other than
amounts withheld under the Code or applicable state tax laws) or
assert any claim against any present or former holder of the Notes
because of the payment of taxes levied or assessed upon the Trust;
(3) dissolve or liquidate in whole or in part;
(4) 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;
(5) 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; or
(6) permit the lien of the Indenture not to constitute a
valid first priority perfected security interest (other than with
respect to a tax, mechanics' or similar lien) in the assets of the
Trust.
Modification of Indenture. The Trust and the Indenture Trustee may,
with the consent of the holders of a majority of the aggregate outstanding
principal amount of the Notes, execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the
Indenture, or modify (except as provided below) in any manner the rights of
the Noteholders. However, without the consent of the holder of each
outstanding Note affected thereby, no supplemental indenture may
(1) change the due date of any installment of principal of
or interest on the Notes or reduce the principal amount thereof, the
interest rate specified thereon or the redemption price with respect
thereto or change any place of payment where or the coin or currency
in which the Notes or any interest thereon is payable;
(2) impair the right to institute suit for the
enforcement of certain provisions of the Indenture
regarding payment;
(3) reduce the percentage of the aggregate outstanding
amount of the Notes, the consent of the holders of which is required
for any such supplemental indenture or 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;
(4) modify or alter the provisions of the Indenture
regarding the voting of Notes held by the Trust, any other obligor on
the Notes, the Depositor or an affiliate of any of them;
(5) reduce the percentage of the aggregate outstanding
amount of the Notes, the consent of the holders of which is required
to direct the Indenture Trustee to sell or liquidate the Receivables
if the proceeds of such sale would be insufficient to pay the
principal amount and accrued and unpaid interest on the outstanding
Notes;
(6) decrease the percentage of the aggregate principal
amount of the Notes required to amend the sections of the Indenture
that specify the percentage of the aggregate principal amount of the
Notes necessary to amend the Indenture or certain other related
agreements; or
(7) 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 the Indenture on
the collateral or deprive any holder of the Notes of the security
afforded by the lien of the Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders, for the purpose
of, among other things, adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying in any
manner the rights of the Noteholders; provided that such action does not, as
evidenced by an opinion of counsel, materially and adversely affect the
interests of any Noteholder; provided, however, that such amendment shall be
deemed not to materially and adversely affect the interests of any Noteholder,
and no such opinion of counsel shall be required, if the rating agencies
confirm that the amendment will not result in the withdrawal, qualification or
reduction of the then current ratings of the Notes.
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 the Indenture Trustee of funds sufficient for
the payment in full of all the Notes.
The Indenture Trustee
The Chase Manhattan Bank, a New York banking corporation, will be the
Indenture Trustee under the Indenture (the "Indenture Trustee"). The Indenture
Trustee may resign at any time, in which event the Trust will be obligated to
appoint a successor Indenture Trustee. The Trust will be obligated to remove
the Indenture Trustee and appoint a successor if the Indenture Trustee ceases
to be eligible to continue as such under the Indenture, breaches any of its
representations, warranties or covenants under the transaction documents or
becomes insolvent. No resignation or removal of the Indenture Trustee and
appointment of a successor Indenture Trustee will become effective until
acceptance of the appointment by such successor Indenture Trustee. Unless a
successor trustee shall have been so appointed and shall have accepted
appointment within 90 days after giving of notice of resignation, the
Indenture Trustee may petition a court of competent jurisdiction for the
appointment of a successor trustee.
DESCRIPTION OF THE CERTIFICATES
General
The Trust will issue the Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") pursuant to the
Trust Agreement, a form of which has been filed as an exhibit to the
Registration Statement. A copy of the Trust Agreement will be filed with the
Commission following the issuance of the Securities. The following summary
describes certain terms of the Certificates and the Trust Agreement. The
summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Certificates and the
Trust Agreement. The following summary supplements and, to the extent
inconsistent therewith, replaces the description of the general terms and
provisions of the Certificates of any given series and the related Trust
Agreement set forth in the Prospectus, to which description reference is
hereby made.
Distributions of Interest Income
Certificateholders will be entitled to distributions of interest, to
the extent of funds available therefor, on each Distribution Date beginning on
October 25, 1999 in an amount equal to the Certificateholders' Interest
Distributable Amount. As used herein, "Certificateholders' Interest
Distributable Amount" means, with respect to any Distribution Date, interest
accrued at the Pass-Through Rate on the Certificate Balance as of the
immediately preceding Distribution Date (or, in the case of the first
Distribution Date, as of the Closing Date) from and including the 25th day of
the preceding calendar month (or, in the case of the first Distribution Date,
from and including the Closing Date) to and including the 24th day of the
calendar month in which such Distribution Date occurs, after giving effect to
all distributions of principal to the Certificateholders on such immediately
preceding Distribution Date, plus any interest due but not distributed to
Certificateholders on previous Distribution Dates, with interest on such
overdue interest (to the extent lawful) at the Pass-Through Rate (the
"Certificateholders' Interest Carryover Shortfall"). The Certificateholders'
Interest Distributable Amount will be calculated on the basis of a 360-day
year consisting of twelve 30-day months. Interest distributions with respect
to the Certificates generally will be funded from the portion of the Total
Distribution Amount remaining after the distribution of the Servicing Fee, the
Noteholders' Interest Distributable Amount and the Noteholders' Principal
Distributable Amount and that portion, if any, of funds on deposit in the
Reserve Account and the Certificate Interest Reserve Account available to
cover shortfalls in the Total Distribution Amount Available to pay the
Certificateholders' Interest Distributable Amount.
Distributions of Principal Payments
No distributions of principal on the Certificates will be made until
the Notes have been paid in full. On each Distribution Date, commencing on the
Distribution Date on which the Notes are paid in full, principal of the
Certificates will be payable in an amount equal to the Certificateholders'
Principal Distributable Amount for the related Collection Period, to the
extent of funds available therefor following payment of the
Certificateholders' Interest Distributable Amount. The "Certificateholders'
Principal Distributable Amount" will be (a) on any Distribution Date prior to
the date on which the Notes are paid in full, zero and (b) on any Distribution
Date on or after the Distribution Date on which the Notes are paid in full,
the excess, if any, of (x) the aggregate outstanding principal amount of the
Certificates as of the day immediately preceding such Distribution Date over
(y) the sum of the Pool Balance at the end of the related Collection Period
and the amount, if any, on deposit in the Pre-Funding Account less the Yield
Supplement Overcollateralization Amount with respect to such Distribution
Date. The principal balance of the Certificates, to the extent not previously
paid, will be due on the Certificate Final Scheduled Distribution Date.
Optional Prepayment
If the Servicer exercises its option to purchase the Receivables when
the Pool Balance declines to 10% or less of the sum of the Initial Pool
Balance and the amount on deposit in the Pre-Funding Account on the Closing
Date, Certificateholders will receive an amount in respect of the Certificates
equal to the outstanding Certificate Balance together with accrued but unpaid
interest at the Pass-Through Rate after the Notes have been retired, which
distribution shall effect an early retirement of the Certificates. See
"Description of the Notes--Optional Redemption" herein.
CERTAIN INFORMATION REGARDING THE SECURITIES
Form, Exchange, Registration and Title
The Notes and Certificates will initially be registered in the name
of Cede & Co. ("Cede"), the nominee of The Depository Trust Company ("DTC").
Noteholders and Certificateholders may hold their Securities in the United
States through DTC, or, solely in the case of the Notes, in Europe through
Cedelbank or the Euroclear System ("Euroclear"), if they are participants of
such systems, or indirectly through organizations that are participants in
such systems.
Cede, as nominee for DTC, will hold the global Notes and
Certificates. Cedelbank and Euroclear will hold omnibus positions on behalf of
the Cedelbank Participants and the Euroclear Participants, respectively,
through customers' securities accounts in Cedelbank's and Euroclear's names on
the books of their respective depositaries (collectively, the "Depositaries")
which in turn will hold such positions in customers' securities accounts in
the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
1934 Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of securities. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and
may include certain other organizations. Indirect access to the DTC system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between Cedelbank Participants and Euroclear Participants
will occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedelbank
Participants and Euroclear Participants may not deliver instructions directly
to the Depositaries.
Because of time-zone differences, credits of securities in Cedelbank
or Euroclear as a result of a transaction with a Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Cedelbank Participant or Euroclear Participant on such business day.
Cash received in Cedelbank or Euroclear as a result of sales of securities by
or through a Cedelbank Participant or a Euroclear Participant to a Participant
will be received with value on the DTC settlement date but will be available
in the relevant Cedelbank or Euroclear cash account only as of the business
day following settlement in DTC.
Noteholders and Certificateholders who are not Participants but
desire to purchase, sell or otherwise transfer ownership of the Notes or
Certificates may do so only through Participants (unless and until Definitive
Securities (as defined below) are issued). In addition, Noteholders and
Certificateholders will receive all distributions of principal of and interest
on the Notes and Certificates from the Indenture Trustee or the Owner Trustee
(the "Trustees" ) through DTC and Participants. Noteholders and
Certificateholders will not receive or be entitled to receive physical
securities representing their respective interests in the Notes or
Certificates, except under the limited circumstances described below.
Unless and until Definitive Securities are issued, it is anticipated
that the only Noteholder or Certificateholder will be Cede, as nominee of DTC.
Beneficial owners of the Notes and Certificates will not be Securityholders.
Beneficial owners are only permitted to exercise the rights of Securityholders
indirectly through Participants and DTC.
While the Notes and Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to the Securities and is required to receive and transmit
distributions of principal of, and interest on, the Securities. Unless and
until Definitive Securities are issued, beneficial owners who are not
Participants may transfer ownership of Securities only through Participants by
instructing such Participants to transfer the Securities by book-entry
transfer through DTC for the account of the purchasers of such Securities,
which account is maintained with their respective Participants. Under the
Rules and in accordance with DTC's normal procedures, transfers of ownership
of the Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited.
Physical Notes or Certificates will be issued in registered form to
Noteholders or Certificateholders or their nominees rather than to DTC (such
being referred to herein as "Definitive Securities") only if:
(1) DTC or the Depositor advises the applicable Trustee in
writing that DTC is no longer willing or able to discharge properly
its responsibilities as nominee and depository with respect to such
Securities and the Depositor or the applicable Trustee is unable to
locate a qualified successor,
(2) the Depositor, at its sole option and with the consent
of the applicable Trustee, elects to terminate the book-entry system
through DTC or
(3) in the case of the Notes, after the occurrence of an
Indenture Event of Default, DTC, at the direction of Noteholders
having a majority in interest of the Notes, advises the Indenture
Trustee in writing that the continuation of a book-entry system
through DTC (or a successor thereto) to the exclusion of any physical
Notes being issued to Noteholders is no longer in the best interest
of Noteholders. Upon issuance of Definitive Securities to
Noteholders, such Notes will be transferable directly (and not
exclusively on a book-entry basis), and registered holders will deal
directly with the Indenture Trustee with respect to transfers,
notices and distributions.
DTC has advised the Depositor and the applicable Trustee that, unless
and until Definitive Securities are issued, DTC will take any action permitted
to be taken by a Noteholder under the Indenture or a Certificateholder under
the Trust Agreement only at the direction of one or more Participants to whose
DTC account such Securities are credited. DTC has advised the Depositor that
DTC will take such action with respect to any Percentage Interests of the
Notes only at the direction of and on behalf of such Participants with respect
to such Percentage Interests of the Notes. DTC may take actions, at the
direction of the related Participants, with respect to some Securities that
conflict with actions taken with respect to other Securities.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations ("Cedelbank Participants") and facilitates the clearance and
settlement of securities transactions between Cedelbank Participants through
electronic book-entry changes in accounts of Cedelbank Participants.
Transactions may be settled in Cedelbank in any of 28 currencies, including
United States dollars. Cedelbank provides to its Cedelbank Participants, among
other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedelbank interfaces with domestic markets in several countries. As
a professional depository, Cedelbank is subject to regulation by the
Luxembourg Monetary Institute. Cedelbank 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 of any class of Securities.
Indirect access to Cedelbank is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedelbank Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of
the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of securities and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 32 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Euroclear Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Euroclear
Cooperative. The Euroclear Cooperative establishes policy for the Euroclear
System on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries. Indirect access to the Euroclear System
is also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York 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 securities to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Notes held through Cedelbank or
Euroclear will be credited to the cash accounts of Cedelbank Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Material Federal Income Tax Consequences" herein.
Cedelbank or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Noteholder under the Indenture on behalf of
a Cedelbank 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, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Notes among participants of
DTC, Cedelbank 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, Cedelbank or Euroclear should
discontinue its services, the Depositor would seek an alternative depositary
(if available) or cause the issuance of Definitive Securities to
Securityholders or their nominees in the manner described above.
Issuance of the Securities in book-entry form rather than as physical
Securities may adversely affect the liquidity of the Securities in the
secondary market and the ability of Securityholders to pledge them. In
addition, since distributions on the Securities will be made by the applicable
Trustee to DTC and DTC will credit such distributions to the accounts of its
Participants, which will further credit them to the accounts of indirect
participants of Securityholders, Securityholders may experience delays in the
receipt of such distributions.
Year 2000 Matters
DTC management is aware that some computer applications systems and
the like for processing data ("Systems") that are dependent upon calendar
dates, including dates before, on and after January 1, 2000, may encounter
"Year 2000 problems." DTC has informed its participants and other members of
the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same related to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including, but not limited to, issuers and their
agents, as well as DTC's direct and indirect Participants and third party
vendors from whom DTC licenses software and hardware and third party vendors
on whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTC
has informed the Industry that it is contacting (and will continue to contact)
third party vendors from whom DTC acquires services to: (i) impress upon them
the importance of such services being Year 2000 compliant; and (ii) determine
the extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC is in the process of developing
such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of
any kind.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Trust believes to be reliable,
but the Trust takes no responsibility for the accuracy thereof.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Receivables
Purchase Agreement, the Sale and Servicing Agreement, the Administration
Agreement and the Trust Agreement (collectively, the "Transfer and Servicing
Agreements"). Forms of the Transfer and Servicing Agreements have been filed
as exhibits to the Registration Statement. A copy of the Sale and Servicing
Agreement will be filed with the Commission following the issuance of the
Securities. This summary does not purport to be complete and is subject to,
and qualified by reference to, all the provisions of the Transfer and
Servicing Agreements. The following summary supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth in the
Prospectus, to which description reference is hereby made.
Sale and Assignment of Receivables; Subsequent Receivables
On the Closing Date, the Sellers will sell and assign the Initial
Receivables to the Depositor, without recourse, pursuant to the Receivables
Purchase Agreement, and the Depositor will sell and assign the Initial
Receivables to the Trust, without recourse, pursuant to the Sale and Servicing
Agreement. Each Initial Receivable will be identified in a schedule to the
Receivables Purchase Agreement and the Sale and Servicing Agreement.
In the Receivables Purchase Agreement, the Sellers will represent and
warrant to the Depositor that, among other things:
(1) the information provided with respect to the
Initial Receivables is correct in all material respects
as of the Cutoff Date;
(2) the Obligor on each Initial Receivable is required to
maintain physical damage insurance covering the Financed Vehicle in
accordance with the Sellers' normal requirements;
(3) upon the purchase of the Initial Receivables by the
Depositor, the Receivables will be free and clear of all security
interests, liens, charges and encumbrances, and no offsets, defenses
or counterclaims will have been asserted or threatened under such
Receivables;
(4) immediately prior to the sale of the Initial Receivables
by the Sellers to the Depositor and by the Depositor to the Trust,
each of the Initial Receivables will be secured by a first priority
perfected security interest in the related Financed Vehicle in favor
of the applicable Seller; and
(5) each Initial Receivable, at the time it was originated,
complied and, at the Closing Date, will comply in all material
respects with applicable federal and state laws, including, without
limitation, consumer credit, truth-in-lending, equal credit
opportunity and disclosure laws.
The Sellers will be obligated to repurchase for the Purchase Amount
any Receivable with respect to which there is a material breach of a
representation or warranty unless such breach is cured in a timely manner.
"The Purchase Amount" with respect to any Receivable will equal the unpaid
principal balance owed by the Obligor thereof plus interest on such amount at
the applicable APR to the last day of the month of repurchase.
The right of the Depositor to enforce the Sellers' repurchase
obligation under the Receivables Purchase Agreement will be assigned to the
Trust in the Sale and Servicing Agreement. The repurchase obligation will
constitute the sole remedy available to the Depositor, the Trust, the
Indenture Trustee or the Securityholders with respect to the Sellers for any
such uncured breach. There is no assurance that the Sellers will have the
financial ability to effect any repurchase of Receivables.
In addition, during the Funding Period, pursuant to the Sale and
Servicing Agreement, the Depositor will be obligated to sell to the Trust
Subsequent Receivables to the extent that such Subsequent Receivables are
available.
During the Funding Period, on each Subsequent Transfer Date, subject
to the conditions described under "The Receivables Pool" and in the Sale and
Servicing Agreement and the Receivables Purchase Agreement, the Depositor will
sell and assign to the Trust, without recourse, the Depositor's entire
interest in the Subsequent Receivables designated by the Depositor as of the
applicable Subsequent Cutoff Date and identified in a schedule attached to the
applicable Subsequent Transfer Agreement. Upon the conveyance of Subsequent
Receivables to the Trust on a Subsequent Transfer Date, (1) the Pool Balance
will increase by an amount equal to the aggregate principal balance of such
Subsequent Receivables, and (2) an amount equal to the aggregate principal
balance of such Subsequent Receivables will be withdrawn from the Pre-Funding
Account and used to purchase such Subsequent Receivables and fund any
applicable accounts.
Servicing Procedures
The Servicer will follow its current standards, or such more exacting
standards as the Servicer may employ in the future, in servicing the
Receivables. 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 as it
follows with respect to retail installment sale contracts and loan notes it
services for itself and others. Consistent with its normal procedures, the
Servicer may, in its discretion and in compliance with the Sale and Servicing
Agreement, arrange with an Obligor to extend the payment due date under the
related Receivable. No such arrangement will extend the final payment date on
any Receivable beyond the last day of the Collection Period ending six months
prior to the Final Scheduled Maturity Date. If the Servicer grants an
extension with respect to a Receivable other than in accordance with the
aforementioned limitations, the Servicer will be required to purchase the
Receivable for the Purchase Amount.
On or before the earlier of (1) the eighteenth calendar day of each
month (or if such eighteenth day is not a Business Day, the next succeeding
Business Day) and (2) the fifth Business Day preceding the related
Distribution Date (each such day, a "Determination Date"), the Servicer will
prepare and deliver to the Indenture Trustee, the Owner Trustee and the Rating
Agencies a certificate (the "Servicer's Certificate") setting forth, among
other things, the amount collected on the Receivables during the related
Collection Period, including the Purchase Amounts for any Purchased
Receivables and the unpaid principal balance of any Receivables that became
Liquidated Receivables during such Collection Period, and any other
information reasonably requested by the Indenture Trustee or the Owner Trustee
to enable the Indenture Trustee and the Owner Trustee to make all required
distributions and to deliver the Statement to Securityholders on the related
Distribution Date.
Monthly Advances
With respect to each Distribution Date, not later than the date on
which deposits are required to be made to the Collection Account, the Servicer
will remit to the Indenture Trustee for deposit in the Collection Account an
amount to be distributed on such Distribution Date, equal to the interest due
but not received on each of the Receivables during the previous Collection
Period (net of the Servicing Fee) (the "Advance"). The Servicer's obligation
to make Advances continues with respect to each Receivable until such
Receivable becomes a Liquidated Receivable.
Notwithstanding the foregoing, the Servicer is not required to make
any Advance if, in the good faith judgment and sole discretion of the
Servicer, the Servicer determines that the Advance will not be ultimately
recoverable from collections received from the Obligor in respect to the
related Receivable or other recoveries in respect of that Receivable (a
"Nonrecoverable Advance"). However, if any Advance paid by the Servicer is
determined by the Servicer to be nonrecoverable from such sources, the amount
of that Nonrecoverable Advance may be reimbursed to the Servicer from other
amounts on deposit in the Collection Account. The Servicer's right to
reimbursement for Nonrecoverable Advances is prior to the rights of the
holders of the Securities.
Accounts
On or before the Closing Date, the Trust will establish, or cause to
be established, the Collection Account, the Note Distribution Account, the
Pre-Funding Account, the Capitalized Interest Account, the Reserve Account,
the Certificate Interest Reserve Account and the Certificate Distribution
Account, which will be used by the Servicer and the Indenture Trustee or Owner
Trustee, as applicable, in connection with the servicing of the Receivables
and making distributions pursuant to the Sale and Servicing Agreement.
Funds in the Collection Account, the Note Distribution Account, the
Pre-Funding Account, the Capitalized Interest Account, the Reserve Account,
the Certificate Distribution Account and the Certificate Interest Reserve
Account will be invested as provided in the Sale and Servicing Agreement in
Eligible Investments. "Eligible Investments" are generally limited to
investments rated in the highest investment category by each of the Rating
Agencies. Any earnings on amounts on deposit in the Trust Accounts (other than
the Collection Account) will be available to fund distributions to Noteholders
or Certificateholders.
The Collection Account, the Note Distribution Account, the
Pre-Funding Account, the Capitalized Interest Account and the Reserve Account
(together, the "Trust Accounts") will be maintained as Eligible Deposit
Accounts. "Eligible Deposit Account"means either (a) a segregated account with
an Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia, having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such depository
institution have a credit rating from each Rating Agency in one of its generic
rating categories that signifies investment grade. "Eligible Institution"means
(a) the corporate trust department of the Indenture Trustee or the Owner
Trustee or (b) a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of
Columbia, (1) which has either (A) a long-term unsecured debt rating
acceptable to each Rating Agency or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to each Rating Agency and (2) whose
deposits are insured by the Federal Deposit Insurance Corporation.
Collection Account. The Servicer, for the benefit of the Noteholders
and the Certificateholders, will establish and maintain a collection account
(the "Collection Account") at the Indenture Trustee and in the name of the
Indenture Trustee. For so long as the Servicer satisfies certain requirements
for depositing collections less frequently, the Servicer will deposit all
amounts that it receives in respect of the Receivables during each Collection
Period into the Collection Account on the Business Day prior to the related
Distribution Date. BMW FS currently satisfies those requirements. If the
Servicer no longer satisfies the conditions referred to in the preceding
sentence, the Servicer will deposit all amounts that it receives in respect of
the Receivables during each Collection Period into the Collection Account
within two Business Days of receipt thereof and in no event later than the
Business Day prior to the related Distribution Date. If the Servicer is not
able to remit such amounts at such time, those funds will not be available for
distribution to Securityholders, and Securityholders might incur a loss as a
result. The Indenture Trustee will possess all right, title and interest in
all funds on deposit from time to time in the Collection Account and in all
proceeds thereof (including all income thereon) and all such funds,
investments, proceeds and income shall be part of the Trust Estate. The
Collection Account will be under the sole dominion and control of the
Indenture Trustee for the benefit of the Noteholders and the
Certificateholders, as applicable.
Note Distribution Account. On or prior to the Closing Date, the
Indenture Trustee will establish and maintain initially with itself an account
into which amounts released from the Collection Account and the Reserve
Account for payment to the Noteholders will be deposited and from which all
distributions to the Noteholders will be made (the "Note Distribution
Account").
Pre-Funding Account. On the Closing Date, a cash amount equal to
approximately $112,777,957.15 (the "Pre-Funded Amount") will be deposited into
an account (the "Pre-Funding Account") which will be established in the name
of the Indenture Trustee. The Pre-Funding Account will be an asset of the
Trust and will be pledged to the Indenture Trustee pursuant to the Indenture.
Such amount will be funded from the sale of the Securities and is expected to
be used to acquire Subsequent Receivables. The "Funding Period" is the period
from and including the Closing Date until the earliest of (1) the
Determination Date on which the amount on deposit in the Pre-Funding Account
is $100,000 or less; (2) the occurrence of a Servicer Termination Event (as
defined in the Sale and Servicing Agreement) or an Indenture Event of Default
under the Indenture; and (3) the last day of the Collection Period in March
2000. The Pre-Funded Amount will be reduced during the Funding Period by the
amount thereof used to purchase Subsequent Receivables in accordance with the
Sale and Servicing Agreement and by the amount thereof deposited in the
Reserve Account in connection with the purchase of such Subsequent
Receivables. Any earnings on amounts on deposit in the Pre-Funding Account
will be included in the Interest Distribution Amount and distributed on the
next Distribution Date pursuant to the Sale and Servicing Agreement. Any
Pre-Funded Amount remaining at the end of the Funding Period will be payable
as a principal distribution to the Noteholders as a partial mandatory
redemption or prepayment on the immediately following Distribution Date.
Capitalized Interest Account. On the Closing Date, approximately $[o]
will be deposited in an account (the "Capitalized Interest Account") which
will be established in the name of the Indenture Trustee. The Capitalized
Interest Account will be an asset of the Trust, and will be pledged to the
Indenture Trustee pursuant to the Indenture. The amount so deposited in the
Capitalized Interest Account, including reinvestment income thereon, will be
deposited to the Collection Account as a collection on each Distribution Date
up to and including the Mandatory Redemption Date in an amount equal to the
interest accrued at the Weighted Average Security Rate less 2.5% on the amount
on deposit in the Pre-Funding Account (the "Capitalized Interest Payments").
Any amounts on deposit in the Capitalized Interest Account in excess of the
required amount on each Distribution Date or on deposit therein at the end of
the Funding Period will be paid to BMW FS Receivables Corporation. The
"Weighted Average Security Rate" shall be the percentage equivalent of a
fraction, the numerator of which is the sum of (1) the product of the Class
A-1 Rate times the Initial Class A-1 Note Balance, (2) the product of the
Class A-2 Rate times the Initial Class A-2 Note Balance, (3) the product of
the Class A-3 Rate times the Initial Class A-3 Note Balance, (4) the product
of the Class A-4 Rate times the Initial Class A-4 Note Balance and (5) the
product of the Pass-Through Rate times the initial Certificate Balance, and
the denominator of which is the sum of the Initial Class A-1 Note Balance, the
Initial Class A-2 Note Balance, the Initial Class A-3 Note Balance, the
Initial Class A-4 Note Balance and the initial Certificate Balance.
Reserve Account. On the Closing Date, the Trust will deposit from the
proceeds of the sale of the Securities approximately $37,514,710 into a
reserve account (the "Reserve Account"). Thereafter, the "Reserve Account
Required Amount" for a Distribution Date will be an amount equal to 5.00% of
the sum of the Pool Balance and the amount, if any, on deposit in the
Pre-Funding Account as of the end of the related Collection Period. In no
event, however, will the Reserve Account Required Amount on any Distribution
Date be less than the lesser of $11,131,702 and the aggregate principal amount
of the Securities after giving effect to distributions on such Distribution
Date. The Reserve Account shall be an Eligible Account held by the Indenture
Trustee, and will be pledged to the Indenture Trustee for the benefit of the
Noteholders. On each Distribution Date on which the amount on deposit in the
Reserve Account is less than the Reserve Account Required Amount, the Total
Distribution Amount remaining after the payment of clauses (1) through (5)
under "Description of the Transfer and Servicing Agreements--Distributions
- --Deposits to the Distribution Accounts" herein, up to an amount equal to such
shortfall, will be deposited to the Reserve Account.
All amounts on deposit in the Reserve Account on any Distribution
Date will be available to make up shortfalls in the Noteholders' Distributable
Amount and the Certificateholders' Distributable Amount to the extent
described herein and for certain other purposes. On each Distribution Date,
amounts on deposit in the Reserve Account in excess of the Reserve Account
Required Amount will be released to BMW FS Receivables Corporation, subject to
certain conditions set forth in the Sale and Servicing Agreement. The
Securityholders will have no further interest in or rights with respect to any
amounts so released from the Reserve Account.
Certificate Distribution Account. In addition to the Trust Accounts,
the Servicer will establish an account in the name of the Owner Trustee (the
"Certificate Distribution Account") into which amounts released from the
Collection Account, the Reserve Account and the Certificate Interest Reserve
Account for distribution to the Certificateholders will be deposited and from
which all distributions to the Certificateholders will be made. The
Certificate Distribution Account will be maintained as an Eligible Deposit
Account.
Certificate Interest Reserve Account. In addition to the Trust
Accounts, the Servicer will establish an account in the name of the Owner
Trustee (the "Certificate Interest Reserve Account" into which approximately
$[o] will be deposited on the Closing Date. After the Closing Date, the
"Certificate Interest Reserve Account Required Amount" for any Distribution
Date will be $[o] until the Class A-4 Notes have been retired, and thereafter,
zero. On each Distribution Date on which the amount on deposit in the
Certificate Interest Reserve Account is less than the Certificate Interest
Reserve Account Required Amount, the Total Distribution Amount remaining after
the payment of clauses (1) through (6) under "Description of the Transfer and
Servicing Agreements--Distributions --Deposits to the Distribution Accounts"
herein, up to an amount equal to such shortfall, will be deposited to the
Certificate Interest Reserve Account.
All amounts on deposit in the Certificate Interest Reserve Account on
any Distribution Date will be available to make up shortfalls in the
Certificateholders' Interest Distributable Amount to the extent described
herein. After the Notes have been retired, all amounts on deposit in the
Certificate Interest Reserve Account will be withdrawn therefrom and deposited
into the Reserve Account. The Certificate Interest Reserve Account will be
maintained as an Eligible Deposit Account.
Credit Enhancement
Subordination of the Certificates. No distribution will be made to
Certificateholders on any Distribution Date until the holders of the Notes
have been paid the Noteholders' Distributable Amount for such Distribution
Date and all other required payments and deposits have been made. This
subordination is intended to enhance the likelihood of timely receipt by the
Noteholders of the full amount of interest and principal distributable to them
on each Distribution Date and to afford the Noteholders limited protection
against losses in respect of the Receivables.
Reserve Account. Funds in the Reserve Account, to the extent
available, will be used to make up shortfalls in the Noteholders'
Distributable Amount and the Certificateholders' Distributable Amount on any
Distribution Date, as described under "--Accounts--Reserve Account" herein.
Certificate Interest Reserve Account. Funds in the Certificate
Interest Reserve Account, to the extent available, will be used to make up
shortfalls in the Certificateholders' Interest Distributable Amount on any
Distribution Date, as described under "--Accounts--Certificate Interest
Reserve Account" herein.
Yield Supplement Overcollateralization Amount
On the Closing Date, the sum of the Initial Pool Balance and the
amount on deposit in the Pre-Funding Account will exceed the initial principal
amount of the Securities, by $18,170,230 (the "Initial Overcollateralization
Amount"), which is approximately 1.63% of the sum of the aggregate principal
balance of the Initial Receivables as of the Cutoff Date and the amount on
deposit in the Pre-Funding Account on the Closing Date. The Yield Supplement
Overcollateralization Amount is intended to compensate for the low APRs on
some of the Receivables.
<PAGE>
With respect to any Distribution Date, the "Yield Supplement
Overcollateralization Amount" is the amount specified below with respect to
that Distribution Date:
<PAGE>
Closing Date 18,170,229.50
October 1999 17,512,440.65
November 1999 16,888,111.51
December 1999 16,275,397.39
January 2000 15,673,396.88
February 2000 15,082,027.07
March 2000 14,501,151.99
April 2000 13,930,691.91
May 2000 13,370,699.36
June 2000 12,821,585.55
July 2000 12,283,166.98
August 2000 11,755,609.17
September 2000 11,239,044.02
October 2000 10,733,916.67
November 2000 10,241,282.66
December 2000 9,760,889.10
January 2001 9,292,660.08
February 2001 8,835,547.19
March 2001 8,389,737.85
April 2001 7,955,649.52
May 2001 7,533,619.25
June 2001 7,124,251.90
July 2001 6,727,707.83
August 2001 6,342,240.25
September 2001 5,967,760.12
October 2001 5,604,937.11
November 2001 5,254,988.60
December 2001 4,917,248.13
January 2002 4,591,537.59
February 2002 4,277,163.18
March 2002 3,974,036.21
April 2002 3,682,268.54
May 2002 3,401,917.81
June 2002 3,133,068.81
July 2002 2,875,798.38
August 2002 2,630,030.49
September 2002 2,395,784.36
October 2002 2,173,035.72
November 2002 1,961,805.72
December 2002 1,762,174.95
January 2003 1,574,257.05
February 2003 1,398,099.39
March 2003 1,233,692.72
April 2003 1,080,982.66
May 2003 939,880.66
June 2003 810,096.62
July 2003 691,321.50
August 2003 583,178.47
September 2003 485,288.37
October 2003 397,295.19
November 2003 318,897.63
December 2003 249,985.22
January 2004 190,315.52
February 2004 139,599.65
March 2004 97,570.07
April 2004 63,946.45
May 2004 38,309.94
June 2004 20,066.17
July 2004 8,445.79
August 2004 2,429.96
September 2004 330.29
October 2004 15.30
November 2004 -
<PAGE>
The Yield Supplement Overcollateralization Amount has been calculated
for each Distribution Date as the sum of the amount for each Receivable equal
to the excess, if any, of (x) the scheduled payments due on that Receivable
for each future Collection Period discounted to present value as of the end of
the preceding Collection Period at the APR of that Receivable over (y) the
scheduled payments due on the Receivable for each future Collection Period
discounted to present value as of the end of the preceding Collection Period
at 8.00%. For purposes of the preceding definition, future scheduled payments
on the Receivables are assumed to be made on their scheduled due dates without
any delays, defaults or prepayments.
Distributions
Deposits to Collection Account. On or before each Determination Date,
the Servicer will provide the Indenture Trustee and the Owner Trustee with a
certificate (the "Servicer's Certificate") in which the Servicer will set
forth certain information with respect to the related Collection Period,
including the amount of aggregate collections on the Receivables and the
aggregate Purchase Amount of Receivables to be repurchased by the Seller or
purchased by the Servicer. No later than one Business Day prior to each
Distribution Date, the Servicer will cause to be deposited into the Collection
Account all collections and other amounts constituting the Total Distribution
Amount (which amount shall not include any investment earnings on funds on
deposit in the Collection Account).
The "Total Distribution Amount" with respect to each Distribution
Date will equal the sum of the Regular Principal Distributable Amount (other
than the portion thereof attributable to Realized Losses) and the Interest
Distribution Amount.
The "Interest Distribution Amount" for any Distribution Date will be
equal to the sum of the following amounts with respect to the related
Collection Period:
(1) that portion of all collections on Receivables allocable to
interest (including the amount, if any, of Advances for that Collection Period,
but excluding the amount, if any, of reimbursements of Advances previously made
by the Servicer);
(2) the Purchase Amount of each Receivable that became a
Purchased Receivable during such Collection Period to the extent attributable to
accrued interest on such Receivable;
(3) Recoveries for such Collection Period;
(4) investment earnings on the Trust Accounts (other than the
Collection Account) for the related Distribution Date;
(5) net Liquidation Proceeds for such Collection Period to the
extent allocable to interest; and
(6) net Investment Losses required to be deposited by the
Servicer.
The "Regular Principal Distribution Amount" on any Distribution Date
will be the sum of the following amounts, without duplication, with respect to
the related Collection Period:
(7) that portion of all collections on Receivables (including any
Balloon Payments on Balloon Payment Receivables) allocable to principal;
(8) the aggregate outstanding principal balance of all
Receivables that became Liquidated Receivables during such Collection Period;
(9) that portion allocable to principal of the Purchase Amount of
all Receivables that became Purchased Receivables during or in respect of such
Collection Period; and
(10) on the Distribution Date immediately following the end of
the Funding Period, the remaining Pre-Funded Amount not used to acquire
Subsequent Receivables.
"Liquidated Receivable" means a Receivable with respect to which the
earliest of the following shall have occurred: (1) the related Financed
Vehicle has been repossessed and liquidated, (2) the related Financed Vehicle
has been repossessed in excess of 90 days and has not yet been liquidated, (3)
in the case of a Balloon Payment Receivable for which the Obligor has
exercised the Sale Option, the related Financed Vehicle has been liquidated,
(4) the Servicer has determined in accordance with its collection policies
that all amounts that it expects to receive with respect to the Receivable
have been received or (5) the end of the Collection Period in which the
Receivable becomes 150 days or more past due.
"Realized Losses" as to any Distribution Date will equal the amount,
if any, by which the outstanding aggregate principal balance of all
Receivables that became Liquidated Receivables during the related Collection
Period exceeds that portion allocable to principal of all net liquidation
proceeds received with respect to such Liquidated Receivables.
"Recoveries" means, with respect to any Receivable that becomes a
Liquidated Receivable, monies collected in respect thereof, from whatever
source, during any Collection Period following the Collection Period in which
such Receivable became a Liquidated Receivable, net of the sum of any amounts
expended by the Servicer for the account of the Obligor and any amounts
required by law to be remitted to the Obligor.
The Interest Distribution Amount and the Regular Principal
Distributable Amount on any Distribution Date shall exclude all payments and
proceeds (including net liquidation proceeds) of any Receivables, the Purchase
Amount of which has been included in the Total Distribution Amount in a prior
Collection Period.
The first Collection Period will begin on the open of business on
September 1, 1999 and will continue through September 30, 1999. The first
Distribution Date will occur on October 25, 1999, on which date the
Noteholders' Principal Distributable Amount will include those collections
received in respect of the Receivables for the Collection Period, allocable to
principal, as described herein. Each Collection Period thereafter will consist
of one calendar month. The following sets forth an example of a hypothetical
monthly distribution:
January 1--January 31 Collection Period. Scheduled payments,
prepayments and other proceeds on or with
respect to the Receivables are remitted to the
Servicer and are to be deposited into the
Collection Account no later than the Business
Day preceding the Distribution Date.
February 18 Determination Date. On or before this date
the Servicer will notify the Owner Trustee and
the Indenture Trustee of, among other things,
the amount of collections received during the
related Collection Period and the amounts
required to be distributed on the Distribution
Date.
February 24 Record Date. Distributions on the Distribution
Date will be made to Securityholders of record
at the close of business on this date.
February 25 Distribution Date. The Indenture Trustee
will pay the amounts specified, and in the
priority described, below.
Deposits to the Distribution Accounts. On each Distribution Date, the
Servicer will instruct the Indenture Trustee to make the following deposits and
distributions, to the extent of the Total Distribution Amount, in the following
order of priority:
(1) to the Servicer, the Servicing Fee (and any accrued and
unpaid Servicing Fees from prior Collection Periods) and the
servicer transition costs, if any;
(2) to the Note Distribution Account, for distribution to the
Noteholders as described below, from the Total Distribution
Amount remaining after the application of clause (1), the
Noteholders' Interest Distributable Amount;
(3) to the Note Distribution Account, for distribution to the
Noteholders as described below, from the Total Distribution
Amount remaining after the application of clauses (1) and
(2), the Noteholders' Principal Distributable Amount;
(4) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of
clauses (1) through (3), the Certificateholders' Interest
Distributable Amount;
(5) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of
clauses (1) through (4), the Certificateholders' Principal
Distributable Amount;
(6) to the Reserve Account, from the Total Distribution Amount
remaining after the application of clauses (1) through (5),
any deficiency in the Reserve Account Required Amount;
(7) to the Certificate Interest Reserve Account, from the Total
Distribution Amount remaining after the application of
clauses (1) through (6), any deficiency in the Certificate
Interest Reserve Account Required Amount;
(8) to the Indenture Trustee and the Owner Trustee, from the
Total Distribution Amount remaining after the application of
clauses (1) through (7), any other accrued and unpaid fees
or expenses owed to such party, to the extent such fees are
not paid by the Servicer; and
(9) the remainder, if any, of the Total Distribution Amount, to
BMW FS Receivables Corporation.
If the Total Distribution Amount remaining on any Distribution Date
after payment of the amounts due pursuant to clause (1) above is insufficient
to pay the amounts due pursuant to clause (2), then such shortfall shall be
paid from amounts available, if any, in the Reserve Account. If the Total
Distribution Amount remaining on any Distribution Date after payment of the
amounts due pursuant to clause (2) above is insufficient to pay amounts due
pursuant to clause (3), then such shortfall shall be paid from amounts
available, if any, in the Reserve Account (but, on the Class A-1 Final
Scheduled Distribution Date, the Class A-2 Final Scheduled Distribution Date,
the Class A-3 Final Scheduled Distribution Date or the Class A-4 Final
Scheduled Distribution Date, as applicable, only to the extent of the
outstanding principal amount of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes or the Class A-4 Notes, as applicable). If the Total
Distribution Amount remaining on any Distribution Date after payment of the
amounts due pursuant to clause (3) above is insufficient to pay the amounts
due pursuant to clause (4), then such shortfall shall be paid from amounts
available, if any, in the Reserve Account. If the Total Distribution Amount
remaining on any Distribution Date after payment of the amounts due pursuant
to clause (3) above, together with any amount withdrawn from the Reserve
Account, is insufficient to pay the amounts due pursuant to clause (4), then
such shortfall will be paid from amounts available, if any, in the Certificate
Interest Reserve Account. If the Total Distribution Amount remaining on any
Distribution Date after payment of the amounts due pursuant to clause (4)
above is insufficient to pay amounts due pursuant to clause (5), then such
shortfall shall be paid from amounts available, if any, in the Reserve Account
(but, on the Certificate Final Scheduled Distribution Date, only to the extent
of the outstanding principal amount of the Certificates).
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee shall continue to maintain the Collection Account under the Sale and
Servicing Agreement until the Certificate Balance is reduced to zero.
On each Distribution Date, any amount on deposit in the Reserve
Account on the Determination Date in excess of the then applicable Reserve
Account Required Amount will be distributed to BMW FS Receivables Corporation.
For purposes hereof, the following terms shall have the following
meanings:
"Noteholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Class A-1 Interest Distributable Amount
for such Distribution Date, the Class A-2 Interest Distributable Amount for
such Distribution Date, the Class A-3 Interest Distributable Amount for such
Distribution Date and the Class A-4 Interest Distributable Amount for such
Distribution Date.
"Servicing Fee" means an amount equal to the sum of (a) the product
of the Servicing Fee Rate and the amount specified in clause (1) of the
definition of "Pool Balance" as of the first day of the related Collection
Period, and (b) any late fees, extension fees and other administrative fees or
similar charges collected on the Receivables.
"Servicing Fee Rate" means 1.00% per annum.
Payments to Noteholders. On each Distribution Date, all amounts
deposited into the Note Distribution Account will be generally distributed to
the Noteholders in the following order of priority:
(1) to the applicable Noteholders, accrued and unpaid
interest on the outstanding principal balance of the applicable class
of Notes at the applicable Interest Rate;
(2) the Noteholders' Principal Distributable Amount in the
following order of priority:
(a) to the Class A-1 Noteholders in reduction of
principal until the principal balance of the Class A-1 Notes
has been reduced to zero;
(b) to the Class A-2 Noteholders in reduction of
principal until the principal balance of the Class A-2 Notes
has been reduced to zero;
(c) to the Class A-3 Noteholders in reduction of
principal until the principal balance of the Class A-3 Notes
has been reduced to zero; and
(d) to the Class A-4 Noteholders in reduction of
principal until the principal balance of the Notes has been
reduced to zero.
Distributions to Certificateholders. On each Distribution Date, all
amounts deposited into the Certificate Distribution Account will be generally
distributed to the Certificateholders in the following order of priority:
(1) to the Certificateholders, accrued and unpaid interest
on the Certificate Balance at the Pass-Through Rate; and
(2) on each Distribution Date on or after the Class A-4
Notes have been paid in full, to the Certificateholders in reduction
of principal until the Certificate Balance has been reduced to zero.
List of Securityholders
Three or more Noteholders or Certificateholders, or one or more
Noteholders or Certificateholders evidencing not less than 25% of the Note
Balance or Certificate Balance, as applicable, may by written request to the
Indenture Trustee or Owner Trustee, as applicable, obtain access to the list
of like Securityholders maintained by the Indenture Trustee or the Owner
Trustee for the purpose of communicating with other like Securityholders with
respect to their rights under the Indenture and Notes or Trust Agreement and
Certificate, as applicable. The Indenture Trustee or Owner Trustee may elect
not to afford the requesting Securityholders access to such list if it agrees
to mail the desired communication or proxy, on behalf of and at the expense of
the requesting Securityholders, to all like Securityholders.
Reports to Securityholders
On each Determination Date, the Servicer will prepare and provide to
the Indenture Trustee a statement to be delivered to the Securityholders (the
"Statement to Securityholders") on such Distribution Date. Each such Statement
to Securityholders will include the following information with respect to the
Securities and the related Distribution Date or Collection Period, as
applicable:
(1) the amount of the distribution allocable to principal of each
Class of Notes;
(2) the amount of the distribution allocable to interest on or with
respect to each Class of Notes;
(3) the amount of the distribution allocable to principal of the
Certificates;
(4) the amount of the distribution allocable to interest on with
respect to the Certificates;
(5) the Pool Balance as of the close of business on the last day of
the related Collection Period;
(6) the outstanding aggregate principal amount of, and the note
factor, for each Class of Notes after giving effect to all
payments reported under clause (1) above on such date;
(7) the Certificate Balance and the certificate factor, after giving
effect to all payments reported under clause (3) above on such
date;
(8) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period;
(9) the aggregate amounts of Realized Losses, if any, with respect to
the related Collection Period;
(10) the balance of the Reserve Account and the Certificate Interest
Reserve Account on the related Determination Date after giving
effect to deposits and withdrawals to be made on such Distribution
Date, if any;
(11) the amount of any deposit to the Reserve Account and the
Certificate Interest Reserve Account and the amount and
application of any funds withdrawn from each such account, in each
case with respect to such Distribution Date;
(12) the aggregate principal balance of all Receivables that became
Liquidated Receivables or Purchased Receivables during the related
Collection Period;
(13) the aggregate principal balance of Receivables that are 30 to 59
days, 60 to 89 days or 90 days or more delinquent as of the last
day of the related Collection Period;
(14) the Class A-1 Interest Carryover Shortfall, the Class A-2 Interest
Carryover Shortfall, the Class A-3 Interest Carryover Shortfall,
the Class A-4 Interest Carryover Shortfall and the
Certificateholders' Interest Carryover Shortfall, in each case
after giving effect to payments on such Distribution Date, and any
change in such amounts from the preceding statement;
(15) the aggregate Purchase Amounts for Receivables, if any, that were
purchased during or with respect to such Collection Period;
(16) the aggregate Principal Balance and number of all Receivables with
respect to which the related Financed Vehicle was repossessed;
(17) the aggregate principal balance and number of Receivables with
respect to which the Servicer granted a deferment; and
(18) the Yield Supplement Overcollateralization Amount for the next
Distribution Date.
Each amount set forth on the Distribution Date statement under
clauses (1), (2), (3), (4) or (14) above shall be expressed as a dollar amount
per $1,000 of original principal balance of a Certificate or Note, as
applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Trust, the Indenture
Trustee and the Owner Trustee will mail to each person who at any time during
such calendar year has been a Noteholder or Certificateholder, as applicable,
and received any payment on the Notes or Certificates, a statement containing
certain information for the purposes of such Securityholder's preparation of
federal income tax returns. See "Material Federal Income Tax Consequences"
herein.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Distribution Date in an amount equal to the product of the Servicing Fee Rate
and the Pool Balance as of the first day of the related Collection Period. The
Servicer will also collect and retain any late fees, extension fees and other
administrative fees or similar charges allowed by applicable law with respect
to the Receivables.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of receivables, as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies and
policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
Owner Trustee and generating federal income tax information. The Servicing Fee
also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs, and other costs incurred in connection
with administering the Receivables.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the Indenture Trustee, the
Owner Trustee and the Rating Agencies within 120 days after the end of each
fiscal year, a statement as to compliance by the Servicer during the twelve
months that ended as of the end of such fiscal year (or in the case of the
first such certificate, the period from the Closing Date to the end of such
fiscal year) with certain standards relating to the servicing of the
Receivables.
The Sale and Servicing Agreement will also provide for the delivery
to the Indenture Trustee, the Owner Trustee and the Rating Agencies, within
120 days after the end of each fiscal year, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Sale and Servicing Agreement throughout the preceding
fiscal year (or in the case of the first such certificate, the period from the
Closing Date to the end of such fiscal year) or, if there has been a default
in the fulfillment of any such obligation, describing each such default and
the status thereof. The Servicer has agreed to give the Indenture Trustee and
the Owner Trustee notice of any Servicer Termination Event under the Sale and
Servicing Agreement.
Copies of such accountants' statements and officer's certificates may
be obtained by Securityholders on request in writing addressed to the
Indenture Trustee or Owner Trustee, as applicable.
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 its performance of such duties is no longer permissible
under applicable law. No such resignation will become effective until a
successor Servicer has assumed the servicing obligations and duties under the
Sale and Servicing Agreement. In the event BMW FS resigns as Servicer or is
terminated as Servicer, the Indenture Trustee has agreed to assume the
servicing obligations and duties under the Sale and Servicing Agreement.
The Sale and Servicing Agreement will further provide that neither
the Servicer nor any of its directors, officers, employees or agents will 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; 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.
Under the circumstances specified in the Sale and Servicing
Agreement, any entity into which the Servicer may be merged or consolidated,
or any entity resulting from any merger or consolidation to which the Servicer
is a party, or any entity succeeding to the business of the Servicer, which
corporation or other entity, in each of the foregoing cases, assumes the
obligations of the Servicer, will be the successor to the Servicer under the
Sale and Servicing Agreement.
Servicer Termination Event
A "Servicer Termination Event" under the Sale and Servicing Agreement
will mean the occurrence of any of the following:
(1) any failure by the Servicer to deposit to the Collection
Account any proceeds or payments required to be so delivered, which
failure continues unremedied for five Business Days, or any failure
to deliver the Servicer's Certificate by the applicable Determination
Date, which failure materially and adversely affects the rights of
Securityholders and continues unremedied for five days;
(2) any failure by the Servicer duly to observe or perform
in any material respect any other covenant or agreement under the
Sale and Servicing Agreement, which failure materially and adversely
affects the rights of Securityholders and continues unremedied for 60
days after the giving of written notice of such failure to the
Servicer by (a) the Indenture Trustee or (b) the holders of Notes
representing more than 50% of the Note Balance; and
(3) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with
respect to the Servicer.
Rights Upon Servicer Termination Event
If a Servicer Termination Event occurs, then the Indenture Trustee or
holders of Notes evidencing 50% or more of the Note Balance, may terminate all
the rights and obligations of the Servicer under the Sale and Servicing
Agreement, whereupon the successor Servicer, as shall have been appointed by
the Indenture Trustee, will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. There is no assurance that the
succession of a successor Servicer will not result in a material disruption in
the performance of the duties of the Servicer.
Waiver of Past Defaults
The holders of Notes evidencing not less than a majority of the
aggregate outstanding principal amount of the Notes may waive any default by
the Servicer in the performance of its obligations under the Sale and
Servicing Agreement and its consequences. No such waiver shall impair the
Noteholders' rights with respect to subsequent defaults.
Amendment
Each of the Transfer and Servicing Agreements may be amended by the
parties thereto, without the consent of the Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of the Securityholders thereunder;
provided, that any such action will not, as evidenced by an opinion of
counsel, adversely affect in any material respect the interests of any
Securityholder; provided, however, that such amendment shall be deemed not to
materially and adversely affect the interests of any Securityholder, and no
such opinion of counsel shall be required, if the Rating Agencies confirm that
the amendment will not result in the withdrawal, qualification or reduction of
the then current ratings of the Securities.
The Transfer and Servicing Agreements may also be amended from time
to time by the parties thereto with the consent of the Noteholders evidencing
at least a majority of the Note Balance and the Certificateholders evidencing
at least a majority of the Certificate Balance, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Transfer and Servicing Agreements or of modifying in any manner the
rights of the Securityholders; provided, that no such amendment may (1)
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 or
distributions that are required to be made for the benefit of the
Securityholders or (2) reduce the aforesaid percentage of the Notes or
Certificates that is required to consent to any such amendment, without the
consent of the holders of all of the outstanding Notes or Certificates, as
applicable.
Termination
The obligations of the Servicer, the Depositor, the Administrator,
the Owner Trustee and the Indenture Trustee with respect to the Trust pursuant
to the Transfer and Servicing Agreements will terminate upon the earliest to
occur of:
(1) the maturity or other liquidation of the last
Receivable in the Receivables Pool and the disposition of any amounts
received upon liquidation of any such remaining Receivables,
(2) the payment to Securityholders of all amounts required
to be paid to them pursuant to the Transfer and Servicing Agreements
and
(3) the purchase by the Servicer of all of the Receivables
as of the end of any Collection Period after the Pool Balance is
reduced to 10% or less of the sum of the Initial Pool Balance and the
amount on deposit in the Pre-Funding Account on the Closing Date
pursuant to the terms of the Sale and Servicing Agreement.
Administration Agreement
BMW FS, in its capacity as the Administrator (the "Administrator"),
will enter into the Administration Agreement with the Trust and the Indenture
Trustee pursuant to which the Administrator will agree to provide the notices
and to perform other administrative obligations required by the Indenture. The
Administrator shall not be paid a separate fee for the performance of its
duties as Administrator.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, special federal tax counsel to
the Trust, for federal income tax purposes, the Notes will be characterized as
debt, and the Trust will not be characterized as an association (or a publicly
traded partnership) that is taxable as a corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat the Notes as indebtedness. Each
Certificateholder, by acceptance of a Certificate, will agree to treat the
Trust as a partnership for federal income tax purposes in which the
Certificateholders and BMW FS Receivables Corporation are the partners. See
"Material Federal Income Tax Consequences" in the Prospectus.
ERISA CONSIDERATIONS
The Notes
The Notes may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code.
A fiduciary of a Plan must determine that the purchase of a Note is consistent
with its fiduciary duties under ERISA and does not result in a nonexempt
prohibited transaction as defined in Section 406 of ERISA or Section 4975 of
the Code. For additional information regarding treatment of the Notes under
ERISA, see "ERISA Considerations" in the Prospectus.
The Notes may not be purchased with the assets of a Plan if the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or any of
their affiliates (a) has investment or administrative discretion with respect
to such Plan assets; (b) 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 (1) will serve as a
primary basis for investment decisions with respect to such Plan assets and
(2) will be based on the particular investment needs for such Plan; or (c) is
an employer maintaining or contributing to such Plan.
The Certificates
The Certificates may not be acquired by any employee benefit plan
subject to ERISA, or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), or by an individual retirement account. See "ERISA
Considerations" in this Prospectus Supplement and in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement among the Depositor and the Underwriters (the "Underwriting
Agreement"), the Depositor has agreed to cause the Trust to sell to each of
the Underwriters named below, and each of the Underwriters has severally
agreed to purchase, the principal amount of the Securities set forth opposite
its name below.
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Principal
Class A-1 Class A-2 Class A-3 Class A-4 Amount of
Underwriter Notes Notes Notes Notes Certificates
- ----------- ----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Salomon Smith Barney Inc.................$ $ $ $ $
Chase Securities Inc. ...................$ $ $ $
Credit Suisse First Boston
Corporation..............................$ $ $ $
</TABLE>
In the Underwriting Agreement, the Underwriters have severally
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Securities if any Securities are purchased. In the event of default by
an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the Underwriting Agreement may be terminated.
The Depositor has been advised by the Underwriters that they propose
initially to offer the Securities to the public at the prices set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such
prices less the initial selling concession not in excess of the applicable
percentage set forth in the table below. The Underwriters may allow and such
dealers may reallow a concession not in excess of the applicable percentage
set forth in the table below to certain other dealers. After the initial
public offering of the Securities, the public offering price and such
concessions may be changed.
Selling
Concession Reallowance
---------- -----------
Class A-1 Notes...................................
Class A-2 Notes...................................
Class A-3 Notes...................................
Class A-4 Notes...................................
Certificates......................................
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 exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the price of the Securities. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Securities.
If the Underwriters create a short position in the Securities in
connection with the offering, i.e., if they sell more Securities than are set
forth on the cover page of this Prospectus Supplement, the Underwriters may
reduce that short position by purchasing Securities in the open market.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases.
Neither the Depositor nor any of the Underwriters 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
Securities. In addition, neither the Depositor nor any of the Underwriters
makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Each Underwriter has represented and agreed that (a) it has not
offered or sold, and will not offer or sell, any Securities to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances that
do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995, (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 of Great Britain with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United Kingdom
and (c) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document in connection with the issue of the Securities to
a person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom the document may otherwise lawfully be issued or passed on.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from an Underwriter or a
request by such investor's representative within the period during which there
is an obligation to deliver a Prospectus Supplement and Prospectus, the
Depositor or the Underwriter will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus Supplement and Prospectus.
The Underwriting Agreement provides that the Depositor will indemnify
each of the Underwriters against certain liabilities, including liabilities
under the Securities Act, or contribute to payments that any of the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Brown
& Wood LLP and for the Sellers and the Servicer by Weil, Gotshal & Manges.
Certain legal matters with respect to the federal income tax matters discussed
under "Material Federal Income Tax Consequences" herein will be passed upon by
Brown & Wood LLP, special federal tax counsel to the Depositor. Certain legal
matters will be passed upon for the Underwriters by Brown & Wood LLP.
<PAGE>
INDEX OF DEFINED TERMS
Term Page (S- )
- ---- ----------
ABS................................................29
ABS Table..........................................29
Administrator......................................58
Advance........................................10, 47
APR.................................................4
Balloon Payment Receivables.........................4
BMW AG..........................................4, 15
BMW FS..........................................4, 15
BMW Funding.....................................4, 16
BMW Group...........................................4
BMW NA.............................................15
Business Day.......................................36
Capitalized Interest Account.......................48
Capitalized Interest Payments......................48
Cede............................................2, 42
Cedelbank Participants.............................43
Certificate Distribution Account...................49
Certificate Interest Reserve Account...............49
Certificate Interest Reserve Account
Required Amount...............................49
Certificateholders'Interest Carryover Shortfall....41
Certificateholders'Interest Distributable Amount...41
Certificateholders'Principal Distributable Amount..41
Certificates.......................................41
Class A-1 Final Scheduled Distribution Date........36
Class A-1 Interest Carryover Shortfall.............35
Class A-1 Interest Distributable Amount............35
Class A-1 Monthly Interest Distributable Amount....35
Class A-1 Notes....................................35
Class A-1 Rate.....................................36
Class A-2 Final Scheduled Distribution Date........37
Class A-2 Interest Carryover Shortfall.............35
Class A-2 Interest Distributable Amount............35
Class A-2 Monthly Interest Distributable Amount....35
Class A-2 Notes....................................35
Class A-2 Rate.....................................36
Class A-3 Final Scheduled Distribution Date........37
Class A-3 Interest Carryover Shortfall.............35
Class A-3 Interest Distributable Amount............35
Class A-3 Monthly Interest Distributable Amount....35
Class A-3 Notes....................................35
Class A-3 Rate.....................................36
Class A-4 Final Scheduled Distribution Date........37
Class A-4 Interest Carryover Shortfall.............35
Class A-4 Interest Distributable Amount............35
Class A-4 Monthly Interest Distributable Amount....35
Class A-4 Notes....................................35
Class A-4 Rate.....................................36
Closing Date.......................................22
Code...........................................10, 59
Collection Account.................................47
Collection Period..................................36
Contracts..........................................16
Custodian..........................................21
Cutoff Date.....................................4, 21
Cutoff Date Pool Balance...........................21
Dealer Agreement...................................16
Dealers............................................16
Definitive Securities..............................43
Depositaries.......................................42
Depositor...........................................4
Determination Date.................................46
Distribution Date...............................5, 36
DTC................................................42
DTC Services.......................................45
Due Date...........................................17
Eligible Deposit Account...........................47
Eligible Institution...............................47
Eligible Investments...............................47
ERISA..............................................58
ERISA Considerations...............................58
Euroclear......................................42, 44
Euroclear Cooperative..............................44
Euroclear Operator.................................44
Euroclear Participants.............................43
Federal Tax Counsel................................10
Financed Vehicles..................................21
Funding Period..................................5, 48
Indenture..........................................35
Indenture Event of Default.........................13
Indenture Events of Default........................37
Indenture Trustee...............................4, 40
Industry...........................................45
Initial Class A-1 Note Balance.....................35
Initial Class A-2 Note Balance.....................35
Initial Class A-3 Note Balance.....................35
Initial Class A-4 Note Balance.....................35
Initial Overcollateralization Amount............9, 49
Initial Pool Balance...............................37
Initial Receivables.................................4
Interest Distribution Amount.......................51
Liquidated Receivable..............................51
Moody's............................................11
Motor Vehicle Contracts............................16
Nonrecoverable Advance.............................47
Note Distribution Account..........................48
Noteholders........................................36
Noteholders'Interest Distributable Amount..........53
Noteholders'Principal Distributable Amount.........36
Obligor............................................22
Owner Trustee...................................4, 21
Participants.......................................42
Payment Date........................................5
Plan...............................................58
Pool Balance.......................................37
Pre-Funded Amount..................................48
Pre-Funding Account.............................5, 48
Purchase Amount....................................46
Rating Agencies....................................11
Realized Losses....................................51
Receivables.....................................4, 21
Receivables Purchase Agreement.....................22
Record Date........................................36
Recoveries.........................................52
Regular Principal Distribution Amount..............51
Reserve Account....................................48
Reserve Account Required Amount....................48
Rules..............................................43
S&P................................................11
Sale and Servicing Agreement.......................22
Sale Price.........................................24
Securities......................................4, 41
Sellers.............................................4
Servicer............................................4
Servicer Termination Event.........................57
Servicer's Certificate.........................46, 50
Servicing Fee......................................53
Servicing Fee Rate.................................53
Statement to Securityholders.......................54
Subsequent Purchase Agreement......................23
Subsequent Receivables..........................5, 21
Subsequent Transfer Agreement......................23
Subsequent Transfer Date...........................23
Systems............................................44
Terms and Conditions...............................44
Total Distribution Amount..........................51
Transfer and Servicing Agreements..................45
Trust...........................................4, 20
Trust Accounts.....................................47
Trustees...........................................42
Underwriting Agreement.............................59
Weighted Average Security Rate.....................48
Yield Supplement Overcollateralization Amount......50
<PAGE>
PROSPECTUS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
(EACH ISSUABLE IN SERIES)
SSB VEHICLE SECURITIES INC.
The Asset Backed Notes (the "Notes") and the Asset Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities") described herein may be sold from time to time in one or more
series, in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each series of Securities, which may include one or more classes
of Notes and/or one or more classes of Certificates, will be issued by a trust
to be formed with respect to such series (each, a "Trust"). Each Trust will be
formed pursuant to either (i) a Trust Agreement to be entered into between SSB
Vehicle Securities Inc. (the "Company") or a limited purpose finance
subsidiary of the Company organized and established by the Company (each such
limited purpose finance subsidiary, a "Transferor"), as depositor (the
"Depositor" and the Trustee specified in the related Prospectus Supplement
(the "Trustee"), or (ii) a Pooling and Servicing Agreement to be entered into
among the Trustee, the Depositor and the servicer specified in the related
Prospectus Supplement (the "Servicer"). If a series of Securities includes
Notes, such Notes will be issued and secured pursuant to an Indenture between
the Trust and the Indenture Trustee specified in the related Prospectus
Supplement (the "Indenture Trustee") and will represent indebtedness of the
related Trust. The Certificates of a series will represent fractional
undivided interests in the related Trust. The related Prospectus Supplement
will specify which class or classes of Notes, if any, and which class or
classes of Certificates, if any, of the related series are being offered
thereby. The property of each Trust will include a pool of retail installment
sale contracts, retail installment loans, purchase money notes or other notes
(the "Receivables") secured by new or used (i) automobiles, light-duty trucks
and motorcycles and/or (ii) recreational vehicles, certain monies due or
received thereunder on and after the applicable Cut-off Date set forth in the
related Prospectus Supplement, security interests in the items financed
thereby and certain other property, all as described herein and in the related
Prospectus Supplement. In addition, if so specified in the related Prospectus
Supplement, the property of the Trust will include monies on deposit in a
trust account (the "Pre-Funding Account") to be established with the Indenture
Trustee, which will be used to purchase additional Receivables (the
"Subsequent Receivables") from the Depositor from time to time during the
Funding Period specified in the related Prospectus Supplement. For additional
information, please see "Risk Factors--Risks Associated with Subsequent
Receivables and the Pre-Funding Account" below.
Each class of Securities of any series will represent the right
to receive a specified amount of payments of principal and/or interest on
the related Receivables, at the rates, on the dates and in the manner
described herein and in the related Prospectus Supplement. If a series
includes multiple classes of Securities, the rights of one or more classes
of Securities to receive payments may be senior or subordinate to the
rights of one or more of the other classes of such series. Distributions
on Certificates of a series may be subordinated in priority to payments
due on any related Notes to the extent described herein and in the related
Prospectus Supplement. A series may include one or more classes of Notes
and/or Certificates which differ as to the timing and priority of payment,
interest rate or amount of distributions in respect of principal or
interest or both. A series may include one or more classes of Notes or
Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions with disproportionate, nominal or no distributions in
respect of principal. The rate of payment in respect of principal of any
class of Notes and distributions in respect of the Certificate Balance of
the Certificates of any class will depend on the priority of payment of
such class and the rate and timing of payments (including prepayments,
defaults, liquidations and repurchases of Receivables) on the related
Receivables. A rate of payment lower or higher than that anticipated may
affect the weighted average life of each class of Securities in the manner
described herein and in the related Prospectus Supplement. PROSPECTIVE
INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS"
BEGINNING ON PAGE 8 HEREOF AND IN THE RELATED PROSPECTUS SUPPLEMENT.
ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO
NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR
INSURED BY, SSB VEHICLE SECURITIES INC., THE SERVICER, THE SELLER(S) OR
ANY OF THEIR RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR
THE RECEIVABLES IS GUARANTEED OR INSURED BY ANY GOVERNMENT AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus
may not be used to consummate sales of Securities
offered hereby unless accompanied by a Prospectus
Supplement.
September 21, 1999
<PAGE>
AVAILABLE INFORMATION
SSB Vehicle Securities Inc. (the "Company") has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
(together with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes and the Certificates offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement which may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at 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 the
Registration Statement may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including SSB Vehicle Securities Inc., that file
electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company on behalf of the Trust referred to
in the accompanying Prospectus Supplement, pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), subsequent to the date of this Prospectus and prior to the termination
of the offering of the Securities offered by such Trust shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any or
all of the documents incorporated herein or in any related Prospectus
Supplement by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Ted Yarbrough, SSB Vehicle
Securities Inc., 7 World Trade Center, New York, New York 10048; telephone
212-783-7000.
<PAGE>
SUMMARY OF TERMS
The following summary is qualified by reference to the detailed information
appearing elsewhere in this Prospectus and by reference to the information with
respect to the Securities of any series contained in the related Prospectus
Supplement to be prepared and delivered in connection with the offering of such
Securities. Certain capitalized terms used in this summary are defined elsewhere
in this Prospectus on the pages indicated in the "Index of Terms".
<TABLE>
<CAPTION>
<S> <C>
Issuer........................... With respect to each series of
Securities, the trust (the "Trust" or the
"Issuer") to be formed pursuant to either
a Trust Agreement (as amended and
supplemented from time to time, a "Trust
Agreement") among the Depositor and the
trustee specified in the related
Prospectus Supplement (the "Trustee") and,
if so specified in the related Prospectus
Supplement, a limited purpose affiliate of
the Seller (the "Seller Affiliate") or a
Pooling and Servicing Agreement (as
amended and supplemented from time to
time, a "Pooling and Servicing Agreement")
among the Trustee, the Depositor and the
servicer specified in the related
Prospectus Supplement (the "Servicer").
Company.......................... SSB Vehicle Securities Inc. (the
"Company"). See "The Company".
Depositor........................ With respect to each series of
Securities, either the Company or a
limited purpose finance subsidiary of the
Company (each such limited purpose finance
subsidiary, a "Transferor").
Seller(s)........................ With respect to each series of Securities,
the Seller(s) will be specified in the
related Prospectus Supplement.
Servicer......................... With respect to each series of Securities,
the Servicer will be specified in the
related Prospectus Supplement.
Trustee.......................... With respect to each series of
Securities, the Trustee will be specified
in the related Prospectus Supplement.
Indenture Trustee................ With respect to any applicable series
of Securities, the Indenture Trustee will
be specified in the related Prospectus
Supplement.
The Notes........................ A series of Securities may include one or
more classes of Notes, which will be
issued pursuant to an Indenture between
the Trust and the Indenture Trustee (as
amended and supplemented from time to
time, an "Indenture"). The related
Prospectus Supplement will specify which
class or classes, if any, of Notes of the
related series are being offered thereby.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in minimum
denominations of $1,000 and will be
available in book-entry form only. Unless
otherwise specified in the related
Prospectus Supplement, Noteholders will be
able to receive Definitive Notes only in
the limited circumstances described herein
or in the related Prospectus Supplement.
See "Certain Information Regarding the
Securities--Definitive-- Securities".
Except in the case of any Strip Notes (as
defined below), each class of Notes will
have a stated principal amount and will
bear interest at a specified rate or rates
(with respect to each class of Notes, the
"Interest Rate"). Each class of Notes may
have a different Interest Rate, which may
be a fixed, variable or adjustable
Interest Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Interest Rate,
or the method for determining the Interest
Rate, for each class of Notes.
With respect to a series that includes two
or more classes of Notes, each class may
differ as to the timing and priority of
payments, seniority, allocations of
losses, Interest Rate or amount of
payments of principal or interest, or
payments of principal or interest in
respect of any such class or classes may
or may not be made upon the occurrence of
specified events or on the basis of
collections from designated portions of
the Receivables Pool.
In addition, a series may include one or
more classes of Notes ("Strip Notes")
entitled to (i) principal payments with
disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no principal
payments.
If the Servicer exercises its option to
purchase the Receivables of a Trust (or,
if not and, if and to the extent provided
in the related Prospectus Supplement,
satisfactory bids for the purchase of such
Receivables are received), in the manner
and on the respective terms and conditions
described under "Description of the
Transfer and Servicing Agreements--
Termination", the outstanding
Notes will be redeemed as set forth in the
related Prospectus Supplement. In
addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account
(as such term is defined in the related
Prospectus Supplement, the "Pre-Funding
Account"), one or more classes of the
outstanding Notes may be subject to
partial redemption on or immediately
following the end of the Funding Period
(as such term is defined in the related
Prospectus Supplement, the "Funding
Period") in an amount and manner specified
in the related Prospectus Supplement. In
the event of such partial redemption, the
Noteholders may be entitled to receive a
prepayment premium from the Trust, in the
amount and to the extent provided in the
related Prospectus Supplement.
The Certificates................. A series may include one or more classes
of Certificates and may not include any
Notes. The related Prospectus Supplement
will specify which class or classes, if
any, of the Certificates are being offered
thereby.
Unless otherwise specified in the related
Prospectus Supplement, Certificates will
be available for purchase in a minimum
denomination of $1,000 and will be
available in book-entry form only. Unless
otherwise specified in the related
Prospectus Supplement, Certificateholders
will be able to receive Definitive
Certificates only in the limited
circumstances described herein or in the
related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Definitive Securities".
Except in the case of any Strip
Certificates (as defined below), each
class of Certificates will have a stated
Certificate Balance specified in the
related Prospectus Supplement (the
"Certificate Balance") and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each class
of Certificates, the "Pass Through Rate").
Each class of Certificates may have a
different Pass Through Rate, which may be
a fixed, variable or adjustable Pass
Through Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Pass Through
Rate, or the method for determining the
Pass Through Rate, for each class of
Certificates.
With respect to a series that includes two
or more classes of Certificates, each
class may differ as to timing and priority
of distributions, seniority, allocations
of losses, Pass Through Rate or amount of
distributions in respect of principal or
interest, or distributions in respect of
principal or interest in respect of any
such class or classes may or may not be
made upon the occurrence of specified
events or on the basis of collections from
designated portions of the Receivables
Pool. In addition, a series may include
one or more classes of Certificates
("Strip Certificates") entitled to (i)
distributions in respect of principal with
disproportionate, nominal or no interest
distributions or (ii) interest
distributions with disproportionate,
nominal or no distributions in respect of
principal.
If a series of securities includes classes
of Notes, distributions in respect of the
Certificates may be subordinated in
priority of payment to payments on the
Notes to the extent specified in the
related Prospectus Supplement.
If the Servicer exercises its option to
purchase the Receivables of a Trust (or,
if not, and if and to the extent provided
in the related Prospectus Supplement,
satisfactory bids for the purchase of such
Receivables are received), in the manner
and on the respective terms and conditions
described under "Description of the
Transfer and Servicing Agreements--
Termination", Certificateholders will
receive as a prepayment an amount in
respect of the Certificates as specified
in the related Prospectus Supplement. In
addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account,
Certificateholders may receive a partial
prepayment of principal on or immediately
following the end of the Funding Period in
an amount and manner specified in the
related Prospectus Supplement. In the
event of such partial prepayment, the
Certificateholders may be entitled to
receive a prepayment premium from the
Trust, in the amount and to the extent
provided in the related Prospectus
Supplement.
The Trust Property............... The property of each Trust will
include a pool of retail installment sale
contracts, retail installment loans,
purchase money notes or other notes (the
"Receivables") secured by new or used (i)
automobiles, light-duty trucks and
motorcycles (the "Financed Motor
Vehicles") and/or (ii) recreational
vehicles (the "Financed Recreational
Vehicles"), including rights to receive
certain payments made with respect to such
Receivables, security interests in the
Financed Motor Vehicles and Financed
Recreational Vehicles (collectively, the
"Financed Vehicles") financed thereby,
certain accounts and the proceeds thereof
and any proceeds from claims on certain
related insurance policies. On or prior to
the Closing Date specified in the related
Prospectus Supplement with respect to a
Trust, the Seller(s) will sell or transfer
Receivables (the "Initial Receivables")
having an aggregate principal balance
specified in the related Prospectus
Supplement as of the dates specified
therein (the "Initial Cut-off Date") to
the Depositor, and the Depositor will
transfer the Initial Receivables to such
Trust on the Closing Date pursuant to
either a Sale and Servicing Agreement
among the Depositor, the Servicer and the
Trustee (as amended and supplemented from
time to time, a "Sale and Servicing
Agreement") or, if the Trust is to be
treated as a grantor trust for federal
income tax purposes, the related Pooling
and Servicing Agreement among the
Depositor, the Servicer and the Trustee.
The property of each Trust will also
include amounts on deposit in certain
trust accounts, including the related
Collection Account, any Pre-Funding
Account, any Reserve Account and any other
account identified in the applicable
Prospectus Supplement.
To the extent provided in the related
Prospectus Supplement, the Seller(s) will
be obligated (subject only to the
availability thereof) to sell to the
Depositor which will be obligated to
purchase and sell to the related Trust,
and such Trust will then be obligated to
purchase (subject to the satisfaction of
certain conditions described in the
applicable Sale and Servicing Agreement or
Pooling and Servicing Agreement),
additional Receivables (the "Subsequent
Receivables") from time to time (as
frequently as daily) during the Funding
Period specified in the related Prospectus
Supplement having an aggregate principal
balance approximately equal to the amount
on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on such Closing Date.
With respect to any Trust that is to be
treated as a grantor trust for federal
income tax purposes, the Funding Period,
if any, will not exceed the period of 90
days after the Closing Date, and with
respect to any other Trust will not exceed
the period of one year after the Closing
Date. With respect to each Trust, the
Pre-Funded Amount on the Closing Date will
not exceed 25% of the aggregate initial
principal balance of the Securities.
The Receivables arise or will arise from
loans originated by motor vehicle and
recreational vehicle dealers (the
"Dealers") and purchased, directly or
indirectly, by a Seller(s) and sold to the
Depositor. The Receivables will be
selected from the contracts and loans
owned by a Seller(s) or the Depositor
based on the criteria specified in the
Sale and Servicing Agreement or the
Pooling and Servicing Agreement, as
applicable, and described herein and in
the related Prospectus Supplement.
Credit and Cash Flow
Enhancement..................... If and to the extent specified in the
related Prospectus Supplement, credit and
cash flow enhancement with respect to a
Trust or any class or classes of
Securities may include any one or more of
the following: subordination of one or
more other classes of Securities, a
Reserve Account, overcollateralization,
letters of credit, credit or liquidity
facilities, surety bonds, guaranteed
investment contracts, swaps or other
interest rate protection agreements,
repurchase obligations, yield supplement
agreements or accounts, other agreements
with respect to third party payments or
other support, cash deposits or other
arrangements. Unless otherwise specified
in the related Prospectus Supplement, any
form of credit or cash flow enhancement
will have certain limitations and
exclusions from coverage thereunder, which
will be described in the related
Prospectus Supplement.
Transfer and Servicing
Agreements...................... With respect to each Trust, the Seller
will sell the related Receivables to the
Depositor, which, in turn, will sell the
related Receivables to such Trust pursuant
to a Sale and Servicing Agreement or a
Pooling and Servicing Agreement. The
rights and benefits of any Trust under a
Sale and Servicing Agreement will be
assigned to the Indenture Trustee as
collateral for the Notes of the related
series. The Servicer will agree with such
Trust to be responsible for servicing,
managing, maintaining custody of and
making collections on the Receivables. If
so specified in the related Prospectus
Supplement, the person specified therein
as Administrator will undertake certain
administrative duties under an
Administration Agreement with respect to
any Trust that has issued Notes, which
duties, in the absence of an
Administrator, would be performed for such
Trust by the related Indenture Trustee or
by the Depositor.
Unless otherwise specified in the related
Prospectus Supplement, the Servicer will
advance scheduled payments under each
Precomputed Receivable which shall not
have been timely made (a "Precomputed
Advance"), to the extent that the
Servicer, in its sole discretion, expects
to recoup the Precomputed Advance from
subsequent payments on or with respect to
such Receivable or from other Precomputed
Receivables. With respect to Simple
Interest Receivables, the Servicer shall
advance any interest shortfall (a "Simple
Interest Advance" and, together with a
Precomputed Advance, an "Advance"). The
Servicer shall be entitled to
reimbursement of Advances from subsequent
payments on or with respect to the
Receivables to the extent described herein
and in the related Prospectus Supplement.
Unless otherwise provided in the related
Prospectus Supplement, the Depositor will
be obligated to repurchase any Receivable
from the Trust, and the related Seller
will be obligated to simultaneously
repurchase such Receivable from the
Depositor, if the interest of the
applicable Trust in such Receivable is
materially adversely affected by a breach
of any representation or warranty made by
such Seller with respect to the
Receivable, if the breach has not been
cured following the discovery by or notice
to such Seller and the Depositor of the
breach. If so specified in the related
Prospectus Supplement, the related Seller
or the Depositor will be permitted, in a
circumstance where it would otherwise be
required to repurchase a Receivable as
described in the preceding sentence, to
instead substitute a comparable Receivable
for the Receivable otherwise requiring
repurchase, subject to certain conditions
and eligibility criteria for the
substitute to be summarized in the related
Prospectus Supplement.
Unless otherwise provided in the related
Prospectus Supplement, the Servicer will
be obligated to purchase or make Advances
with respect to any Receivable if, among
other things, it extends the date for
final payment by the Obligor of such
Receivable beyond the applicable Final
Scheduled Maturity Date (as defined in the
related Prospectus Supplement, the "Final
Scheduled Maturity Date"), changes the
annual percentage rate ("APR") or amount
of a scheduled payment of such Receivable
or fails to maintain a perfected security
interest in the related Financed Vehicle.
Unless otherwise specified in the related
Prospectus Supplement, the Servicer will
be entitled to receive a fee for servicing
the Receivables of each Trust equal to a
specified percentage of the aggregate
principal balance of the related
Receivables Pool, as set forth in the
related Prospectus Supplement, plus
certain late fees, prepayment charges and
other administrative fees or similar
charges. See "Description of the Transfer
and Servicing Agreements--Servicing
Compensation and Payment of Expenses"
herein and in the related Prospectus
Supplement.
Certain Legal Aspects of the
Receivables; Repurchase Obligations
In connection with the sale of Receivables
to a Trust, security interests in the
Financed Vehicles securing such
Receivables will be assigned, directly or
indirectly, by the related Dealer to the
Seller(s) and by the Seller(s) to the
Depositor and by the Depositor to such
Trust. Due to administrative burden and
expense, the certificates of title to the
Financed Motor Vehicles and those Financed
Recreational Vehicles financed in states
where security interests in recreational
vehicles are subject to certificate of
title statutes will not be amended to
reflect any such assignments, the Uniform
Commercial Code ("UCC") financing
statements in respect of those Financed
Recreational Vehicles financed in states
where security interests in recreational
vehicles are perfected by filing a UCC-1
financing statement will not be amended to
reflect such assignments. In the absence
of such procedures, such Trust may not
have a perfected security interest in the
Financed Vehicles in some states. If such
Trust does not have a perfected security
interest in a Financed Vehicle, its
ability to realize on such Financed
Vehicle in the event of a default may be
adversely affected. To the extent the
security interest is perfected, such Trust
will have a prior claim over subsequent
purchasers of such Financed Vehicle and
holders of subsequently perfected security
interests. However, as against liens for
repairs of a Financed Vehicle or for taxes
unpaid by an Obligor under a Receivable,
or because of fraud or negligence, such
Trust could lose the priority of its
security interest or its security interest
in a Financed Vehicle.
Federal and state consumer protection laws
impose requirements upon creditors in
connection with extensions of credit and
collections of retail installment loans,
and certain of these laws make an assignee
of such a loan liable to the obligor
thereon for any violation by the lender.
Unless otherwise specified in the related
Prospectus Supplement, the Depositor will
be obligated to repurchase from the Trust
and the related Seller will be obligated
to simultaneously repurchase from the
Depositor any Receivable which fails to
<PAGE>
contingent upon the related Seller
performing its obligation to repurchase
such Receivable from the Depositor on
account of such failure.
Tax Status........................ Owner Trust
Unless the Prospectus Supplement specifies
that the related Trust will be treated as
a grantor trust, it is the opinion of Tax
Counsel to such Trust that for federal
income tax purposes: (i) all or certain
specified classes of Notes of such series
will be characterized as debt and (ii)
such Trust will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation. In
respect of any such series, each
Noteholder, by the acceptance of a Note of
such series, will agree to treat such Note
as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate of such series, will agree to
treat such Trust as a partnership in which
such Certificateholder is a partner for
federal income and state income tax
purposes. Alternative characterizations of
such Trust and such Certificates are
possible, but would not result in
materially adverse tax consequences to
Certificateholders. See "Material Federal
Income Tax Consequences--Trusts for Which
a Partnership Election is Made" herein.
Grantor Trust
If the Prospectus Supplement specifies
that the related Trust will be treated as
a grantor trust, it is the opinion of Tax
Counsel to such Trust that such Trust will
be treated as a grantor trust for federal
income tax purposes and will not be
subject to federal income tax.
See--"Material Federal Income Tax
Consequences--Trusts Treated as a Grantor
Trust" herein.
FASIT
If the Prospectus Supplement specifies
that the related Trust will be treated as
a financial asset securitization
investment trust ("FASIT"), it is the
opinion of Tax Counsel that such Trust
will on the startup date qualify as a
FASIT and its proposed method of operation
will enable it to continue to meet the
requirements for qualification and
taxation as a FASIT under the Code
assuming a timely FASIT election is made.
Based on the foregoing and assuming
compliance with the Transaction Documents,
certain of the Securities will qualify as
regular interests in a FASIT ("Regular
Securities") which will generally be
treated as debt for U.S. federal income
tax purposes. The beneficial owners of
FASIT Regular Securities will be required
to include the interest payable on such
FASIT Regular Securities in gross income
as such interest accrues, regardless of
the regular method of tax accounting and
in advance of receipt of the cash
attributable to such interest income. See
"Material Federal Income Tax Consequences
-- Trusts for which a FASIT Election is
Made" herein.
ERISA Considerations............. Subject to the considerations discussed
under "ERISA Considerations" herein and in
the related Prospectus Supplement, and
unless otherwise specified therein, any
Notes of a series and any Certificates
that are issued by a Trust that is a
grantor trust and are not subordinated to
any other class of Certificates are
eligible for purchase by employee benefit
plans. Unless otherwise specified in the
related Prospectus Supplement, the
Certificates of any series that are
subordinated to any other Security of that
series may not be acquired by any employee
benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or by any individual
retirement account. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
</TABLE>
RISK FACTORS
Certain Legal Aspects--Security Interests in Financed Vehicles may be Limited
Trusts May Not Have a Perfected Security Interest in Certain Financed
Vehicles. In connection with the sale of Receivables to a Trust, security
interests in the Financed Vehicles securing such Receivables will be, or will
have been, assigned by the Seller(s) to the Depositor and by the Depositor to
such Trust simultaneously with the sale of such Receivables to such Trust. Due
to administrative burden and expense, (i) the certificates of title to the
Financed Motor Vehicles and those Financed Recreational Vehicles financed in
states where security interests in recreational vehicles, are subject to
certificate of title statutes will not be amended to reflect such assignments,
and (ii) UCC financing statements in respect of those Financed Recreational
Vehicles financed in states where security interests in recreational vehicles
are perfected by filing a UCC-1 financing statement will not be amended to
reflect such assignments. In the absence of such procedures, such Trust may
not have a perfected security interest in the Financed Vehicles in some
states.
Unless otherwise provided in the related Prospectus Supplement, the
Depositor will be obligated to repurchase from the related Trust and the
related Seller will be obligated simultaneously to repurchase from the
Depositor any Receivable sold to such Trust as to which a perfected security
interest in the name of the related Seller in the Financed Vehicle securing
such Receivable shall not exist as of the date such Receivable is transferred
to such Trust, if such failure shall materially adversely affect the interest
of such Trust in such Receivable and if such failure shall not have been cured
by the last day of the second month following the discovery by or notice to
the Seller(s) of such breach. The Depositor's obligation to make such
repurchase is contingent upon the related Seller performing its obligation to
repurchase such Receivable from the Depositor on account of such failure.
Moreover, such repurchase obligations will not address or remedy the
circumstance where a perfected security interest in the name of the related
Seller in the Financed Vehicle securing a Receivable has not been perfected in
the related Trust as a result of the absence of the procedures described in
the preceding paragraph or for any other reason. If such Trust does not have a
perfected security interest in a Financed Vehicle, its ability to realize on
such Financed Vehicle in the event of a default may be adversely affected and,
as a result, the amount available for distribution to the Securityholders may
be adversely affected.
Certain Liens Will Have Priority over a Perfected Security Interest.
To the extent the security interest is perfected, such Trust will have a prior
claim over subsequent purchasers of such Financed Vehicle and holders of
subsequently perfected security interests. However, as against liens for
repairs of a Financed Vehicle or for taxes unpaid by an Obligor under a
Receivable, or through fraud or negligence, such Trust could lose the priority
of its security interest or its security interest in a Financed Vehicle. None
of the Seller(s), the Servicer or the Depositor will have any obligation to
repurchase a Receivable as to which any of the aforementioned occurrences
result in such Trust's losing the priority of its security interest or its
security interest in such Financed Vehicle after the date such security
interest was conveyed to such Trust. See "Certain Legal Aspects of the
Receivables--Security Interest in Vehicles" herein.
Certain Legal Aspects--Security Interest in Receivables May be Limited
The Receivables will be treated by each Trust as "chattel paper" as
defined in the UCC. Pursuant to the UCC, the sale of chattel paper is treated
in a manner similar to a security interest in chattel paper. Perfection of a
security interest in chattel paper may generally be made by filing UCC-1
financing statements in respect thereof or by possession of the chattel paper.
In order to protect each Trust's ownership or security interest in its
Receivables, the Depositor will file UCC-1 financing statements with the
appropriate authorities in the States of New York and Delaware and any other
states deemed advisable by the Depositor to give notice of such Trust's
ownership interest (and any related Indenture Trustee's security interest) in
the Receivables and proceeds thereof. Under each Sale and Servicing Agreement
and Pooling and Servicing Agreement, the Servicer will be appointed Custodian
of the Receivables by the Trustee and the Servicer will otherwise be obligated
to maintain the perfection of the interest of each Trust and any related
Indenture Trustee in the Receivables. The filing of UCC-1 financing statements
as described above and possession of the chattel paper by the Servicer will
reduce but not eliminate the risks involved in perfection. A trust could lose
priority of its security interest in the Receivables to certain liens arising
by operation of law or in certain cases by fraud or negligence. Moreover, if
the Servicer should lose or inadvertently give up possession of the chattel
paper, a good faith purchaser of the chattel paper without knowledge who gives
new value and takes possession of it in the ordinary course of such
purchaser's business has priority over a security interest (including an
ownership interest) in the chattel paper that is perfected by filing UCC-1
financing statements.
Certain Legal Aspects--Consumer Protection Laws May Reduce Payments to
Securityholders
Federal and state consumer protection laws impose requirements upon
creditors in connection with extensions of credit and collections of retail
installment loans and certain of these laws make an assignee of such a loan
(such as a Trust) liable to the obligor thereon for any violation by the
lender. The application of such laws could render a Receivable unenforceable
or otherwise uncollectible. The inability of a Trust to realize amounts would
in respect of such Receivable could adversely affect the amount available for
distribution to the Securityholders. Unless otherwise specified in the related
Prospectus Supplement, the Depositor will be obligated to repurchase from the
Trust and the related Seller will be obligated to simultaneously repurchase
from the Depositor any Receivable which fails to comply with such
requirements. The Depositor's obligation to make such repurchase is contingent
upon the related Seller performing its obligation to repurchase such
Receivable from the Depositor on account of such failure. See "Certain Legal
Aspects of the Receivables--Consumer Protection Laws" herein.
Certain Legal Aspects--Insolvency May Result in Delays or Reductions of
Payments to Securityholders
Each Seller will represent and warrant that the transfer of
Receivables by it to the Depositor will constitute a sale. In addition, the
Depositor intends that the transfer of Receivables by it to the Trust will
constitute a sale.
Considerations Relating to the Insolvency of a Nonbank Seller or the
Depositor. If either a Seller that is not a bank (a "Nonbank Seller") or the
Depositor were to become a debtor in a bankruptcy case (or if the parent of
either were to become a debtor in a bankruptcy case and the assets of the
Nonbank Seller or Depositor, as applicable, were consolidated with those of
its parent) and a creditor or trustee-in-bankruptcy of such debtor or such
debtor itself were to take the position that the transfer of Receivables to
the Depositor or such Trust, as the case may be, should, notwithstanding the
intent of the parties that it be treated as a sale, instead be treated as a
pledge of such Receivables to secure a borrowing of such debtor, delays in
payments of collections of Receivables to the related Securityholders could
occur or (should the court rule in favor of any such trustee, debtor or
creditor) reductions in the amounts of such payments could result. If the
transfer of Receivables by a Nonbank Seller to the Depositor or by the
Depositor to a Trust is treated as a pledge instead of a sale, a tax or
government lien on the property of the Nonbank Seller or the Depositor, as
applicable, arising before such Receivables transfer may have priority over
such Trust's interest in such Receivables. If the transactions contemplated
herein are treated as a sale, the Receivables would not be part of the Nonbank
Seller's or Depositor's bankruptcy estate and would not be available to their
respective creditors.
Considerations Relating to an Insolvency Event of the Depositor or
the Seller Affiliate Related to Certain Trusts. With respect to each Trust
that is not a grantor trust, if the related Prospectus Supplement so provides,
upon the occurrence of an Insolvency Event of either the Depositor or the
Seller Affiliate identified therein, the Indenture Trustee or Trustee for such
trust will promptly sell, dispose of or otherwise liquidate the related
Receivables in a commercially reasonable manner on commercially reasonable
terms, except under certain limited circumstances. The proceeds from any such
sale, disposition or liquidation of Receivables will be treated as collections
on the Receivables and deposited in the Collection Account of such Trust. If
the proceeds from the liquidation of the Receivables and any amounts on
deposit in the Reserve Account, if any, the Note Distribution Account, if any,
and the Certificate Distribution Account with respect to any such Trust and
any amounts available from any credit enhancement are not sufficient to pay
any Notes and the Certificates of the related series in full, the amount of
principal returned to any Noteholders or Certificateholders will be reduced
and such Noteholders and Certificateholders will incur a loss.
Octagon Gas Case. In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d
948 (10th Cir. 1993), the U.S. Court of Appeals for the 10th Circuit
determined that "accounts," a defined term under the Uniform Commercial Code,
would be included in the bankruptcy estate of a transferor regardless of
whether the transfer is treated as a sale or a secured loan. Although the
Receivables are likely to be viewed as "chattel paper," as defined under the
Uniform Commercial Code, rather than as accounts, the Octagon holding is
equally applicable to chattel paper. The circumstances under which the Octagon
holding would apply are not fully known and the extent to which the Octagon
decision will be followed in other courts or outside of the Tenth Circuit is
not certain. If the holding in Octagon were applied in a bankruptcy of the
Depositor or a Seller, however, even if the transfer of Receivables to the
Depositor and the transfer of the Receivables to the Trust were treated as a
sale, the Receivables would be part of the Depositor's or Seller's bankruptcy
estate (as applicable) and would be subject to claims of certain creditors,
and delays and reductions in payments to the Securityholders could result.
Reliance on Representations and Warranties by the Depositor, the Seller(s) and
the Servicer Which Proves to be Inadequate May Result in Delays or Reductions
of Payment to Securityholders
None of the Seller(s), the Servicer, the Depositor or any of their
respective affiliates will generally be obligated to make any payments in
respect of any Notes, the Certificates or the Receivables of a Trust. However,
in connection with the sale of Receivables by the Seller(s) to the Depositor
and the Depositor to a Trust, the Seller(s) will make representations and
warranties with respect to the characteristics of such Receivables and, in
certain circumstances, the Depositor may be required to repurchase from the
Trust and the related Seller would be required to simultaneously repurchase
from the Depositor Receivables with respect to which such representations and
warranties have been breached. Alternatively, if so specified in the related
Prospectus Supplement, the related Seller or the Depositor will be permitted,
in a circumstance where it would otherwise be required to repurchase a
Receivable as described in the preceding sentence, to instead substitute a
comparable Receivable for the Receivable otherwise requiring repurchase,
subject to certain conditions and eligibility criteria for the substitute
Receivable to be summarized in the related Prospectus Supplement. The
Depositor's obligation to make such repurchase or substitution is contingent
upon the related Seller performing its obligation to repurchase or substitute
for such Receivable from the Depositor. See "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables". In addition, under
certain circumstances, the Servicer may be required to purchase Receivables.
See "Description of the Transfer and Servicing Agreements--Servicing
Procedures". If collections on any Receivable should be reduced as a result of
any matter giving rise to a repurchase or purchase obligation on the part of
the Depositor, the Seller and/or the Servicer, as the case may be, and the
Depositor, the Seller and/or the Servicer should fail for any reason to
perform in accordance with that obligation, then delays in payments on the
Securities and reductions in the amount of those payments could occur.
Moreover, if the Servicer were to cease acting as Servicer, delays in
processing payments on the Receivables and information in respect thereof
could occur and result in delays in payments to the Securityholders.
Subordination of Certain Certificates May Result in Reduced Payments
to Those Certificates. To the extent specified in the related Prospectus
Supplement, distributions of interest and principal on one or more classes of
Certificates of a series may be subordinated in priority of payment to
interest and principal due on the Notes, if any, of such series or one or more
other classes of Certificates of such series.
Limited Assets and Risk that such Assets will not be Sufficient to
Pay Securities in Full. Moreover, each Trust will not have, nor is it
permitted or expected to have, any significant assets or sources of funds
other than the Receivables and, to the extent provided in the related
Prospectus Supplement, a Pre-Funding Account, a Reserve Account and any other
credit enhancement. The Notes of any series will represent obligations solely
of, and the Certificates of any series will represent interests solely in, the
related Trust and neither the Notes nor the Certificates of any series will be
insured or guaranteed by any of the Seller(s), the Depositor, the applicable
Trustee, any Indenture Trustee or any other person or entity. Consequently,
holders of the Securities of any series must rely for repayment upon payments
on the related Receivables and, if and to the extent available, amounts on
deposit in the Pre-Funding Account (if any), the Reserve Account (if any) and
any other credit enhancement, all as specified in the related Prospectus
Supplement. If such amounts and credit enhancement are exhausted, the related
Trust will depend solely on payments on the Receivables to make distributions
on the Securities, and the Securities will bear the risk of delinquencies,
loan losses and repossessions with respect to the Receivables.
Risk that Prepayments will Adversely Affect Average Life and Yields
of Securities. All the Receivables are prepayable at any time. (For this
purpose the term "prepayments" includes prepayments in full, partial
prepayments (including those related to rebates of extended warranty contract
costs and insurance premiums) and liquidations due to default, as well as
receipts of proceeds from physical damage, credit life and disability
insurance policies and certain other Receivables repurchased for
administrative reasons). 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 the Financed Vehicle
securing a Receivable without causing the related loan to become due and
payable. The rate of prepayment on the Receivables may also be influenced by
the structure of the loan evidencing the Receivable. In addition, under
certain circumstances, the Depositor will be obligated to repurchase from the
Trust, and the related Seller will be obligated to simultaneously repurchase
from the Depositor (or in either case, if so specified in the related
Prospectus Supplement and subject to the conditions summarized therein,
substitute for) Receivables pursuant to a Sale and Servicing Agreement or
Pooling and Servicing Agreement as a result of certain breaches of
representations and warranties and, under certain circumstances, the Servicer
will be obligated to purchase Receivables pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of
certain covenants. See "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables". Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables held
by a given Trust will be borne entirely by the Securityholders of the related
series of Securities. See "Description of the Transfer and Servicing
Agreements--Termination" regarding the Servicer's option to purchase the
Receivables of a given Receivables Pool. In addition, as described above under
the caption "Certain Legal Aspects--Insolvency Considerations--Considerations
Relating to an Insolvency Event of the Depositor or the Seller Affiliate
Related to Certain Trust", in the case of a Trust that is not a grantor trust
if so specified in the related Prospectus Supplement, the sale of the
Receivables owned by such Trust will be required if an Insolvency Event with
respect to the Depositor or any Seller Affiliate occurs.
Risk of Commingling by the Servicer May Lead to Funds not being
Available for Distribution. With respect to each Trust, the Servicer will
deposit all payments on the related Receivables (from whatever source) and all
proceeds of such Receivables collected during each Collection Period into the
Collection Account of such Trust within two business days of receipt thereof.
However, in the event that the Servicer satisfies certain requirements for
monthly or less frequent remittances and the Rating Agencies (as such term is
defined in the related Prospectus Supplement, the "Rating Agencies") affirm
their ratings of the related Securities at the initial level, then for so long
as the servicer specified in the related Prospectus Supplement is the Servicer
and provided that (i) there exists no Servicer Default and (ii) each other
condition to making such monthly or less frequent deposits as may be specified
by the Rating Agencies and described in the related Prospectus Supplement is
satisfied, the Servicer will not be required to deposit such amounts into the
Collection Account of such Trust until on or before the business day preceding
each Distribution Date or Payment Date. The Servicer will deposit the
aggregate Purchase Amount of Receivables purchased by the Servicer into the
applicable Collection Account on or before the business day preceding each
Distribution Date or Payment Date. Pending deposit into such Collection
Account, collections may be invested by the Servicer at its own risk and for
its own benefit and will not be segregated from funds of the Servicer. If the
Servicer should be unable to remit such funds, such funds would not be
available for distribution to the applicable Securityholders and such
Securityholders might incur a loss. To the extent set forth in the related
Prospectus Supplement, the Servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit
of the related Trust to secure timely remittances of collections on the
related Receivables and payment of the aggregate Purchase Amount with respect
to Receivables purchased by the Servicer.
Risks Associated with Subsequent Receivables and the Pre-Funding Account
If so specified in the related Prospectus Supplement, the Seller(s)
will be obligated to sell, and the Depositor will be obligated to purchase and
then transfer to the related Trust which Trust will then be obligated to
purchase, Subsequent Receivables from time to time during the Funding Period
specified in the related Prospectus Supplement. With respect to any Trust that
is to be treated as a grantor trust for federal income tax purposes, the
Funding Period, if any, will not exceed the period of 90 days from and after
the Closing Date and, with respect to any other Trust, will not exceed the
period of one year from and after the Closing Date. With respect to each
Trust, the Pre-Funded Amount on the Closing Date will not exceed 25% of the
aggregate initial principal balance of the Securities.
Changes in Characteristics of Receivables Pool Due to Subsequent
Receivables. Amounts on deposit in any Pre-Funding Account may be invested
only in Eligible Investments. Subsequent Receivables may be originated by the
Dealers at a later date using credit criteria different from those which were
applied to any Initial Receivables and may be of a different credit quality
and seasoning. Underwriting criteria, if any, applicable to Subsequent
Receivables will be set forth in the applicable Prospectus Supplement. In
addition, following the transfer of Subsequent Receivables to the applicable
Trust, the characteristics of the entire pool of Receivables included in such
Trust may vary from those of the Initial Receivables transferred to such
Trust. However, except as otherwise set forth in the applicable Prospectus
Supplement and unless the applicable underwriting criteria so permit, it is
not expected that such variance in the characteristics of the entire pool due
to the inclusion of Subsequent Receivables will be materially different from
the characteristics of the pool of Initial Receivables. Nevertheless, it is
possible that the credit quality of the Receivables in a Trust, as a whole,
may decline as a result of the inclusion of Subsequent Receivables and may
result in a higher rate of payment to the applicable Securityholders as a
result of an increased level of defaults on such Receivables.
Subsequent Receivables May Affect Weighted Average Maturity of Notes
Issued by a FASIT. Subsequent Receivables could extend the weighted average
life of Notes in a particular FASIT. The outstanding principal amount of each
Class of Notes will be payable on their respective Final Scheduled
Distribution Dates. The Final Scheduled Distribution Date for each Class of
Notes will not be extended or shortened by the addition of Subsequent
Receivables.
Use of Balance in Pre-Funding Account to Prepay Securities May
Adversely Affect Average Life and Yields of Securities. A higher than expected
rate of payment may result in a reduction in the yield to maturity of any
class of Securities to which such payments are distributed. To the extent that
amounts on deposit in the Pre-Funding Account have not been fully applied to
the conveyance of Subsequent Receivables to a Trust by the end of the Funding
Period and such amount exceeds the applicable amount described in the related
Prospectus Supplement, the holders of Securities issued by the related Trust
will receive, on the Distribution Date or Payment Date on or immediately
following the last day of the applicable Funding Period, a prepayment of
principal in an amount equal to the amount remaining in the Pre-Funding
Account following the purchase of any Subsequent Receivables on or immediately
preceding such Distribution Date or Payment Date. It is anticipated that the
principal balance of Subsequent Receivables sold to a Trust will not be
exactly equal to the amount on deposit in the Pre-Funding Account, and that
therefore there will be at least a nominal amount of principal prepaid to the
holders of the Securities issued by such Trust. Securityholders will bear all
reinvestment risk associated with any such distribution of amounts on deposit
in the Pre-Funding Account after termination of the applicable Funding Period.
Any such distribution will have the effect of a prepayment on the related
Receivables and may result in a reduction in the yield to maturity of any
class of Securities to which such amounts are distributed.
Rights of the Noteholders to Direct Certain Matters May Adversely Affect
Certificateholders
In general, with respect to any Trust issuing Notes, until the Notes
have been paid in full the right to direct the related Trust with respect to
certain actions permitted to be taken under the related Transfer and Servicing
Agreements rests with the related Indenture Trustee and the Noteholders
instead of the Certificateholders.
For example, with respect to a Trust issuing Notes, in the event a
Servicer Default occurs, the Indenture Trustee or the Noteholders with respect
to such series, as described under "Description of the Transfer and Servicing
Agreements--Rights upon Servicer Default", may remove the Servicer without the
consent of the Trustee or any of the Certificateholders with respect to such
series. The Trustee or the Certificateholders with respect to such series will
not have the ability to remove the Servicer if a Servicer Default occurs. In
addition, the Noteholders of such series have the ability, with certain
specified exceptions, to waive defaults by the Servicer, including defaults
that could materially adversely affect the Certificateholders of such series.
See "Description of the Transfer and Servicing Agreements--Waiver of Past
Defaults".
Book-Entry Registration May Reduce the Liquidity of the Securities
Unless otherwise specified in the related Prospectus Supplement, each
class of Securities of a given series will be initially represented by one or
more certificates registered in the name of Cede & Co. ("Cede"), or any other
nominee for the Depository Trust Company ("DTC") set forth in the related
Prospectus Supplement (Cede, or such other nominee, "DTC's Nominee"), and will
not be registered in the names of the holders of the Securities of such series
or their nominees. Because of this, unless and until Definitive Securities for
such series are issued, holders of such Securities will not be recognized by
the Trustee or any applicable Indenture Trustee as "Certificateholders",
"Noteholders" or "Securityholders", as the case may be (as such terms are used
herein or in the related Pooling and Servicing Agreement or related Indenture
and Trust Agreement, as applicable). Hence, until Definitive Securities are
issued, holders of such Securities will only be able to exercise the rights of
Securityholders indirectly through DTC and its participating organizations.
See "Certain Information Regarding the Securities--Book-Entry Registration"
and "--Definitive Securities".
<PAGE>
THE TRUSTS
With respect to each series of Securities, the Depositor will
establish a separate Trust pursuant to the respective Trust Agreement or
Pooling and Servicing Agreement, as applicable, for the transactions described
herein and in the related Prospectus Supplement. The property of each Trust
will include a pool (a "Receivables Pool") of retail installment sales
contracts, purchase money notes or other notes between dealers (the "Dealers")
and purchasers (the "Obligors") of new and used (i) automobiles, light-duty
trucks and motorcycles ("Financed Motor Vehicles," and the Receivables with
respect thereto, "Motor Vehicle Receivables") and/or (ii) recreational
vehicles ("Financed Recreational Vehicles," and the Receivables with respect
thereto, "Recreational Vehicle Receivables") or installment loans made to
Obligors for such purchases and all payments due thereunder on and after the
applicable cutoff date (as such term is defined in the related Prospectus
Supplement, a "Cut-off Date ") in the case of Precomputed Receivables and all
payments received thereunder on and after the applicable Cut-off Date in the
case of Simple Interest Receivables. A Receivables Pool may consist solely of
Motor Vehicle Receivables, Recreational Vehicle Receivables or a combination
of such Receivables, all as specified in the related Prospectus Supplement.
The Receivables of each Receivables Pool were or will be originated by the
Dealers or lenders, purchased by the Seller(s), directly or indirectly,
pursuant to agreements with Dealers ("Dealer Agreements") or such lenders and
sold to the Depositor. Such Receivables will be serviced by the Servicer. On
or prior to the applicable Closing Date, the Seller(s) will sell the
Receivables to the Depositor. On the applicable Closing Date, the Depositor
will sell the Initial Receivables of the applicable Receivables Pool to the
Trust to the extent, if any, specified in the related Prospectus Supplement.
To the extent so provided in the related Prospectus Supplement, Subsequent
Receivables will be conveyed to the Trust as frequently as daily during the
Funding Period. Any Subsequent Receivables so conveyed will also be assets of
the applicable Trust, subject to the prior rights of the related Indenture
Trustee and the Noteholders, if any, therein. The property of each Trust will
also include (i) such amounts as from time to time may be held in separate
trust accounts established and maintained pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement and the proceeds of
such accounts, as described herein and in the related Prospectus Supplement;
(ii) security interests in the Financed Vehicles and any other interest of the
Depositor in such Financed Vehicles; (iii) the rights to proceeds from claims
on certain physical damage, credit life and disability insurance policies
covering the Financed Vehicles or the Obligors, as the case may be; (iv) the
interest of the Depositor in any proceeds from recourse to Dealers on
Receivables or Financed Vehicles with respect to which the Servicer has
determined that eventual repayment in full is unlikely; (v) any property that
shall have secured a Receivable and that shall have been acquired by the
applicable Trust; and (vi) any and all proceeds of the foregoing. To the
extent specified in the related Prospectus Supplement, a Pre-Funding Account,
a Reserve Account or other form of credit enhancement may be a part of the
property of any given Trust or may be held by the Trustee or an Indenture
Trustee for the benefit of holders of the related Securities. Additionally,
pursuant to the Dealer Agreements, the Dealers have an obligation after
origination to repurchase Receivables as to which Dealers have made certain
misrepresentations.
The Servicer will continue to service the Receivables held by each
Trust and will receive fees for such services. See "Description of the
Transfer and Servicing Agreements--Servicing Compensation and Payment of
Expenses" herein and in the related Prospectus Supplement. To facilitate the
servicing of the Receivables, each Trustee will authorize the Servicer to
retain physical possession of the Receivables held by each Trust and other
documents relating thereto as custodian for each such Trust. Due to the
administrative burden and expense, the certificates of title or UCC financing
statements, as applicable, to the Financed Vehicles will not be amended to
reflect the sale and assignment of the security interest in the Financed
Vehicles to each Trust. See "Risk Factors--Certain Legal Aspects--Security
Interest in Financed Vehicles," "Certain Legal Aspects of the Receivables" and
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables" herein.
If the protection provided to any holders of a series of Notes by the
subordination of the related Certificates and by the Reserve Account, if any,
or other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be,
would have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having perfected security interests in the Financed
Vehicles in all states or, if applicable, under federal law, may affect the
Servicer's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds to be distributed to the holders
of the Securities of such series. See "Description of the Transfer and
Servicing Agreements--Distributions", "--Credit and Cash Flow Enhancement" and
"Certain Legal Aspects of the Receivables" herein.
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
FASIT Election
If specified in the related Prospectus Supplement, principal
collections received on the Receivables may be applied to purchase additional
Receivables which will become part of the Trust Fund for a series. Such
additions may be made in connection with a Trust Fund that is taxed as a
partnership or with respect to which a FASIT election has been made. The
related Prospectus Supplement will set forth the characteristics that such
additional Receivables will be required to meet. Such characteristics will be
specified in terms of the categories described in this section.
The Trustee
The Trustee for each Trust will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Agreement and the
Sale and Servicing Agreement or the related Pooling and Servicing Agreement,
as applicable. A Trustee may resign at any time, in which event the Servicer,
or its successor, will be obligated to appoint a successor trustee. The
Administrator, if any, of a Trust that is not a grantor trust and the Servicer
in respect of a Trust that is a grantor trust may also remove the Trustee if
the Trustee ceases to be eligible to continue as Trustee under the related
Trust Agreement or Pooling and Servicing Agreement, as applicable, or if the
Trustee becomes insolvent. In such circumstances, the Administrator or
Servicer, as applicable, will be obligated to appoint a successor trustee. Any
resignation or removal of a Trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by the successor
trustee.
THE RECEIVABLES POOLS
General
The Receivables in each Receivables Pool are and will be retail
installment sales contracts, retail installment loans, purchase money orders
or other notes that have been or will be originated by a Dealer and purchased
by a Seller pursuant to a Dealer Agreement between the related seller (the
"Seller") and the Dealer and will be Motor Vehicle Receivables and/or
Recreational Vehicle Receivables. Receivables held by any Seller may have been
acquired from other Sellers. The Sellers of each of the Motor Vehicle
Receivables and/or Recreational Vehicle Receivables may include banks, finance
companies or other financial institutions and will be entities involved in the
financing of each of the particular types of assets (i.e., new and used
automobiles, light duty trucks and motorcycles, and new and used recreational
vehicles) securing the Receivables being sold by such Seller and in the
origination, secondary market purchasing and/or servicing of retail
installment sales contracts, retail installment loans and other receivables
secured by each of such asset types. Each Seller with respect to a series of
Securities will be identified in the related Prospectus Supplement. A
Receivables Pool may consist solely of Motor Vehicle Receivables, Recreational
Vehicle Receivables or a combination of such Receivables, all as specified in
the related Prospectus Supplement. In addition, to the extent described in any
Prospectus Supplement, the related Receivables Pool may include Receivables
acquired by an Affiliate through acquisitions. Receivables of a Seller will be
transferred to the Depositor pursuant to a Receivables Purchase Agreement for
sale by the Depositor to the applicable Trust.
The Receivables to be held by each Trust will be purchased by the
Depositor from the portfolio of the Seller(s) for inclusion in a Receivables
Pool in accordance with several criteria, including that each Receivable (i)
is secured by a new or used motor vehicle or motorcycle recreational vehicle,
(ii) was originated in the United States, (iii) is a Simple Interest
Receivable or a Precomputed Receivable and (iv) as of the Cut-off Date (a) had
an outstanding principal balance of at least the amount set forth in the
related Prospectus Supplement, (b) was not more than 30 days (or such other
number of days specified in the related Prospectus Supplement) past due, (c)
had a remaining number of scheduled payments not more than the number set
forth in the related Prospectus Supplement, (d) had an original number of
scheduled payments not more than the number set forth in the related
Prospectus Supplement and (e) had an APR of not less than the rate per annum
set forth in the related Prospectus Supplement. No selection procedures
believed by the Depositor to be adverse to the Securityholders of any series
were or will be used in selecting the related Receivables. Terms of the retail
installment sales contracts, retail installment loans, purchase money orders
or notes constituting such Receivables which are material to investors are
described herein or in the related Prospectus Supplement.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of
fixed level payment monthly installments. However, unlike the monthly
installment under an Actuarial Receivable, each monthly installment consists
of an amount of interest which is calculated on the basis of the outstanding
principal balance of the receivable multiplied by the stated Contract Rate and
further multiplied by the period elapsed (as a fraction of a calendar year)
since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied, first, to
interest accrued to the date of payment, second, to reduce the unpaid
principal balance, and third, to late fees and other fees and charges, if any.
Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly
greater. Conversely, if an Obligor pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly less.
In either case, the Obligor pays a fixed monthly installment until the final
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance and unpaid accrued interest. If a Simple Interest Receivable is
prepaid, the Obligor is required to pay interest only to the date of
prepayment.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment
on the Receivable, consists of an amount of interest equal to 1/12 of the APR
of the loan multiplied by the unpaid principal balance of the loan, and an
amount of principal equal to the remainder of the monthly payment. A Rule of
78's Receivable provides for the payment by the Obligor of a specified total
amount of payments, payable in equal monthly installments on each due date,
which total represents the principal amount financed and add-on interest in an
amount calculated at the stated APR for the term of the receivable. The rate
at which such amount of add-on interest is earned and, correspondingly, the
amount of each fixed monthly payment allocated to reduction of the outstanding
principal are calculated in accordance with the "Rule of 78's".
Information with respect to each Receivables Pool will be set forth
in the related Prospectus Supplement, including, to the extent appropriate,
the composition, the geographic distribution and distribution by APR and the
portion of such Receivables Pool consisting of Precomputed Receivables and of
Simple Interest Receivables and the portion of such Receivables Pool made up
by Motor Vehicle Receivables and/or Recreational Vehicle Receivables and the
portion of each category secured by new Financed Vehicles and by used Financed
Vehicles.
Subsequent Receivables
Subsequent Receivables may be originated by the Dealers at a later
date using credit criteria different from those which were applied to any
Initial Receivables and may be of a different credit quality and seasoning. In
addition, following the transfer of Subsequent Receivables to the applicable
Trust, the characteristics of the entire pool of Receivables included in such
Trust may vary significantly from those of the Initial Receivables transferred
to such Trust. Each Prospectus Supplement will describe the effects that
including such Subsequent Receivables may have on the Receivables Pool
included in the Trust Property of each Trust issuing Securities.
Underwriting
The related Prospectus Supplement will describe the Seller(s)'
underwriting procedures and guidelines, including the type of information
reviewed in respect of an applicant.
Servicing and Collections
The related Prospectus Supplement will describe the Servicer's
servicing procedures, including the steps customarily taken in respect of
delinquent Receivables and the maintenance of physical damage insurance.
Delinquencies, Repossessions and Net losses
Certain information concerning the Seller(s)' loss and delinquency
experience with respect to its portfolio of motor vehicle loans and/or
recreational vehicle loans (including previously sold contracts which a Seller
continues to service) will be set forth in each Prospectus Supplement. There
can be no assurance that the delinquency, repossession and net loss experience
on any Receivables Pool will be comparable to prior experience or to such
information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates,
if any, of any series will generally be influenced by the rate at which the
principal balances of the related Receivables are paid, which payment may be
in the form of scheduled amortization or prepayments. (For this purpose, the
term "prepayments" includes prepayments in full, partial prepayments
(including those related to rebates of extended warranty contract costs and
insurance premiums), liquidations due to default, as well as receipts of
proceeds from physical damage, credit life and disability insurance policies
and certain other Receivables repurchased by the Depositor or the Servicer for
administrative reasons.) All of the Receivables are prepayable at any time
without penalty to the Obligor. The rates of prepayment of motor vehicle loans
and recreational vehicle loans are influenced by a variety of economic, social
and other factors, including the fact that an Obligor generally may not sell
or transfer the Financed Vehicle securing a Receivable without the consent of
the Servicer. The rate of prepayment on the Receivables may also be influenced
by the structure of the loan. In addition, under certain circumstances, the
Depositor will be obligated to repurchase from a Trust and the related Seller
will be obligated simultaneously to repurchase from the Depositor (or in
either case, if so specified in the related Prospectus Supplement and subject
to the conditions summarized therein, substitute for) Receivables pursuant to
the related Sale and Servicing Agreement or Pooling and Servicing Agreement as
a result of breaches of representations and warranties and the Servicer will
be obligated to purchase Receivables from such Trust pursuant to such Sale and
Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of certain covenants. In the case of any Security purchased at a discount to
its principal amount, a slower than anticipated rate of principal payments is
likely to result in a lower than anticipated yield. In the case of a Security
purchased at a premium to its principal amount, a faster than anticipated rate
of principal payments is likely to result in a lower than anticipated yield.
See "Description of the Transfer and Servicing Agreements--Sale and Assignment
of Receivables" and "--Servicing Procedures". See also "Description of the
Transfer and Servicing Agreements--Termination" regarding the Servicer's
option to purchase the Receivables from a given Trust. No prediction can be
made as to the rate of prepayment that the Receivables will experience.
In light of the above considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes, if any, or the
Certificates, if any, of a given series on each Payment Date or Distribution
Date, as applicable, since such amount will depend, in part, on the amount of
principal collected on the related Receivables Pool during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne entirely by the
Noteholders, if any, and the Certificateholders of a given series. The related
Prospectus Supplement may set forth certain additional information with
respect to the maturity and prepayment considerations applicable to the
particular Receivables Pool and the related series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with
respect to such class of Notes indicating the remaining outstanding principal
balance of such class of Notes, as of the applicable Payment Date (after
giving effect to payments to be made on such Payment Date), as a fraction of
the initial outstanding principal balance of such class of Notes. The
"Certificate Pool Factor" for each class of Certificates will be a seven-digit
decimal which the Servicer will compute prior to each distribution with
respect to such class of Certificates indicating the remaining Certificate
Balance of such class of Certificates, as of the applicable Distribution Date
(after giving effect to distributions to be made on such Distribution Date),
as a fraction of the initial Certificate Balance of such class of
Certificates. Each Note Pool Factor and each Certificate Pool Factor will
initially be 1.0000000 and thereafter will decline to reflect reductions in
the outstanding principal balance of the applicable class of Notes, or the
reduction of the Certificate Balance of the applicable class of Certificates,
as the case may be. A Noteholder's portion of the aggregate outstanding
principal balance of the related class of Notes is the product of (i) the
original denomination of such Noteholder's Note and (ii) the applicable Note
Pool Factor. A Certificateholder's portion of the aggregate outstanding
Certificate Balance for the related class of Certificates is the product of
(a) the original denomination of such Certificateholder's Certificate and (b)
the applicable Certificate Pool Factor.
Unless otherwise provided in the related Prospectus Supplement with
respect to a Trust, the Noteholders and the Certificateholders, as applicable,
will receive reports on or about each Payment Date concerning (i) with respect
to the Collection Period immediately preceding such Payment Date, payments
received on the Receivables, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Certificate Pool
Factor or Note Pool Factor, as applicable, and various other items of
information, and (ii) with respect to the Collection Period second preceding
such Payment Date, as applicable, amounts allocated or distributed on the
preceding Payment Date and any reconciliation of such amounts with information
provided by the Servicer prior to such current Payment Date. In addition,
Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date
permitted by law. See "Certain Information Regarding the Securities--Reports
to Securityholders".
USE OF PROCEEDS
Unless the related Prospectus Supplement provides for other
applications, the net proceeds from the sale of the Securities of a given
series will be applied by the applicable Trust (i) to the purchase of the
Receivables from the Depositor, (ii) to make the initial deposit into the
Reserve Account, if any, and (iii) to make the deposit of the Pre-Funded
Amount into the Pre-Funding Account, if any. The Depositor will use that
portion of such net proceeds paid to it with respect to any such Trust to
purchase Receivables from the Seller(s) and to pay for certain expenses
incurred in connection with the purchase of Receivables and sale of
Securities.
THE COMPANY
SSB Vehicle Securities Inc. (the "Company") was incorporated in the
State of Delaware on November 7, 1997 as a wholly-owned subsidiary of Salomon
Smith Barney Holdings Inc. The Depositor maintains its principal office at 7
World Trade Center, New York, New York 10048. Its telephone number is (212)
783-7000.
The only obligations, if any, of the Company with respect to a series
of Certificates and/or Notes may be pursuant to certain limited
representations and warranties and limited undertakings to repurchase (or, if
so specified in related Prospectus Supplement, substitute for) Receivables
under certain circumstances, but only to the extent the related Seller
simultaneously performs its obligation to repurchase such Receivables. The
Company will have no ongoing servicing obligations or responsibilities with
respect to any Financed Vehicle. The Company does not have, is not required to
have, and is not expected in the future to have, any significant assets.
As specified in the related Prospectus Supplement, the Servicer with
respect to any series of Certificates and/or Notes may be an affiliate of the
Company. The Company anticipates that it will acquire Receivables in the open
market or in privately negotiated transactions, which may be through or from a
Seller or Transferor.
None of the Company, the Seller(s) or any of their respective
affiliates will insure or guarantee the Receivables or the Certificates and/or
Notes of any series.
DESCRIPTION OF THE NOTES
General
With respect to each Trust that issues Notes, one or more classes of
Notes of the related series will be issued pursuant to the terms of an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary does
not purport to be complete and is subject to, and is qualified by reference
to, all the provisions of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, each
class of Notes will initially be represented by one or more Notes, in each
case registered in the name of the nominee of DTC (together with any successor
depository selected by the Trust, the "Depository") except as set forth below.
Unless otherwise specified in the related Prospectus Supplement, the Notes
will be available for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. The Depositor has been informed by
DTC that DTC's nominee will be Cede, unless another nominee is specified in
the related Prospectus Supplement. Accordingly, such nominee is expected to be
the holder of record of the Notes of each class. Unless and until Definitive
Notes are issued under the limited circumstances described herein or in the
related Prospectus Supplement, no Noteholder will be entitled to receive a
physical certificate representing a Note. All references herein and in the
related Prospectus Supplement to actions by Noteholders refer to actions taken
by DTC upon instructions from its participating organizations (the
"Participants") and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to Noteholders
refer to distributions, notices, reports and statements to DTC or its nominee,
as the registered holder of the Notes, for distribution to Noteholders in
accordance with DTC's procedures with respect thereto. See "Certain
Information Regarding the Securities--Book-Entry Registration" and
"--Definitive Securities".
Principal of and Interest on the Notes
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such series, as
described in the related Prospectus Supplement. Unless otherwise provided in
the related Prospectus Supplement, payments of interest on the Notes of such
series will be made prior to payments of principal thereon. To the extent
provided in the related Prospectus Supplement, a series may include one or
more classes of Strip Notes entitled to (i) principal payments with
disproportionate, nominal or no interest payments or (ii) interest payments
with disproportionate, nominal or no principal payments. Each class of Notes
may have a different Interest Rate, which may be a fixed, variable or
adjustable Interest Rate (and which may be zero for certain classes of Strip
Notes), or any combination of the foregoing. The related Prospectus Supplement
will specify the Interest Rate for each class of Notes of a given series or
the method for determining such Interest Rate. See "Certain Information
Regarding the Securities--Fixed Rate Securities" and "--Floating Rate
Securities". One or more classes of Notes of a series may be redeemable in
whole or in part under the circumstances specified in the related Prospectus
Supplement, including at the end of the Funding Period (if any) or as a result
of the Servicer's exercising its option to purchase the related Receivables
Pool.
To the extent specified in any Prospectus Supplement, one or more
classes of Notes of a series may have fixed principal payment schedules, as
set forth in such Prospectus Supplement; Noteholders of such Notes would be
entitled to receive as payments of principal on any Payment Date the
applicable amounts set forth on such schedule with respect to such Notes, in
the manner and to the extent set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
payments to Noteholders of all classes within a series in respect of interest
will have the same priority. Under certain circumstances, the amount available
for such payments could be less than the amount of interest payable on the
Notes on any of the dates specified for payments in the related Prospectus
Supplement (each, a "Payment Date"), in which case each class of Noteholders
will receive its ratable share (based upon the aggregate amount of interest
due to such class of Noteholders) of the aggregate amount available to be
distributed in respect of interest on the Notes of such series. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Credit and Cash Flow Enhancement".
In the case of a series of Notes which includes two or more classes
of Notes, the sequential order and priority of payment in respect of principal
and interest, and any schedule or formula or other provisions applicable to
the determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
The Indenture
Modification of Indenture. With respect to each Trust that has issued
Notes pursuant to an Indenture, the Trust and the Indenture Trustee may, with
the consent of the holders of a majority of the outstanding Notes of the
related series, execute a supplemental indenture to add provisions to, change
in any manner or eliminate any provisions of, the related Indenture, or modify
(except as provided below) in any manner the rights of the related
Noteholders.
Unless otherwise specified in the related Prospectus Supplement with
respect to a series of Notes, in the absence of the consent of the holder of
each such outstanding Note affected thereby, no supplemental indenture will:
(i) change the due date of any installment of principal of or interest on any
such Note or reduce the principal amount thereof, the interest rate specified
thereon or the redemption price with respect thereto or change any place of
payment where or the coin or currency in which any such Note or any interest
thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the related Indenture regarding payment;
(iii) reduce the percentage of the aggregate amount of the outstanding Notes
of such series, the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the related Indenture or
of certain defaults thereunder and their consequences as provided for in such
Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor
on such Notes, the Depositor, the Seller(s) or an affiliate of any of them;
(v) reduce the percentage of the aggregate outstanding amount of such Notes,
the consent of the holders of which is required to direct the related
Indenture Trustee to sell or liquidate the Receivables if the proceeds of such
sale would be insufficient to pay the principal amount of and accrued but
unpaid interest on the outstanding Notes of such series; (vi) decrease the
percentage of the aggregate principal amount of such Notes required to amend
the sections of the related Indenture which specify the applicable percentage
of aggregate principal amount of the Notes of such series 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
related Indenture with respect to any of the collateral for such Notes or,
except as otherwise permitted or contemplated in such Indenture, terminate the
lien of such Indenture on any such collateral or deprive the holder of any
such Note of the security afforded by the lien of such Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of
the related series, for the purpose of, among other things, adding any
provisions to or changing in any manner or eliminating any of the provisions
of the related Indenture or of modifying in any manner the rights of such
Noteholders; provided that such action will not materially and adversely
affect the interest of any such Noteholder.
Events of Default; Rights upon Event of Default. With respect to the
Notes of a given series, unless otherwise specified in the related Prospectus
Supplement, "Events of Default" under the related Indenture will consist of:
(i) a default for five days (or such longer period specified in the related
Prospectus Supplement) or more in the payment of any interest on any such
Note; (ii) a default in the payment of the principal of or any installment of
the principal of any such Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
applicable Trust made in the related Indenture and the continuation of any
such default for a period of 30 days after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and such Indenture
Trustee by the holders of at least 50% in principal amount of such Notes then
outstanding; (iv) any representation or warranty made by such Trust in the
related 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 such breach not having been cured within 30 days after notice
thereof is given to such Trust by the applicable Indenture Trustee or to such
Trust and such Indenture Trustee by the holders of at least 50% in principal
amount of such Notes then outstanding; or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the applicable Trust. However, the
amount of principal required to be paid to Noteholders of such series under
the related Indenture will generally be limited to amounts available to be
deposited in the applicable Note Distribution Account. Therefore, unless
otherwise specified in the related Prospectus Supplement, the failure to pay
principal on a class of Notes generally will not result in the occurrence of
an Event of Default until the final scheduled Payment Date for such class of
Notes.
If an Event of Default should occur and be continuing with respect to
the Notes of any series, the related Indenture Trustee or holders of a
majority in principal amount of such Notes then outstanding may declare the
principal of such Notes to be immediately due and payable. Unless otherwise
specified in the related Prospectus Supplement, such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding.
If the Notes of any series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
applicable Trust maintain possession of such Receivables and continue to apply
collections on such Receivables as if there had been no declaration of
<PAGE>
acceleration. Unless otherwise specified in the related Prospectus Supplement,
however, such Indenture Trustee is prohibited from selling the related
Receivables following an Event of Default, other than a default in the payment
of any principal of or a default for five days or more in the payment of any
interest on any Note of such series, unless (i) the holders of all such
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale or (iii) such Indenture Trustee
determines that the proceeds of Receivables would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such obligations had not been declared due and payable, and such
Indenture Trustee obtains the consent of the holders of a majority of the
aggregate outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such
Indenture at the request or direction of any of the holders of such Notes, if
such Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be
incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the related Indenture,
the holders of a majority in principal amount of the outstanding Notes of a
given series will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the applicable Indenture
Trustee, and the holders of a majority in principal amount of such Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in
respect of a covenant or provision of such Indenture that cannot be modified
without the waiver or consent of all the holders of such outstanding Notes.
Unless otherwise specified in the related Prospectus Supplement, no
holder of a Note of any series will have the right to institute any proceeding
with respect to the related Indenture, unless (i) such holder previously has
given to the applicable Indenture Trustee written notice of a continuing Event
of Default, (ii) the holders of not less than 25% in principal amount of the
outstanding Notes of such series have made written request to such Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee,
(iii) such holder or holders have offered such Indenture Trustee reasonable
indemnity, (iv) such Indenture Trustee has for 60 days failed to institute
such proceeding and (v) no direction inconsistent with such written request
has been given to such Indenture Trustee during such 60-day period by the
holders of a majority in principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor
the related Trustee in its individual capacity, nor any holder of a
Certificate representing an ownership interest in such Trust nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained in
the applicable Indenture.
Certain Covenants. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the
laws of the United States, any state or the District of Columbia, (ii) such
entity expressly assumes such Trust's obligation to make due and punctual
payments upon the Notes of the related series and the performance or
observance of every agreement and covenant of such Trust under the Indenture,
(iii) no Event of Default shall have occurred and be continuing immediately
after such merger or consolidation, (iv) such Trust has been advised that the
rating of the Notes or the Certificates of such series then in effect would
not be reduced or withdrawn by the Rating Agencies as a result of such merger
or consolidation and (v) such Trust has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Noteholder or Certificateholder.
Each Trust will not, among other things, (i) except as expressly
permitted by the applicable Indenture, the applicable Transfer and Servicing
Agreements or certain related documents with respect to such Trust
(collectively, the "Related Documents"), sell, transfer, exchange or otherwise
dispose of any of the assets of such Trust, (ii) claim any credit on or make
any deduction from the principal and interest payable in respect of the Notes
of the related series (other than amounts withheld under the Code or
applicable state law) or assert any claim against any present or former holder
of such Notes because of the payment of taxes levied or assessed upon such
Trust, (iii) dissolve or liquidate in whole or in part, (iv) permit the
validity or effectiveness of the related Indenture to be impaired or permit
any person to be released from any covenants or obligations with respect to
such Notes under such Indenture except as may be expressly permitted thereby
or (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 such Trust or any part thereof, or any interest therein
or the proceeds thereof.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust". No Trust
will incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the related Notes and the related Indenture, pursuant to
any Advances made to it by the Servicer or otherwise in accordance with the
Related Documents.
Annual Compliance Statement. Each Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each
Trust will be required to mail each year to all related Noteholders a brief
report relating to its eligibility and qualification to continue as Indenture
Trustee under the related Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness
owing by such Trust to the applicable Indenture Trustee in its individual
capacity, the property and funds physically held by such Indenture Trustee as
such and any action taken by it that materially affects the related Notes and
that has not been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be
discharged with respect to the collateral securing the related Notes upon the
delivery to the related Indenture Trustee for cancellation of all such Notes
or, with certain limitations, upon deposit with such Indenture Trustee of
funds sufficient for the payment in full of all such Notes.
The Indenture Trustee
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may resign
at any time, in which event the Issuer will be obligated to appoint a
successor trustee for such series. The Issuer may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue
as such under the related Indenture or if such Indenture Trustee becomes
insolvent. In such circumstances, the Issuer will be obligated to appoint a
successor trustee for the applicable series of Notes. Any resignation or
removal of the Indenture Trustee and appointment of a successor trustee for
any series of Notes does not become effective until acceptance of the
appointment by the successor trustee for such series.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
With respect to each Trust, one or more classes of Certificates of
the related series will be issued pursuant to the terms of a Trust Agreement
or a Pooling and Servicing Agreement, a form of each of which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The following summary does not purport to be complete and is subject to,
and is qualified by reference to, all the provisions of the Certificates and
the Trust Agreement or Pooling and Servicing Agreement, as applicable.
Unless otherwise specified in the related Prospectus Supplement and
except for the Certificates, if any, of a given series purchased by the
Depositor, each class of Certificates will initially be represented by one or
more Certificates registered in the name of the Depository, except as set
forth below. Unless otherwise specified in the related Prospectus Supplement
and except for the Certificates, if any, of a given series purchased by the
Depositor, the Certificates will be available for purchase in minimum
denominations of $1,000 in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Certificates of any series that are
not purchased by the Depositor. Unless and until Definitive Certificates are
issued under the limited circumstances described herein or in the related
Prospectus Supplement, no Certificateholder (other than the Depositor) will be
entitled to receive a physical certificate representing a Certificate. All
references herein and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from the
Participants and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities". Any
Certificates of a given series owned by the Depositor will be entitled to
equal and proportionate benefits under the applicable Trust Agreement or
Pooling and Servicing Agreement, except that such Certificates will be deemed
not to be outstanding for the purpose of determining whether the requisite
percentage of Certificateholders have given any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents.
Distributions of Principal and Interest
The timing and priority of distributions, seniority, allocations of
losses, Pass Through Rate and amount of, or method of determining,
distributions with respect to principal of and interest on each class of
Certificates will be described in the related Prospectus Supplement.
Distributions of interest on such Certificates will be made on the dates
specified in the related Prospectus Supplement (each, a "Distribution Date")
and will be made prior to distributions with respect to principal of such
Certificates. With respect to any Trust that issues both Notes and
Certificates, the Distribution Date for the Certificates may coincide with the
Payment Date for the Notes, in which case such date will be referred to in the
related Prospectus Supplement as a Payment Date with respect to both the Notes
and the Certificates. To the extent provided in the related Prospectus
Supplement, a series may include one or more classes of Strip Certificates
entitled to (i) distributions in respect of principal with disproportionate,
nominal or no interest distributions or (ii) interest distributions with
disproportionate, nominal or no distributions in respect of principal. Each
class of Certificates may have a different Pass Through Rate, which may be a
fixed, variable or adjustable Pass Through Rate (and which may be zero for
certain classes of Strip Certificates) or any combination of the foregoing.
The related Prospectus Supplement will specify the Pass Through Rate for each
class of Certificates of a given series or the method for determining such
Pass Through Rate. See "Certain Information Regarding the Securities--Fixed
Rate Securities" and "--Floating Rate Securities" herein. Unless otherwise
provided in the related Prospectus Supplement, distributions in respect of the
Certificates of a given series that includes Notes may be subordinate to
payments in respect of the Notes of such series as more fully described in the
related Prospectus Supplement. Distributions in respect of interest on and
principal of any class of Certificates will be made on a pro rata basis among
all the Certificateholders of such class.
In the case of a series of Certificates which includes two or more
classes of Certificates, the timing, sequential order, priority of payment or
amount of distributions in respect of interest and principal, and any schedule
or formula or other provisions applicable to the determination thereof, of
each such class shall be as set forth in the related Prospectus Supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
Each class of Securities (other than certain classes of Strip Notes
or Strip Certificates) may bear interest at a fixed rate per annum ("Fixed
Rate Securities") or at a variable or adjustable rate per annum ("Floating
Rate Securities"), as more fully described below and in the applicable
Prospectus Supplement.
Fixed Rate Securities
Each class of Fixed Rate Securities will bear interest at the
applicable Interest Rate or Pass Through Rate per annum, as the case may be,
specified in the applicable Prospectus Supplement. Interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year of
twelve 30-day months. See "Description of the Notes--Principal of and Interest
on the Notes" and "Description of the Certificates--Distributions of Principal
and Interest".
Floating Rate Securities
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one-hundredth of a percentage point) that may be specified
in the applicable Prospectus Supplement as being applicable to such class, and
the "Spread Multiplier" is the percentage that may be specified in the
applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the
following Base Rates as applicable to a given Floating Rate Security: (i)
LIBOR (a "LIBOR Security"), (ii) the Commercial Paper Rate (a "Commercial
Paper Rate Security"), (iii) the Treasury Rate (a "Treasury Rate Security"),
(iv) the Federal Funds Rate (a "Federal Funds Rate Security"), (v) the CD Rate
(a "CD Rate Security") or (vi) such other Base Rate as is set forth in such
Prospectus Supplement. The "Index Maturity" for any class of Floating Rate
Securities is the period of maturity of the instrument or obligation from
which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release
H.15(519), Selected Interest Rates", or any successor publication, published
by the Board of Governors of the Federal Reserve System. "Composite
Quotations" means the daily statistical release entitled "Composite 3:30 p.m.
Quotations for U.S. Government Securities" published by the Federal Reserve
Bank of New York. "Interest Reset Date" will be the first day of the
applicable Interest Reset Period or such other day as may be specified in the
related Prospectus Supplement with respect to a class of Floating Rate
Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest period
and (ii) a minimum limitation, or floor, on the rate at which interest may
accrue during any interest period. In addition to any maximum interest rate
that may be applicable to any class of Floating Rate Securities, the interest
rate applicable to any class of Floating Rate Securities will in no event be
higher than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities
will be issued will appoint, and enter into agreements with, a calculation
agent (each, a "Calculation Agent") to calculate interest rates on each such
class of Floating Rate Securities issued with respect thereto. The applicable
Prospectus Supplement will set forth the identity of the Calculation Agent for
each such class of Floating Rate Securities of a given series, which may be
either the related Trustee or Indenture Trustee with respect to such series.
All determinations of interest by the Calculation Agent shall, in the absence
of manifest error, be conclusive for all purposes and binding on the holders
of Floating Rate Securities of a given class. Unless otherwise specified in
the applicable Prospectus Supplement, all percentages resulting from any
calculation of the rate of interest on a Floating Rate Security will be
rounded, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
CD Rate Securities. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security
and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"CD Rate" for each Interest Reset Period shall be the rate as of the second
business day prior to the Interest Reset Date for such Interest Reset Period
(a "CD Rate Determination Date") for negotiable certificates of deposit having
the Index Maturity designated in the applicable Prospectus Supplement as
published in H.15(519) under the heading "CDs (Secondary Market)". In the
event that such rate is not published prior to 3:00 p.m., New York time, on
the Calculation Date pertaining to such CD Rate Determination Date, then the
"CD Rate" for such Interest Reset Period will be the rate on such CD Rate
Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Prospectus Supplement as published in
Composite Quotations under the heading "Certificates of Deposit". If by 3:00
p.m., New York time, on such Calculation Date such rate is not yet published
in either H.15(519) or Composite Quotations, then the "CD Rate" for such
Interest Reset Period will be calculated by the Calculation Agent for such CD
Rate Security and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York time, on such CD Rate Determination Date, of
three leading nonbank dealers in negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent for such CD
Rate Security for negotiable certificates of deposit of major United States
money center banks of the highest credit standing (in the market for
negotiable certificates of deposit) with a remaining maturity closest to the
Index Maturity designated in the related Prospectus Supplement in a
denomination of $5,000,000; provided, however, that if the dealers selected as
aforesaid by such Calculation Agent are not quoting offered rates as mentioned
in this sentence, the "CD Rate" for such Interest Reset Period will be the
same as the CD Rate for the immediately preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset
Date.
Commercial Paper Rate Securities. Each Commercial Paper Rate Security
will bear interest for each Interest Reset Period at the interest rate
calculated with reference to the Commercial Paper Rate and the Spread or
Spread Multiplier, if any, specified in such Security and in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Commercial Paper Rate" for each Interest Reset Period will be determined
by the Calculation Agent for such Commercial Paper Rate Security as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "Commercial Paper Rate Determination Date") and shall be the Money
Market Yield on such Commercial Paper Rate Determination Date of the rate for
commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under the
heading "Commercial Paper". In the event that such rate is not published prior
to 3:00 p.m., New York time, on the Calculation Date pertaining to such
Commercial Paper Rate Determination Date, then the "Commercial Paper Rate" for
such Interest Reset Period shall be the Money Market Yield on such Commercial
Paper Rate Determination Date of the rate for commercial paper of the
specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper". If by 3:00 p.m., New York time, on such
Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Commercial Paper Rate" for such Interest Reset
Period shall be the Money Market Yield of the arithmetic mean of the offered
rates, as of 11:00 a.m., New York time, on such Commercial Paper Rate
Determination Date of three leading dealers of commercial paper in The City of
New York selected by the Calculation Agent for such Commercial Paper Rate
Security for commercial paper of the specified Index Maturity placed for an
industrial issuer whose bonds are rated "AA" or the equivalent by a nationally
recognized rating agency; provided, however, that if the dealers selected as
aforesaid by such Calculation Agent are not quoting offered rates as mentioned
in this sentence, the "Commercial Paper Rate" for such Interest Reset Period
will be the same as the Commercial Paper Rate for the immediately preceding
Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with
the following formula:
Dx360
Money Market Yield=-------------------x100
360-(DxM)
where "D" refers to the applicable rate per annum for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period following
the applicable Interest Reset Date.
Federal Funds Rate Securities. Each Federal Funds Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Federal Funds Rate and the Spread or Spread Multiplier,
if any, specified in such Security and in the applicable Prospectus
Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Federal Funds Rate" for each Interest Reset Period shall be the effective
rate on the Interest Reset Date for such Interest Reset Period (a "Federal
Funds Rate Determination Date") for Federal Funds as published in H.15(519)
under the heading "Federal Funds (Effective)". In the event that such rate is
not published prior to 3:00 p.m., New York time, on the Calculation Date (as
defined below) pertaining to such Federal Funds Rate Determination Date, the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on such
Federal Funds Rate Determination Date as published in Composite Quotations
under the heading "Federal Funds/Effective Rate". If by 3:00 p.m., New York
time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "Federal Funds Rate" for such
Interest Reset Period shall be the rate on such Federal Funds Rate
Determination Date made publicly available by the Federal Reserve Bank of New
York which is equivalent to the rate which appears in H.15(519) under the
heading "Federal Funds (Effective)"; provided, however, that if such rate is
not made publicly available by the Federal Reserve Bank of New York by 3:00
p.m., New York time, on such Calculation Date, the "Federal Funds Rate" for
such Interest Reset Period will be the same as the Federal Funds Rate in
effect for the immediately preceding Interest Reset Period. In the case of a
Federal Funds Rate Security that resets daily, the interest rate on such
Security for the period from and including a Monday to but excluding the
succeeding Monday will be reset by the Calculation Agent for such Security on
such second Monday (or, if not a business day, on the next succeeding business
day) to a rate equal to the average of the Federal Funds Rates in effect with
respect to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate
Determination Date shall be the next succeeding business day.
LIBOR Securities. Each LIBOR Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to LIBOR
and the Spread or Spread Multiplier, if any, specified in such Security and in
the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
with respect to LIBOR indexed to the offered rates for U.S. dollar deposits,
"LIBOR" for each Interest Reset Period will be determined by the Calculation
Agent for any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Security will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on either, as
specified in the related Prospectus Supplement, (a) the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date, if at least two such offered rates appear on the
Reuters Screen LIBO Page ("LIBOR Reuters") or (b) the Telerate Page 3750
("LIBOR Telerate"). For purposes of calculating LIBOR, "London Banking
Day" means any business day on which dealings in deposits in United States
dollars are transacted in the London interbank market; "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank
offered rates of major banks); and "Telerate Page 3750" means the display
designated as page "3750" on the Telerate Service (or such other page as
may replace the 3750 page on that service or services as may be nominated
by the British Bankers' Association for the purpose of displaying London
interbank offered rates for U.S. dollar deposits). If LIBOR is LIBOR
Reuters and at least two such offered rates appear on the Reuters Screen
LIBO Page, "LIBOR" for such Interest Reset Period will be the arithmetic
mean of such offered rates as determined by the Calculation Agent for such
LIBOR Security. If neither LIBOR Reuters or LIBOR Telerate is specified in
the related Prospectus Supplement, LIBOR will be determined as if LIBOR
Telerate had been specified.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page, or if no rate appears on the Telerate Page 3750, as applicable,
on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Security will request the principal London offices of each of four major
banks in the London interbank market selected by such Calculation Agent to
provide such Calculation Agent with its offered quotations for deposits in
U.S. dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on such LIBOR Determination Date
and in a principal amount equal to an amount of not less than $1,000,000
that, in the Calculation Agent's judgment, is representative of a single
transaction in such market at such time. If at least two such quotations
are provided, "LIBOR" for such Interest Reset Period will be the
arithmetic mean of such quotations. If fewer than two such quotations are
provided, "LIBOR" for such Interest Reset Period will be the arithmetic
mean of rates quoted by three major banks in The City of New York selected
by the Calculation Agent for such LIBOR Security at approximately 11:00
a.m., New York time, on such LIBOR Determination Date for loans in U.S.
dollars to leading European banks, for the period of the specified Index
Maturity, commencing on such Interest Reset Date, and in a principal
amount equal to an amount of not less than $1,000,000 that, in the
Calculation Agent's judgment, is representative of a single transaction in
such market at such time; provided, however, that if the banks selected as
aforesaid by such Calculation Agent are not quoting rates as mentioned in
this sentence, "LIBOR" for such Interest Reset Period will be the same as
LIBOR for the immediately preceding Interest Reset Period.
Treasury Rate Securities. Each Treasury Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Treasury Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Treasury Rate" for each Interest Reset Period will be the rate for the
auction held on the Treasury Rate Determination Date for such Interest Reset
Period of direct obligations of the United States ("Treasury bills") having
the Index Maturity specified in the applicable Prospectus Supplement, as such
rate shall be published in H.15(519) under the heading "U.S. Government
Securities--Treasury bills--auction average (investment)" or, in the event
that such rate is not published prior to 3:00 p.m., New York time, on the
Calculation Date pertaining to such Treasury Rate Determination Date, the
auction average rate (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) on such Treasury
Rate Determination Date as otherwise announced by the United States Department
of the Treasury. In the event that the results of the auction of Treasury
bills having the specified Index Maturity are not published or reported as
provided above by 3:00 p.m., New York time, on such Calculation Date, or if no
such auction is held on such Treasury Rate Determination Date, then the
"Treasury Rate" for such Interest Reset Period shall be calculated by the
Calculation Agent for such Treasury Rate Security and shall be the yield to
maturity (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of
the secondary market bid rates, as of approximately 3:30 p.m., New York time,
on such Treasury Rate Determination Date, of three leading primary United
States government securities dealers selected by such Calculation Agent for
the issue of Treasury bills with a remaining maturity closest to the specified
Index Maturity; provided, however, that if the dealers selected as aforesaid
by such Calculation Agent are not quoting bid rates as mentioned in this
sentence, then the "Treasury Rate" for such Interest Reset Period will be the
same as the Treasury Rate for the immediately preceding Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period
will be the day of the week in which the Interest Reset Date for such Interest
Reset Period falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless
that day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding
Friday. If, as the result of a legal holiday, an auction is so held on the
preceding Friday, such Friday will be the Treasury Rate Determination Date
pertaining to the Interest Reset Period commencing in the next succeeding
week. If an auction date shall fall on any day that would otherwise be an
Interest Reset Date for a Treasury Rate Security, then such Interest Reset
Date shall instead be the business day immediately following such auction
date.
The "Calculation Date" pertaining to any Treasury Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Treasury Rate Determination Date or, if such a day is not a business day, the
next succeeding business day or (b) the second business day preceding the date
any payment is required to be made for any period following the applicable
Interest Reset Date.
Book-Entry Registration
Holders of the Certificates or the Notes may hold through DTC (in the
United States) or, solely in the case of the Notes, Cedel or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems. The Certificates may not
be held, directly or indirectly, through Cedel or Euroclear. Cede, as nominee
for DTC, will hold the Securities. Cedel and Euroclear will hold omnibus
positions in the Notes on behalf of the Cedel Participants and the Euroclear
Participants, respectively, through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries"), which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to
hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between DTC's participating organizations (the
"Participants") will occur in accordance with DTC rules. Transfers between
Cedel Participants and Euroclear Participants will occur in the ordinary way
in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel Participants
and Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Cedel Participant or Euroclear Participant on such business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or
through a Cedel Participant or a Euroclear Participant to a Participant will
be received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlement in DTC.
Unless otherwise specified in the related Prospectus Supplement,
Securityholders that are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in,
Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders will receive all distributions of principal and
interest from the related Indenture Trustee or the related Trustee, as
applicable (the "Applicable Trustee"), through Participants. Under a
book-entry format, Securityholders may experience some delay in their receipt
of payments, since such payments will be forwarded by the Applicable Trustee
to DTC's nominee. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or Securityholders.
Except to the extent the Depositor holds Certificates with respect to any
series of Securities, it is anticipated that the only "Securityholder",
"Noteholder" and "Certificateholder" will be DTC's nominee. Noteholders will
not be recognized by each Indenture Trustee as Noteholders, as such term is
used in each Indenture, and Noteholders will be permitted to exercise the
rights of Noteholders only indirectly through DTC and its Participants.
Similarly, Certificateholders will not be recognized by each Trustee as
Certificateholders as such term is used in each Trust Agreement or Pooling and
Servicing Agreement, and Certificateholders will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting
DTC and its operations (the "Rules"), DTC is required to make book-entry
transfers of Securities among Participants on whose behalf it acts with
respect to the Securities and to receive and transmit distributions of
principal of, and interest on, the Securities. Participants and Indirect
Participants with which Securityholders have accounts with respect to the
Securities similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Securityholders.
Accordingly, although Securityholders will not possess Securities, the Rules
provide a mechanism by which Participants will receive payments and will be
able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act
on behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise to act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Depositor 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 or Pooling and Servicing Agreement only at
the direction of one or more 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 Participants whose holdings include such
undivided interests.
Cedel Bank, societe anonyme ("Cedel"), is incorporated under the laws
of Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel Participants
through electronic book-entry changes in accounts of Cedel Participants,
thereby eliminating the need for physical movement of certificates.
Transactions may be settled in Cedel in any of 28 currencies, including United
States dollars. Cedel provides to its Cedel Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depository, Cedel is subject to regulation by the Luxembourg Monetary
Institute. Cedel Participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the Underwriter(s) for the related Notes. Indirect access to Cedel is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in 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 on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriter(s) for the related Notes. 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 Notes held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Material Federal Income Tax Consequences" in the Prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex I
to this Prospectus. Cedel or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Noteholder under the
Indenture on behalf of a Cedel Participant or a 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 Notes 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, if any, or the Applicable Trustee 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" below.
Except as required by law, neither the Administrator, if any, nor the
applicable Trustee will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
the Securities of any series held by DTC's nominee, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Definitive Securities
If so specified in the related Prospectus Supplement, the Notes, if
any, and the Certificates of a series will be issued in fully registered,
certificated form ("Definitive Notes" and "Definitive Certificates",
respectively, and collectively referred to herein as "Definitive Securities")
to Noteholders or Certificateholders or their respective nominees, rather than
to DTC or its nominee, only if (i) the related Applicable Trustee determines
that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such
Applicable Trustee is unable to locate a qualified successor, (ii) the
Applicable Trustee, at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of an Event of Default or a Servicer
Default with respect to such Securities, holders representing at least a
majority of the outstanding principal amount of the Notes or the Certificates,
as the case may be, of such series advise the Applicable Trustee through DTC
in writing that the continuation of a book-entry system through DTC (or a
successor thereto) with respect to such Notes or Certificates is no longer in
the best interest of the holders of such Securities.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Applicable Trustee will be required to notify all
applicable Securityholders of a given series through Participants of the
availability of Definitive Securities. Upon surrender by DTC of the definitive
certificates representing the corresponding Securities and receipt of
instructions for re-registration, the Applicable Trustee will reissue such
Securities as Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the Applicable Trustee in accordance with
the procedures set forth in the related Indenture or the related Trust Agreement
or Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the Applicable Trustee. The final payment on any such Definitive
Security, however, will be made only upon presentation and surrender of such
Definitive Security at the office or agency specified in the notice of final
distribution to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the Applicable Trustee or of a registrar named in a notice
delivered to holders of Definitive Securities. No service charge will be
imposed for any registration of transfer or exchange, but the Applicable
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
List of Securityholders
Unless otherwise specified in the related Prospectus Supplement with
respect to the Notes of any series, three or more holders of the Notes of such
series or one or more holders of such Notes evidencing not less than 25% of
the aggregate outstanding principal balance of such Notes may, by written
request to the related Indenture Trustee, obtain access to the list of all
Noteholders maintained by such Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
related Indenture or under such Notes. Such Indenture Trustee may elect not to
afford the requesting Noteholders access to the list of Noteholders if it
agrees to mail the desired communication or proxy, on behalf of and at the
expense of the requesting Noteholders, to all Noteholders of such series.
Unless otherwise specified in the related Prospectus Supplement with
respect to the Certificates of any series, three or more holders of the
Certificates of such series or one or more holders of such Certificates
evidencing not less than 25% of the Certificate Balance of such Certificates
may, by written request to the related Trustee, obtain access to the list of
all Certificateholders maintained by such Trustee for the purpose of
communicating with other Certificateholders with respect to their rights under
the related Trust Agreement or Pooling and Servicing Agreement or under such
Certificates.
Reports to Securityholders
With respect to each series of Securities that includes Notes, on or
prior to each Payment Date, the Servicer will prepare and provide to the
related Indenture Trustee a statement to be delivered to the related
Noteholders on such Payment Date. With respect to each series of Securities,
on or prior to each Distribution Date, the Servicer will prepare and provide
to the related Trustee a statement to be delivered to the related
Certificateholders. With respect to each series of Securities, each such
statement to be delivered to Noteholders will include (to the extent
applicable) the following information (and any other information so specified
in the related Prospectus Supplement) as to the Notes of such series with
respect to such Payment Date or the period since the previous Payment Date, as
applicable, and each such statement to be delivered to Certificateholders will
include (to the extent applicable) the following information (and any other
information so specified in the related Prospectus Supplement) as to the
Certificates of such series with respect to such Distribution Date or the
period since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to principal of each class of
such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or with respect
to each class of Securities of such series;
(iii)the Pool Balance as of the close of business on the last day of the
preceding Collection Period;
(iv) the aggregate outstanding principal balance and the Note Pool Factor for
each class of such Notes, and the Certificate Balance and the Certificate
Pool Factor for each class of such Certificates, each after giving effect
to all payments reported under clause (i) above on such date;
(v) the amount of the Servicing Fee paid to the Servicer with respect to the
related Collection Period or Collection Periods, as the case may be;
(vi) the Interest Rate or Pass Through Rate for the next period for any class
of Notes or Certificates of such series with variable or adjustable
rates;
(vii) the amount of the aggregate realized losses, if any, for the second
preceding Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each
as defined in the related Prospectus Supplement), if any, in each case as
applicable to each class of Securities, and the change in such amounts
from the preceding statement;
(ix) the aggregate Purchase Amounts for Receivables, if any, that were
repurchased or substituted for in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date, after giving
effect to changes therein on such date;
(xi) for each such date during the Funding Period (if any), the remaining
Pre-Funded Amount; and
(xii)for the first such date that is on or immediately following the end of
the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities of such series.
Each amount set forth pursuant to subclauses (i), (ii), (v) and
(viii) with respect to the Notes or the Certificates of any series will be
expressed as a dollar amount per $1,000 of the initial principal balance of
such Notes or the initial Certificate Balance of such Certificates, as
applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each Trust, the Applicable
Trustee will mail to each person who at any time during such calendar year has
been a Securityholder with respect to such Trust and received any payment
thereon a statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Material
Federal Income Tax Consequences".
In addition, the filing with the Commission of periodic reports with
respect to each Trust will cease following completion of the reporting period
for such Trust required by Rule 15d-1 of Regulation D under the Exchange Act.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and
Servicing Agreement or Pooling and Servicing Agreement pursuant to which a
Trust will purchase Receivables from the Depositor and the Servicer will agree
to service such Receivables, each Trust Agreement (in the case of a grantor
trust, the Pooling and Servicing Agreement) pursuant to which a Trust will be
created and Certificates will be issued and each Administration Agreement
pursuant to which the Servicer (or such other person named in the related
Prospectus Supplement) will undertake certain administrative duties with
respect to a Trust that issues Notes (collectively, the "Transfer and
Servicing Agreements"). Forms of the Transfer and Servicing Agreements have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. This summary does not purport to be complete and is subject to,
and qualified by reference to, all the provisions of the Transfer and
Servicing Agreements.
Sale and Assignment of Receivables
On or prior to the closing date (the "Closing Date") specified in the
Prospectus Supplement for a Trust, the Seller(s) specified in such Prospectus
Supplement will transfer and assign, without recourse, to the Depositor their
respective entire interests in the related Initial Receivables and their
security interests in the related Financed Vehicles pursuant to a receivables
purchase agreement (a "Receivables Purchase Agreement"). On or prior to such
Closing Date, the Depositor will transfer and assign to the Applicable
Trustee, without recourse, pursuant to a Sale and Servicing Agreement or a
Pooling and Servicing Agreement, as applicable, its entire interest in such
Initial Receivables, including its security interests in the related Financed
Vehicles. Each such Receivable will be identified in a schedule appearing as
an exhibit to such Pooling and Servicing Agreement or Sale and Servicing
Agreement (a "Schedule of Receivables"). The Applicable Trustee will,
concurrently with such transfer and assignment, execute and deliver the
related Notes and/or Certificates. The Applicable Trustee will not verify the
existence of the Receivables or review the Receivables files. Unless otherwise
provided in the related Prospectus Supplement, the net proceeds received from
the sale of the Certificates and the Notes of a given series will be applied
to the purchase of the related Receivables from the Seller(s) and, to the
extent specified in the related Prospectus Supplement, to the deposit of the
Pre-Funded Amount into the Pre-Funding Account. The related Prospectus
Supplement for a given Trust will specify whether, and the terms, conditions
and manner under which, Subsequent Receivables will be sold
by the Seller(s) to the Depositor and by the Depositor to the applicable Trust
from time to time during any Funding Period on each date specified as a
transfer date in the related Prospectus Supplement (each, a "Subsequent
Transfer Date").
In each Receivables Purchase Agreement the related Seller will
represent and warrant to the Depositor and, in each Sale and Servicing
Agreement or Pooling and Servicing Agreement, the Depositor will represent and
warrant to the applicable Trust, among other things, that: (i) the information
provided in the related Schedule of Receivables is correct in all material
respects; (ii) the Obligor on each related Receivable is required to maintain
physical damage insurance covering the Financed Vehicle in accordance with the
Seller(s)' normal requirements; (iii) as of the applicable Closing Date or the
applicable Subsequent Transfer Date, if any, to the best of its knowledge, the
related Receivables are free and clear of all security interests, liens,
charges and encumbrances and no offsets, defenses or counterclaims have been
asserted or threatened; (iv) as of the Closing Date or the applicable
Subsequent Transfer Date, if any, each of such Receivables is or will be
secured by a first perfected security interest in favor of the Seller in the
related Financed Vehicle; (v) each related Receivable, at the time it was
originated, complied and, as of the Closing Date or the applicable Subsequent
Transfer Date, if any, complies in all material respects with applicable
federal and state laws, including, without limitation, consumer credit, truth
in lending, equal credit opportunity and disclosure laws; and (vi) any other
representations and warranties that may be set forth in the related Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, as of
the last day of the second (or, if the Seller(s) elects, the first) month
following the discovery by or notice to the Seller(s) of a breach of any
representation or warranty of the Seller(s) that materially and adversely
affects the interests of the related Trust in any Receivable, the Depositor,
unless the breach is cured, will repurchase such Receivable from such Trust
and the related Seller will be obligated to simultaneously repurchase such
Receivable from the Depositor at a price equal to the unpaid principal balance
owed by the Obligor thereon plus interest thereon at the respective APR to the
last day of the month of repurchase (the "Purchase Amount"). Alternatively, if
so specified in the related Prospectus Supplement, the related Seller or the
Depositor will be permitted, in a circumstance where it would otherwise be
required to repurchase a Receivable as described in the preceding sentence, to
instead substitute a comparable Receivable for the Receivable otherwise
requiring repurchase, subject to certain conditions and eligibility criteria
for the substitute Receivable to be summarized in the related Prospectus
Supplement. The repurchase obligation (or, if applicable, the substitution
alternative with respect thereto) constitutes the sole remedy available to the
Certificateholders or the Trustee and any Noteholders or Indenture Trustee in
respect of such Trust for any such uncured breach. The Depositor's obligation
to make such purchase or substitution is contingent upon the related Seller
performing its corresponding obligation to purchase (or, if applicable,
substitute for) such Receivable from the Depositor.
Pursuant to each Sale and Servicing Agreement or Pooling and
Servicing Agreement, to assure uniform quality in servicing the Receivables
and to reduce administrative costs, each Trust will designate the Servicer as
custodian to maintain possession, as such Trust's agent, of the related retail
installment sale contracts, retail installment loans, purchase money notes or
other notes and any other documents relating to the Receivables. The Depositor
and the Seller(s)' accounting records and computer systems will reflect the
sale and assignment of the related Receivables to the applicable Trust and
Uniform Commercial Code ("UCC") financing statements reflecting such sales and
assignments will be filed. The Receivables will not be segregated, stamped or
otherwise marked to indicate that they have been sold to the related Trust. If
through inadvertence or otherwise, another party purchases (or takes a
security interest in) the Receivables for new value in the ordinary course of
business and takes possession of the Receivables without actual knowledge of
the related Trust's interest, the purchaser (or secured party) will acquire an
interest in the Receivables superior to the interest of the related Trust.
Accounts
With respect to each Trust that issues Notes, the Servicer will
establish and maintain with the related Indenture Trustee one or more
accounts, in the name of the Indenture Trustee on behalf of the related
Noteholders and Certificateholders, into which all payments made on or with
respect to the related Receivables will be deposited (the "Collection
Account"). The Servicer will establish and maintain with such Indenture
Trustee an account, in the name of such Indenture Trustee on behalf of such
Noteholders, into which amounts released from the Collection Account and any
Pre-Funding Account, Reserve Account or other credit or cash flow enhancement
for payment to such Noteholders will be deposited and from which all
distributions to such Noteholders will be made (the "Note Distribution
Account"). The Servicer will establish and maintain with the related Trustee
an account, in the name of such Trustee on behalf of the related
Certificateholders, into which amounts released from the Collection Account
and any Pre-Funding Account, Reserve Account or other credit or cash flow
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to each Trust that does not
issue Notes, the Servicer will also establish and maintain the Collection
Account and any other Trust Account in the name of the related Trustee on
behalf of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer
will establish for each series an additional account (the "Payahead Account"),
in the name of the related Indenture Trustee, into which, to the extent
required by the Sale and Servicing Agreement, early payments by or on behalf
of Obligors with respect to Precomputed Receivables will be deposited until
such time as the payment becomes due. Until such time as payments are
transferred from the Payahead Account to the Collection Account, they will not
constitute collected interest or collected principal and will not be available
for distribution to the applicable Noteholders or Certificateholders. The
Payahead Account will initially be maintained with the applicable Indenture
Trustee or, in the case of each Trust that does not issue Notes, the
applicable Trustee.
Any other accounts to be established with respect to a Trust,
including any Pre-Funding Account or any Reserve Account, will be described in
the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the
Note Distribution Account and any Pre-Funding Account, Reserve Account and
other accounts identified as such in the related Prospectus Supplement
(collectively, the "Trust Accounts") will be invested as provided in the
related Sale and Servicing Agreement or Pooling and Servicing Agreement in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies rating such Securities as being
consistent with the rating of such Securities and may include motor vehicle,
recreational vehicle retail sale contracts or retail installment loans. Except
as described below or in the related Prospectus Supplement, Eligible
Investments are limited to obligations or securities that mature on or before
the date of the next distribution for such series. However, to the extent
permitted by the Rating Agencies, funds in any Reserve Account may be invested
in securities that will not mature prior to the date of the next distribution
with respect to such Certificates or Notes and will not be sold to meet any
shortfalls. Thus, the amount of cash in any Reserve Account at any time may be
less than the balance of the Reserve Account. If the amount required to be
withdrawn from any Reserve Account to cover shortfalls in collections on the
related Receivables (as provided in the related Prospectus Supplement) exceeds
the amount of cash in the Reserve Account, a temporary shortfall in the
amounts distributed to the related Noteholders or Certificateholders could
result, which could, in turn, increase the average life of the Notes or the
Certificates of such series. Investment earnings on funds deposited in the
Trust Accounts, net of losses and investment expenses (collectively,
"Investment Earnings"), shall be allocated in the manner described in the
related Prospectus Supplement.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade. "Eligible Institution" means, with respect to a Trust, (a)
the corporate trust department of the related Indenture Trustee or the related
Trustee, as applicable, or (b) a depository institution organized under the
laws of the United States of America or any one of the states thereof or the
District of Columbia (or any domestic branch of a foreign bank), (i) which has
either (A) a long-term unsecured debt rating acceptable to the Rating Agencies
or (B) a short-term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies and (ii) whose deposits are insured by the
FDIC.
Servicing Procedures
The Servicer will make reasonable efforts to collect all payments due
with respect to the Receivables held by any Trust and will, consistent with the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, follow
such collection procedures as it follows with respect to motor vehicle and/or
recreational vehicle retail installment sale contracts, installment loans,
purchase money notes or other notes that it services for itself and that are
comparable to such Receivables. Consistent with its normal procedures, the
Servicer may, in its discretion, arrange with the Obligor on a Receivable to
extend or modify the payment schedule, but no such arrangement will, for
purposes of any Sale and Servicing Agreement or Pooling and Servicing Agreement
or extend the final payment date of any Receivable beyond the Final Scheduled
Maturity Date (as such term is defined with respect to any Receivables Pool in
the related Prospectus Supplement). Some of such arrangements may result in the
Servicer purchasing the Receivable for the Purchase Amount, while others may
result in the Servicer making Advances. The Servicer may sell the Financed
Vehicle securing the related Receivable at public or private sale or take any
other action permitted by applicable law. See "Certain Legal Aspects of the
Receivables".
The Servicer may from time to time perform any portion of its
servicing obligations under the applicable Sale and Servicing Agreement or
Pooling and Servicing Agreement through subservicing agreements with third
party subservicers. Each Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, will provide that, not withstanding the use of
subservicers, the Servicer will remain liable for its servicing duties and
obligations as if the Servicer serviced the Receivables directly.
Collections
With respect to each Trust, the Servicer will deposit all payments on
the related Receivables (from whatever source) and all proceeds of such
Receivables collected during each collection period specified in the related
Prospectus Supplement (each, a "Collection Period ") into the related
Collection Account within two business days after receipt thereof. However, at
any time that and for so long as (i) there exists no Servicer Default and (ii)
each other condition to making deposits less frequently than daily as may be
specified by the Rating Agencies or set forth in the related Prospectus
Supplement is satisfied, the Servicer will not be required to deposit such
amounts into the Collection Account until on or before the applicable
Distribution Date or Payment Date. 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. If the Servicer
were unable to remit such funds, Securityholders might incur a loss. To the
extent set forth in the related Prospectus Supplement, the Servicer may, in
order to satisfy the requirements described above, obtain a letter of credit
or other security for the benefit of the related Trust to secure timely
remittances of collections on the related Receivables and payment of the
aggregate Purchase Amount with respect to Receivables purchased by the
Servicer.
Collections on a Precomputed Receivable made during a Collection
Period shall be applied first to repay any outstanding Precomputed Advances
made by the Servicer with respect to such Receivable (as described below), and
to the extent that collections on a Precomputed Receivable during a Collection
Period exceed the outstanding Precomputed Advances, the collections shall then
be applied to the scheduled payment on such Receivable. If any collections
remaining after the scheduled payment is made are insufficient to prepay the
Precomputed Receivable in full, then, generally such remaining collections
(the "Payaheads") shall be transferred to and kept in the Payahead Account,
until such later Collection Period when the collections may be transferred to
the Collection Account and applied either to the scheduled payment or to
prepay such Receivable in full.
Advances
Precomputed Receivables. If so provided in the related Prospectus
Supplement, to the extent the collections of interest on and principal of a
Precomputed Receivable with respect to a Collection Period fall short of the
respective scheduled payment, the Servicer will make a Precomputed Advance in
the amount of the shortfall. The Servicer will be obligated to make a
Precomputed Advance on a Precomputed Receivable only to the extent that the
Servicer, in its sole discretion, expects to recoup such advance from
subsequent collections or recoveries on such Receivable or other Precomputed
Receivables in the related Receivables Pool. The Servicer will deposit the
Precomputed Advance in the applicable Collection Account on or before the
business day preceding the applicable Distribution Date or Payment Date. The
Servicer will recoup its Precomputed Advance from subsequent payments by or on
behalf of the related Obligor or from insurance or liquidation proceeds with
respect to the Receivable and will release its right to reimbursement in
conjunction with its purchase of the Receivable as Servicer, or, upon the
determination that reimbursement from the preceding sources is unlikely, will
recoup its Precomputed Advance from any collections made on other Precomputed
Receivables in the related Receivables Pool or from any other source of funds
identified in the related Prospectus Supplement.
Simple Interest Receivables. If so provided in the related Prospectus
Supplement, on or before the business day prior to each applicable Distribution
Date or Payment Date, the Servicer shall deposit into the related Collection
Account as a Simple Interest Advance an amount equal to the amount of interest
that would have been due on the related Simple Interest Receivables at their
respective APRs for the related Collection Period (assuming that such Simple
Interest Receivables are paid on their respective due dates) minus the amount of
interest actually received on such Simple Interest Receivables during the
related Collection Period. If such calculation results in a negative number, an
amount equal to such 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 Defaulted Receivable (as such term is defined in
the related Prospectus Supplement), the amount of accrued and unpaid interest
thereon (but not including interest for the then current Collection Period)
shall be withdrawn from the Collection Account and paid to the Servicer in
reimbursement of outstanding Simple Interest Advances. No advances of principal
will be made with respect to Simple Interest Receivables. As used herein,
"Advances" means both Precomputed Advances and Simple Interest Advances.
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the Prospectus Supplement with respect
to any Trust, the Servicer will be entitled to receive a servicing fee (the
"Servicing Fee") for each Collection Period in an amount equal to a specified
percentage per annum (as set forth in the related Prospectus Supplement, the
"Servicing Fee Rate") of the Pool Balance as of the first day of the related
Collection Period. The Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates or Payment
Dates) will be paid out of the available funds for the related collection
Period prior to any distribution(s) on the related Payment Date or
Distribution Date to the Noteholders or the Certificateholders of the related
series.
With respect to any Trust, the Servicer will generally collect and
retain any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the related
Receivables and will be entitled to reimbursement from such Trust for certain
liabilities. Payments by or on behalf of Obligors will be allocated to
scheduled payments and late fees and other charges in accordance with the
Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of motor vehicle and/or recreational
vehicle as an agent for their beneficial owner, including collecting and
posting all payments, responding to inquiries of Obligors on the Receivables,
investigating delinquencies, sending payment coupons to Obligors, reporting
tax information to Obligors, paying costs of collections and disposition of
defaults and policing the collateral. The Servicing Fee also will compensate
the Servicer for administering the related Receivables Pool, including making
Advances, accounting for collections and furnishing monthly and annual
statements to the related Trustee and Indenture Trustee with respect to
distributions and generating federal income tax information for such Trust and
for the related Noteholders and Certificateholders. The Servicing Fee also
will reimburse the Servicer for certain taxes, the fees of the related Trustee
and Indenture Trustee, if any, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
related Receivables Pool.
Distributions
With respect to each series of Securities, beginning on the Payment
Date or Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal of and interest (or, where applicable,
of principal of or interest only) on each class of such Securities entitled
thereto will be made by the Applicable Trustee to the Noteholders and the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all distributions to each class of Certificateholders of such
series will be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Payment Date and Distribution
Date, as applicable, collections on the related Receivables will be
transferred from the Collection Account to the Note Distribution Account, if
any, and the Certificate Distribution Account for distribution to Noteholders,
if any, and Certificateholders to the extent provided in the related
Prospectus Supplement. Credit enhancement, such as a Reserve Account, will be
available to cover any shortfalls in the amount available for distribution on
such date to the extent specified in the related Prospectus Supplement. As
more fully described in the related Prospectus Supplement, and unless
otherwise specified therein, distributions in respect of principal of a class
of Securities of a given series will be subordinate to distributions in
respect of interest on such class, and distributions in respect of one or more
classes of Certificates of such series may be subordinate to payments in
respect of Notes, if any, of such series or other classes of Certificates of
such series.
Credit and Cash Flow Enhancement
The amounts and types of credit and cash flow enhancement
arrangements and the provider thereof, if applicable, with respect to each
class of Securities of a given series, if any, will be set forth in the
related Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, credit and cash flow enhancement may be in the form of
subordination of one or more classes of Securities, Reserve Accounts,
over-collateralization, letters of credit, credit or liquidity facilities,
surety bonds, guaranteed investment contracts, swaps or other interest rate
protection agreements, repurchase obligations, yield supplement agreements,
other agreements with respect to third party payments or other support, cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, credit or cash flow
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit or cash flow enhancement for a
series of Securities may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit
enhancement for the benefit of any class or series of Securities is intended
to enhance the likelihood of receipt by the Securityholders of such class or
series of the full amount of principal and interest due thereon and to
decrease the likelihood that such Securityholders will experience losses. The
credit enhancement for a class or series of Securities may not provide
protection against all risks of loss and may not guarantee repayment of the
entire principal balance and interest thereon; any such limitations will be
described in the related Prospectus Supplement. If losses occur which exceed
the amount covered by any credit enhancement or which are not covered by any
credit enhancement, Securityholders of any class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of credit enhancement covers more than one
series of Securities, Securityholders of any such series will be subject to
the risk that such credit enhancement will be exhausted by the claims of
Securityholders of other series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor will establish for a series or class of Securities an
account, as specified in the related Prospectus Supplement (the "Reserve
Account"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. The Reserve Account will be funded by an initial
deposit by the Depositor or such other person specified in the related
Prospectus Supplement on the Closing Date in the amount set forth in the
related Prospectus Supplement and, if the related series has a Funding Period,
will also be funded on each Subsequent Transfer Date to the extent described
in the related Prospectus Supplement. As further described in the related
Prospectus Supplement, the amount on deposit in the Reserve Account will be
increased on each Distribution Date or Payment Date thereafter up to the
Specified Reserve Account Balance (as defined in the related Prospectus
Supplement) by the deposit therein of the amount of collections on the related
Receivables remaining on each such Distribution Date or Payment Date after the
payment of all other required payments and distributions on such date. The
related Prospectus Supplement will describe the circumstances and manner under
which distributions may be made out of the Reserve Account, either to holders
of the Securities covered thereby, to the Depositor or such other person
specified in the related Prospectus Supplement.
Net Deposits
As an administrative convenience, unless the Servicer is required to
remit collections daily (see "--Collections" above), the Servicer will be
permitted to make the deposit of collections, aggregate Advances and Purchase
Amounts for any Trust for or with respect to the related Collection Period net
of distributions to be made to the Servicer for such Trust with respect to
such Collection Period. The Servicer may cause to be made a single net
transfer from the Collection Account to the related Payahead Account, if any,
or vice versa. The Servicer, however, will account to the Trustee, any
Indenture Trustee, the Noteholders, if any, and the Certificateholders with
respect to each Trust as if all deposits, distributions and transfers were
made individually. With respect to any Trust that issues both Certificates and
Notes, if the related Payment Dates do not coincide with the Distribution
Dates, all distributions, deposits or other remittances made on a Payment Date
will be treated as having been distributed, deposited or remitted on the
Distribution Date for the applicable Collection Period for purposes of
determining other amounts required to be distributed, deposited or otherwise
remitted on such Distribution Date.
Statements to Trustees and Trust
Prior to each Distribution Date or Payment Date with respect to each
series of Securities, the Servicer will provide to the Applicable Trustee as
of the close of business on the last day of the preceding Collection Period a
statement setting forth substantially the same information as is required to
be provided in the periodic reports provided to Securityholders of such series
described under "Certain Information Regarding the Securities--Reports to
Securityholders" herein.
Evidence as to Compliance
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that a firm of independent public accountants will furnish
annually to the related Trust and the Applicable Trustee or Trustee statement
as to compliance by the Servicer during the preceding twelve months (or, in
the case of the first such certificate, from the applicable Closing Date) with
certain standards relating to the servicing of the applicable Receivables, the
Servicer's accounting records and computer files with respect thereto and
certain other matters.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will also provide for delivery to the related Trust and the Applicable
Trustee, substantially simultaneously with the delivery of such accountants'
statement referred to above, of a certificate signed by an officer of the
Servicer stating that the Servicer has fulfilled its obligations under the
Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months (or, in the case of the
first such certificate, from the Closing Date) or, if there has been a default
in the fulfillment of any such obligation, describing each such default. The
Servicer has agreed to give each Applicable Trustee notice of certain Servicer
Defaults under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
Certain Matters Regarding the Servicer
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer 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 and
except as provided below. No such resignation will become effective until the
Applicable Trustee or a successor servicer has assumed the Servicer's
servicing obligations and duties under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will be under any liability to the related
Trust or the related Noteholders or Certificateholders for taking any action
or for refraining from taking any action pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement or for errors in judgment; except
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 the Servicer's duties thereunder
or by reason of reckless disregard of its obligations and duties thereunder.
In addition, each Sale and Servicing Agreement and Pooling and Servicing
Agreement will provide that the Servicer is under no obligation to appear in,
prosecute or defend any legal action that is not incidental to the Servicer's
servicing responsibilities under such Sale and Servicing Agreement or Pooling
and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in each Sale and Servicing
Agreement and Pooling and Servicing Agreement, any entity into which the
Servicer may be merged or consolidated, or any entity resulting from any
merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer, which corporation or other entity
in each of the foregoing cases assumes the obligations of the Servicer, will
be the successor of the Servicer under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
Servicer Default
"Servicer Default" under each Sale and Servicing Agreement and Pooling
and Servicing Agreement will consist of (i) any failure by the Servicer to
deliver to the Applicable Trustee for deposit in any of the Trust Accounts or
the Certificate Distribution Account any required payment or to direct the
Applicable Trustee to make any required distributions therefrom, which failure
continues unremedied for three business days after written notice from the
Applicable Trustee is received by the Servicer or after discovery of such
failure by the Servicer; (ii) any failure by the Servicer duly to observe or
perform in any material respect any other covenant or agreement in such Sale and
Servicing Agreement or Pooling and Servicing Agreement, which failure materially
and adversely affects the rights of the Noteholders or the Certificateholders of
the related series and which continues unremedied for 60 days after the giving
of written notice of such failure (A) to the Servicer or the Depositor, as the
case may be, by the Applicable Trustee or (B) to the Servicer and to the
Applicable Trustee by holders of Notes or Certificates of such series, as
applicable, evidencing not less than 50% in principal amount of such outstanding
Notes or of such Certificate Balance; and (iii) the occurrence of an Insolvency
Event with respect to the Servicer. "Insolvency Event" means, with respect to
any Person, any of the following events or actions: certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings with respect to such person and certain actions by such
person indicating its insolvency, reorganization pursuant to bankruptcy
proceedings or inability to pay its obligations.
Rights Upon Servicer Default
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing not
less than 50% of the principal amount of such Notes then outstanding may
terminate all the rights and obligations of the Servicer under such Sale and
Servicing Agreement, whereupon such Indenture Trustee or a successor servicer
appointed by such Indenture Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under such Sale and Servicing Agreement
and will be entitled to similar compensation arrangements. In the case of any
Trust that has not issued Notes, as long as a Servicer Default under the
related Pooling and Servicing Agreement remains unremedied, the related
Trustee or holders of Certificates of the related series evidencing not less
than 50% of the principal amount of such Certificates then outstanding may
terminate all the rights and obligations of the Servicer under such Pooling
and Servicing Agreement, whereupon such Trustee or a successor servicer
appointed by such Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Pooling and Servicing Agreement and
will be entitled to similar compensation arrangements. If, however, a
bankruptcy trustee or similar official has been appointed for the Servicer,
and no Servicer Default other than such appointment has occurred, such trustee
or official may have the power to prevent such Indenture Trustee, such
Noteholders, such Trustee or such Certificateholders from effecting a transfer
of servicing. In the event that such Indenture Trustee or Trustee is unwilling
or unable to so act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor with a net worth of at least
$100,000,000 and whose regular business includes the servicing of motor
vehicle receivables. Such Indenture Trustee or Trustee may make such
arrangements for compensation to be paid, which in no event may be greater
than the servicing compensation to the Servicer under such Sale and Servicing
Agreement or Pooling and Servicing Agreement.
Waiver of Past Defaults
With respect to each Trust that has issued Notes, unless otherwise
provided in the related Prospectus Supplement, the holders of Notes evidencing
at least a majority in principal amount of the then outstanding Notes of the
related series (or the holders of the Certificates of such series evidencing
not less than a majority of the outstanding Certificate Balance, in the case
of any Servicer Default which does not adversely affect the related Indenture
Trustee or such Noteholders) may, on behalf of all such Noteholders and
Certificateholders, waive any default by the Servicer in the performance of
its obligations under the related Sale and Servicing Agreement and its
consequences, except a Servicer Default in making any required deposits to or
payments from any of the Trust Accounts or to the Certificate Distribution
Account in accordance with such Sale and Servicing Agreement. With respect to
each Trust that has not issued Notes, holders of Certificates of such series
evidencing not less than a majority of the principal amount of such
Certificates then outstanding may, on behalf of all such Certificateholders,
waive any default by the Servicer in the performance of its obligations under
the related Pooling and Servicing Agreement, except a Servicer Default in
making any required deposits to or payments from the Certificate Distribution
Account or the related Trust Accounts in accordance with such Pooling and
Servicing Agreement. No such waiver will impair such Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
Amendment
Unless otherwise provided in the related Prospectus Supplement, each
of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or
Certificateholders; provided that such action will not, in the opinion of
counsel satisfactory to the related Trustee
or Indenture Trustee, as applicable, materially and adversely affect the
interest of any such Noteholder or Certificateholder. Unless otherwise
specified in the related Prospectus Supplement, the Transfer and Servicing
Agreements may also be amended by the Depositor, the Servicer, the related
Trustee and any related Indenture Trustee with the consent of the holders of
Notes evidencing at least a majority in principal amount of then outstanding
Notes, if any, of the related series and the holders of the Certificates of
such series evidencing at least a majority of the principal amount of such
Certificates then outstanding, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Transfer
and Servicing Agreements or of modifying in any manner the rights of such
Noteholders or Certificateholders; provided, however, that no such amendment
may (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the related Receivables or
distributions that are required to be made for the benefit of such Noteholders
or Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such
amendment, without the consent of the holders of all the outstanding Notes or
Certificates, as the case may be, of such series.
Each Trust Agreement will provide that the applicable Trustee does
not have the power to commence a voluntary proceeding in bankruptcy with
respect to the related Trust without the unanimous prior approval of all
Certificateholders (including the Depositor) of such Trust and the delivery to
such Trustee by each such Certificateholder (including the Depositor) of a
certificate certifying that such Certificateholder reasonably believes that
such Trust is insolvent.
Payment of Notes
Upon the payment in full of all outstanding Notes of a given series
and the satisfaction and discharge of the related Indenture, the related
Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement.
Termination
With respect to each Trust, the obligations of the Servicer, the
Depositor, the related Trustee and the related Indenture Trustee, if any,
pursuant to the Transfer and Servicing Agreements will terminate upon the
earlier of (i) the maturity or other liquidation of the last related
Receivable and the disposition of any amounts received upon liquidation of any
such remaining Receivables, (ii) the payment to Noteholders, if any, and
Certificateholders of the related series of all amounts required to be paid to
them pursuant to the Transfer and Servicing Agreements and (iii) the
occurrence of either event described below.
In order to avoid excessive administrative expense, the Servicer will
be permitted at its option to purchase from each Trust, as of the end of any
applicable Collection Period, if the then outstanding Pool Balance with
respect to the Receivables held by such Trust is 10% (or such other percentage
not lower than 5% as is specified in the related Prospectus Supplement) or
less of the Initial Pool Balance (as defined in the related Prospectus
Supplement, the "Initial Pool Balance"), all remaining related Receivables at
a price equal to the aggregate of the Purchase Amounts thereof as of the end
of such Collection Period.
If and to the extent provided in the related Prospectus Supplement
with respect to a Trust, the Applicable Trustee will, within ten days
following a Distribution Date or Payment Date as of which the Pool Balance is
equal to or less than the percentage of the Initial Pool Balance specified in
the related Prospectus Supplement, solicit bids for the purchase of the
Receivables remaining in such Trust, in the manner and subject to the terms
and conditions set forth in such Prospectus Supplement. If the Applicable
Trustee receives satisfactory bids as described in such Prospectus Supplement,
then the Receivables remaining in such Trust will be sold to the highest
bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above, and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
Administration Agreement
If so specified in the related Prospectus Supplement, the person
named as such in the related Prospectus Supplement (the "Administrator"), will
enter into an agreement (as amended and supplemented from time to time,
an "Administration Agreement") with each Trust that issues Notes and the
related Indenture Trustee pursuant to which the Administrator will agree, to
the extent provided in such Administration Agreement, to provide the notices
and to perform other administrative obligations required by the related
Indenture. Unless otherwise specified in the related Prospectus Supplement
with respect to any such Trust, as compensation for the performance of the
Administrator's obligations under the applicable Administration Agreement and
as reimbursement for its expenses related thereto, the Administrator will be
entitled to a monthly administration fee in such an amount as may be set forth
in the related Prospectus Supplement (the "Administration Fee").
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The Receivables will be treated by each Trust as "chattel paper" as
defined in the UCC. Pursuant to the UCC, the sale of chattel paper is treated
in a manner similar to a security interest in chattel paper. In order to
protect each Trust's ownership or security interest in its Receivables, the
Depositor will file UCC-1 financing statements with the appropriate
authorities in the States of New York, Delaware and any other states deemed
advisable by the Depositor to give notice of such Trust's and any related
Indenture Trustee's ownership of and security interest in the Receivables and
their proceeds. Under each Sale and Servicing Agreement and Pooling and
Servicing Agreement, the Servicer will be obligated to maintain the perfection
of each Trust's and any related Indenture Trustee's interest in the
Receivables. It should be noted, however, that a purchaser of chattel paper
who gives new value and takes possession of it in the ordinary course of such
purchaser's business has priority over a security interest, including an
ownership interest, in the chattel paper that is perfected by filing UCC-1
financing statements, and not by possession of such chattel paper by the
original secured party, if such purchaser acts in good faith without knowledge
that the related chattel paper is subject to a security interest, including an
ownership interest. Any such purchaser would not be deemed to have such
knowledge because there are UCC filings and would not learn of the sale of or
security interest in the Receivables from a review of the Receivables since
they would not be marked to show such sale.
Security Interest in Vehicles
In states in which retail installment sale contracts and installment
loans such as the Motor Vehicle and Recreational Vehicle Receivables evidence
the credit sale of automobiles, light-duty trucks or recreational vehicles by
dealers to obligors, the contracts or loans also constitute personal property
security agreements and include grants of security interests in the vehicles
under the applicable UCC. Perfection of security interests in the automobiles
and recreational vehicles is generally governed by the motor vehicle
registration laws of the state in which the vehicle is located. In all states
in which the Receivables have been originated, except as noted below, a
security interest in Financed Vehicles is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured
party's lien on the Financed Vehicle's certificate of title. Notwithstanding
the foregoing, in certain states, folding camping trailers and/or slide-in
campers, which may constitute the Financed Vehicle with respect to certain
Recreational Vehicle Receivables, are not subject to state titling and vehicle
registration laws and a security interest in such recreation vehicles is
perfected by filing pursuant to the provisions of the UCC.
Unless otherwise specified in the related Prospectus Supplement, each
Seller will be obligated to have taken all actions necessary under the laws of
the state in which the Financed Vehicle is located to perfect its security
interest in the Financed Vehicle securing the related Receivable purchased by
it from a Dealer, including, where applicable, by having a notation of its
lien recorded on such vehicle's certificate of title or, if appropriate, by
perfecting its security interest in the related recreational vehicles under
the UCC. Because the Servicer will continue to service the contracts and
loans, the Obligors on the contracts and loans will not be notified of the
sales from a Seller to the Depositor or from the Depositor to the Trust, and
no action will be taken to record the transfer of the security interest from a
Seller to the Depositor or from the Depositor to the Trust by amendment of the
certificates of title for the Financed Vehicles or otherwise.
Pursuant to each Receivables Purchase Agreement, each Seller will
assign to the Depositor its interests in the Financed Vehicles securing the
Motor Vehicle and Recreational Vehicle Receivables assigned by that Seller to
the Depositor and, with respect to each Trust, pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, the Depositor will
assign its interests in the Financed Vehicles securing the related Receivables
to such Trust. However, because of the administrative burden and expense, none
of the Seller, the Depositor, the Servicer or the related Trustee will amend any
certificate of title to identify either the Depositor or such Trust as the new
secured party on such certificate of title relating to a Financed Vehicle nor
will any such entity execute and file any transfer instrument (including, among
other instruments, UCC-3 assignments for those Financed Recreational Vehicles
for which perfection is governed by the UCC).
In most states, an assignment such as that under each Receivables
Purchase Agreement, Sale and Servicing Agreement or Pooling and Servicing
Agreement is an effective conveyance of a security interest without amendment
of any lien noted on a vehicle's certificate of title or the execution or
filing of any transfer instrument, and the assignee succeeds thereby to the
assignor's rights as secured party. In some states, however, in the absence of
such an amendment, execution or filing, the assignment to the Applicable
Trustee of a security interest in Financed Vehicles registered therein may not
be effective or such security interest may not be perfected. If any otherwise
effectively assigned security interest in favor of the Applicable Trustee is
not perfected, such assignment of the security interest to such Trustee may
not be effective against creditors or a trustee in bankruptcy of the
applicable Seller, which continues to be specified as lienholder on any
certificates of title or as secured party on any UCC filing. However, UCC
financing statements with respect to the transfer of each Seller's security
interest in related Financed Vehicles to the Depositor and the transfer to the
applicable Trust of the Seller's security interest in such 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 such Trust pursuant to the related Sale and Servicing Agreement
or Pooling and Servicing Agreement. See "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables".
In addition, even in those states where an assignment such as that
under each Receivables Purchase Agreement, Sale and Servicing Agreement or
Pooling and Servicing Agreement is an effective conveyance of a security
interest without amendment of any lien noted on a vehicle's certificate of
title, by not identifying a Trust as the secured party on the certificate of
title, the security interest of such Trust in the vehicle could be defeated
through fraud or negligence. In such states, in the absence of fraud or
forgery by the vehicle owner or the Seller or administrative error by state or
local agencies, the notation of the Seller's lien on the certificates of title
will be sufficient to protect a Trust against the rights of subsequent
purchasers of a Financed Vehicle or subsequent lenders who take a security
interest in a Financed Vehicle. If there are any Financed Vehicles as to which
the Seller failed to obtain a perfected security interest, the security
interest of the related Trust would be subordinate to, among others, the
interests of subsequent purchasers of the Financed Vehicles and holders of
perfected security interests therein. Such a failure, however, would
constitute a breach of the warranties of the Depositor under the related Sale
and Servicing Agreement or Pooling and Servicing Agreement and of the related
Seller under the Receivables Purchase Agreement and would create an obligation
of the Depositor to repurchase the related Receivable from the Trust and of
the related Seller to simultaneously repurchase the related Receivable from
the Depositor unless the breach were cured. See "Description of the Transfer
and Servicing Agreements--Sale and Assignment of Receivables" and "Special
Considerations--Certain Legal Aspects--Security Interests in Financed
Vehicles".
Under the laws of most states, the perfected security interest in a
vehicle would continue for four months after the vehicle is moved to a state
other than the state in which it is initially registered and thereafter until
the owner thereof re-registers the vehicle in the new state. A majority of
states generally require surrender of a certificate of title to re-register a
vehicle. Accordingly, a secured party must surrender possession if it holds
the certificate of title to the vehicle or, in the case of a vehicle
registered in a state providing for the notation of a lien on the certificate
of title but not possession by the secured party, the secured party would
receive notice of surrender if the security interest is noted on the
certificate of title. Thus, the secured party would have the opportunity to
re-perfect its security interest in the vehicle in the state of relocation.
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 motor vehicle or recreational vehicle, re-registration could
defeat perfection. In the ordinary course of servicing motor vehicle or
recreational vehicle receivables, the Servicer takes steps to effect
re-perfection upon receipt of notice of re-registration or information from
the obligor as to relocation. Similarly, when an obligor sells a vehicle, the
Servicer must surrender possession of the certificate of title or will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related loan before release of the
lien. Under each Sale and Servicing Agreement and Pooling and Servicing
Agreement, the Servicer will be obligated to take appropriate steps, at the
Servicer's expense, to maintain perfection of security interests in the
Financed Vehicles and is obligated to purchase the related Receivable if it
fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle or recreational vehicle and liens for unpaid taxes take priority over
even a perfected security interest in a financed vehicle. The Code also grants
priority to certain federal tax liens over the lien of a secured party. The
laws of certain states and federal law permit the confiscation of 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 the confiscated vehicle. Under each Receivables Purchase
Agreement, the Seller will represent to the related Trust that, as of the date
the related Receivable is sold to such Trust, each security interest in a
Financed Vehicle is or will be prior to all other present liens (other than
tax liens and other liens that arise by operation of law) upon and security
interests in such Financed Vehicle. However, liens for repairs or taxes could
arise, or the confiscation of a Financed Vehicle could occur, at any time
during the term of a Receivable. No notice will be given to the Trustee, any
Indenture Trustee, any Noteholders or the Certificateholders in respect of a
given Trust if such a lien arises or confiscation occurs and any such lien or
confiscation arising after the applicable Closing Date would not give rise to
the related Seller's repurchase obligation under the applicable Receivables
Purchase Agreement.
Repossession
In the event of default by vehicle purchasers, the holder of the
motor vehicle or recreational vehicle installment sale contract or installment
loan has all the remedies of a secured party under the UCC, except where
specifically limited by other state laws. Among the UCC remedies, the secured
party has the right to perform self-help repossession unless such act would
constitute a breach of the peace. Self-help is the method employed by the
Servicer in most cases and is accomplished simply by retaking possession of
the financed vehicle. In the event of default by the obligor, some
jurisdictions require that the obligor be notified of the default and be given
a time period within which he may cure the default prior to repossession.
Generally, the right of reinstatement may be exercised on a limited number of
occasions in any one-year period. In cases where the obligor objects or raises
a defense to repossession, 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 repossessed in accordance with that order.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
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 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 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. However, the deficiency
judgment would be a personal judgment against the obligor for the shortfall,
and a defaulting obligor can be expected to have very little capital or
sources of income available following repossession. Therefore, in many cases,
it may not be useful to seek a deficiency judgment or, if one is obtained, it
may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses
and all indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a lien with
respect to the vehicle or if no such lienholder exists or there are remaining
funds, the UCC requires the creditor to remit the surplus to the former owner
of the vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers
involved in consumer finance. These laws include the federal 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 Procedures 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 Texas Consumer Credit Code, state adoptions of the
National Consumer Act and of the Uniform Consumer Credit Code and state motor
vehicle retail installment sales acts, retail installment sales acts and other
similar laws. Also, state laws impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose
specific statutory liabilities upon creditors who fail to comply with their
provisions. In some cases, this liability could affect an assignee's ability
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"), the provisions of which are generally duplicated
by the Uniform Consumer Credit Code, other statutes or the common law, has the
effect of subjecting a seller in a consumer credit transaction (and certain
related creditors and their assignees) to all claims and defenses which the
obligor in the transaction could assert against the seller 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.
Most of the Receivables will be subject to the requirements of the
FTC Rule. Accordingly, each Trust, as holder of the related Receivables, will
be subject to any claims or defenses that the purchaser of the applicable
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, such claim or defense would constitute a breach of the
Seller's warranties under the related Sale and Servicing Agreement or Pooling
and Servicing Agreement and would create an obligation of the Seller to
repurchase the Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements--Sale and Assignment of Receivables".
Courts have applied general equitable principles to secured parties
pursuing repossession and 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
protections provided under the 14th Amendment to the Constitution of the
United States. Courts have generally upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale
by the creditor do not involve sufficient state action to afford
constitutional protection to borrowers.
Under each Receivables Purchase Agreement, the related Seller will
warrant to the related Depositor (who will in turn assign its rights under
such warranty to the applicable Trust under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement) that each Receivable complies
with all requirements of law in all material respects. Accordingly, if an
Obligor has a claim against such Trust for violation of any law and such claim
materially and adversely affects such Trust's interest in a Receivable, such
violation would constitute a breach of the warranties of the Seller under such
Receivables Purchase Agreement and would create an obligation of the Seller to
repurchase the Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements--Sale and Assignment of 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 secured
party to realize upon collateral or to 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 vehicle, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the vehicle at the time of bankruptcy (as determined by the
court), leaving the creditor as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments
due under a contract or change the rate of interest and time of repayment of
the indebtedness.
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment
of Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ("IRS ") rulings on similar transactions involving
both debt and equity interests issued by a trust with terms similar to those
of the Notes and the Certificates. As a result, the IRS may disagree with all
or a part of the discussion below. Prospective investors are urged to consult
their own tax advisors in determining the federal, state, local, foreign and
any other tax consequences to them of the purchase, ownership and disposition
of the Notes and the Certificates.
The following summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and judicial or ruling authority, all of
which are subject to change, which change may be retroactive. The opinion of
special Federal tax counsel to each Trust specified in the related Prospectus
Supplement ("Tax Counsel"), regarding certain federal income tax matters is
discussed below. An opinion of Tax Counsel, however, is not binding on the IRS
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. For purposes of the following summary, references to the Trust,
the Notes, the Certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each Trust and the
Notes, Certificates and related terms, parties and documents applicable to
such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust as a partnership
under the Code or whether the Trust will be treated as a grantor trust or
whether an election is made to treat the Trust as a FASIT under the Code. The
Prospectus Supplement for each series of Certificates will specify whether a
partnership election will be made or the Trust will be treated as a grantor
trust.
Trusts for which a Partnership Election is Made
With respect to a Trust for which a partnership election is made, it
is the opinion of Tax Counsel that such Trust will not be treated as an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Agreement and related documents will be complied with,
and on Tax Counsel's opinion that the nature of the income of the Trust will
exempt it from the rule that certain publicly traded partnerships are taxable
as corporations.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments
on the Notes and distributions on the Certificates, and Certificateholders
could be liable for any such tax that is unpaid by the Trust.
Tax Consequences to Noteholders
Treatment of the Notes as Indebtedness. The Depositor will agree, and
the Noteholders will agree by their purchase of Notes, to treat such Notes as
debt for federal income tax purposes. It is the opinion of Tax Counsel that
such Notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the Notes is correct.
Original Issue Discount. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified
stated interest" under Treasury regulations (the "OID regulations") relating
to original issue discount ("OID"), and that any OID on the Notes (i.e., any
excess of the principal amount of the Notes over their issue price) does not
exceed a de minimis amount (i.e., 1/4% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of
the OID Regulations. If these conditions are not satisfied with respect to any
given series of Notes, additional tax considerations with respect to such
Notes will be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except
as discussed in the following paragraph, the Notes will not be considered to
be issued with OID. The stated interest thereon will be taxable to a
Noteholder as ordinary interest income when received or accrued in accordance
with such Noteholder's method of tax accounting. Under the OID Regulations, a
holder of a Note issued with a de minimis amount of OID must include such OID
in income, on a pro rata basis, as principal payments are made on the Note. A
purchaser who buys a Note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than
one year from the issue date of such Note (a "Short-Term Note") may be subject
to special rules. An accrual basis holder of a Short-Term Note (and certain
cash method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest
income as interest accrues on a straight-line basis over the term of each
interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note). However, a cash
basis holder of a Short-Term Note reporting interest income as it is paid may
be required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Note until the
taxable disposition of the Short-Term Note. A cash basis taxpayer may elect
under Section 1281 of the Code to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on the Short-Term Note in income as it accrues, but
would not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Note is
purchased for more or less than its principal amount.
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. Any such capital gain or loss will be long-term
capital gain or loss if the Note were held for more than one year. Capital
losses generally may be used only to offset capital gains. Prospective holders
are urged to consult their own tax advisors regarding these provisions.
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 Depositor (including a holder of 10% of the
outstanding Certificates) or a "controlled foreign corporation" with respect
to which the Trust or the Depositor is a "related person" within the meaning
of the Code and (ii) provides the Owner Trustee or other person who is
otherwise required to withhold U.S. tax with respect to the Notes with an
appropriate statement (on the applicable Form W-8 or a similar form), signed
under penalties of perjury, certifying that the beneficial owner of the Note
is a foreign person and providing the foreign person's name and address. If a
Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by the applicable Form W-8 or substitute
form provided by the foreign person that owns the Note. If such interest is
not portfolio interest, then it will be subject to United States federal
income tax at graduated rates (if received by a non-U.S. person with
effectively connected income) and withholding tax at a rate of 30 percent,
unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a Note by a foreign person will be exempt from
United States federal income and withholding tax, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States by the foreign person and (ii) in the case of an individual
foreign person, the foreign person is not present in the United States for 183
days or more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt
holder such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31 percent of the amount otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
New Withholding Regulations. Recently, the Treasury Department issued
new regulations (the "New Regulations") which make certain modifications to
the withholding, backup withholding and information reporting rules described
above. The New Regulations attempt to unify certification requirements and
modify reliance standards. The New Regulations will generally be effective for
payments made after December 31, 2000, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding
the New Regulations.
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 would
likely 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 U.S. tax and U.S. tax return filing and withholding
requirements, and individual holders might be subject to certain limitations
on their ability to deduct their share of Trust expenses.
Tax Consequences to Certificateholders
Treatment of the Trust as a Partnership. The Depositor and the
Servicer will agree, and the Certificateholders will agree by their purchase
of Certificates, to treat the Trust as a partnership for purposes of federal
and state income tax, franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being the assets held by
the Trust, the partners of the partnership being the Certificateholders
(including the Depositor in its capacity as recipient of distributions from
the Reserve Account), and the Notes being debt of the partnership. However,
the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Depositor and the Servicer is not clear 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 Depositor 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.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Receivables (including
appropriate adjustments for market discount, OID and bond premium) and any
gain upon collection or disposition of Receivables. The Trust's deductions
will consist primarily of interest accruing with respect to the Notes,
servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass Through Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Depositor. Based on the economic arrangement of
the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass Through Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
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. Unless otherwise indicated in the Prospectus
Supplement, the applicable Seller will represent that the Receivables were not
issued with OID, and, therefore, the Trust would not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or
less than the remaining principal balance of the Receivables at the time of
purchase. If so, the Receivables will have been acquired at a premium or
discount, as the case may be. (As indicated above, the Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or
premium, the Trust will elect to include any such discount in income currently
as it accrues over the life of the Receivables or to offset any such premium
against interest income on the Receivables. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Pursuant to final Treasury regulations
issued May 9, 1997 under Section 708 of the Code, a sale or exchange of 50% or
more of the capital and profits in the Trust would cause a deemed contribution
of assets of the Trust (the "old partnership") to a new partnership (the "new
partnership") in exchange for interests in the new partnership. Such interests
would be deemed distributed to the parties of the old partnership in
liquidation thereof and not constitute a sale or exchange.
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 a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust does not expect to have any
other assets that would give rise to such special reporting requirements.
Thus, to avoid those special reporting requirements, the Trust will elect to
include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing Certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual
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
Depositor is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (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 Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal
year of the Trust will be the calendar year. The 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 (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly owned
agency or instrumentality of either of the foregoing, and (z) certain
information on Certificates that were held, 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 Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. 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 on the portion of its
taxable income that is allocable to foreign Certificateholders pursuant to
Section 1446 of the Code, as if such income were effectively connected to a
U.S. trade or business, at a rate of 35% for foreign holders that are taxable
as corporations and 39.6% for all other foreign holders. Subsequent adoption
of Treasury regulations or the issuance of other administrative pronouncements
may require the Trust to change its withholding procedures. In determining a
holder's withholding status, the Trust may rely on the applicable IRS Form W-8
or substantially similar form, IRS Form W-9 or the holder's certification of
nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign holder
must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8 in order to assure appropriate crediting of
the taxes withheld. A foreign holder generally would be entitled to file with
the IRS a claim for refund with respect to taxes withheld by the Trust, taking
the position that no taxes were due because the Trust was not engaged in a
U.S. trade or business. 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 percent,
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.
New Withholding Regulations. Recently, the Treasury Department issued
the New Regulations which make certain modifications to the withholding,
backup withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
Trusts Treated as Grantor Trusts
If a partnership election is not made, it is the opinion of Tax
Counsel that such a Trust will not be classified as an association taxable as
a corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. In this case, owners of
Certificates (referred to herein as "Grantor Trust Certificateholders") will
be treated for federal income tax purposes as owners of a portion of the
Trust's assets as described below. The Certificates issued by a Trust that is
treated as a grantor trust are referred to herein as "Grantor Trust
Certificates".
Characterization. Each Grantor Trust Certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the Trust represented by the Grantor Trust Certificates
and will be considered the equitable owner of a pro rata undivided interest in
each of the Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable
because of a default or delinquency in payment will be treated for federal
income tax purposes as having the same character as the payments they replace.
<PAGE>
Each Grantor Trust Certificateholder will be required to report on
its federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Receivables in the Trust represented by Grantor Trust
Certificates, including interest, OID, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges received
by the Servicer. Under Sections 162 or 212 of the Code, each Grantor Trust
Certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the Servicer, provided that such amounts
are reasonable compensation for services rendered to the Trust. Grantor Trust
Certificateholders that are individuals, estates or trusts will be entitled to
deduct their share of expenses only to the extent such expenses plus all other
Section 212 expenses exceed two percent of its adjusted gross income. A
Grantor Trust Certificateholder using the cash method of accounting must take
into account its pro rata share of income and deductions as and when collected
by or paid to the Servicer. A Grantor Trust Certificateholder using an accrual
method of accounting must take into account its pro rata share of income and
deductions as they become due or are paid to the Servicer, whichever is
earlier. If the servicing fees paid to the Servicer are deemed to exceed
reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Servicer (or any person to
whom the Servicer assigned for value all or a portion of the servicing fees)
in a portion of the interest payments on the Receivables. The Receivables
would then be subject to the "coupon stripping" rules of the Code discussed
below.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Receivable based
on each Receivable's relative fair market value, so that such holder's
undivided interest in each Receivable will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Receivables at a premium
may elect to amortize such premium under a constant interest method.
Amortizable bond premium will be treated as an offset to interest income on
such Grantor Trust Certificate. The basis for such Grantor Trust Certificate
will be reduced to the extent that amortizable premium is applied to offset
interest payments. It is not clear whether a reasonable prepayment assumption
should be used in computing amortization of premium allowable under Section
171. A Grantor Trust Certificateholder that makes this election for a Grantor
Trust Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder acquires
during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at a
premium should recognize a loss if a Receivable prepays in full, equal to the
difference between the portion of the prepaid principal amount of such
Receivable that is allocable to the Grantor Trust Certificate and the portion
of the adjusted basis of the Grantor Trust Certificate that is allocable to
such Receivable. If a reasonable prepayment assumption is used to amortize
such premium, it appears that such a loss would be available, if at all, only
if prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
Stripped Bonds and Stripped Coupons. Although the tax treatment of
stripped bonds is not entirely clear, based on guidance by the IRS, each
purchaser of a Grantor Trust Certificate will be treated as the purchaser of a
stripped bond which generally should be treated as a single debt instrument
issued on the day it is purchased for purposes of calculating any original
issue discount. Generally, under recently issued Treasury regulations (the
"Section 1286 Treasury Regulations"), if the discount on a stripped bond is
larger than a de minimis amount (as calculated for purposes of the OID rules
of the Code) such stripped bond will be considered to have been issued with
OID. See "Original Issue Discount." Based on the preamble to the Section 1286
Treasury Regulations, Tax Counsel is of the opinion that, although the matter
is not entirely clear, the interest income on the Certificates at the sum of
the Pass Through Rate and the portion of the Servicing Fee Rate that does not
constitute excess servicing will be treated as "qualified stated interest"
within the meaning of the Section 1286 Treasury Regulations, and such income
will be so treated in the Trustee's tax information reporting.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to "original issue discount" (currently Sections 1271 through 1273
and 1275) will be applicable to a Grantor Trust Certificateholder's interest in
those Receivables meeting the conditions necessary for these sections to apply.
Generally, a Grantor Trust Certificateholder that acquires an undivided interest
in a Receivable issued or acquired with OID must include in gross income the sum
of the "daily portions," of the OID on such Receivable for each day on which it
owns a Certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of OID with respect to a Receivable generally would be determined
as follows. A calculation will be made of the portion of OID that accrues on the
Receivable during each successive monthly accrual period (or shorter period in
respect of the date of original issue or the final Distribution Date). This will
be done, in the case of each full monthly accrual period, by adding (i) the
present value of all remaining payments to be received on the Receivable under
the prepayment assumption used in respect of the Receivables and (ii) any
payments received during such accrual period, and subtracting from that total
the "adjusted issue price" of the Receivable at the beginning of such accrual
period. No representation is made that the Receivables will prepay at any
prepayment assumption. The "adjusted issue price" of a Receivable at the
beginning of the first accrual period is its issue price (as determined for
purposes of the OID rules of the Code) and the "adjusted issue price" of a
Receivable at the beginning of a subsequent accrual period is the "adjusted
issue price" at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment (other than "qualified stated interest") made at the end of or
during that accrual period. The OID accruing during such accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the period. With respect to an initial accrual
period shorter than a full monthly accrual period, the daily portions of OID
must be determined according to an appropriate allocation under either an exact
or approximate method set forth in the OID Regulations, or some other reasonable
method, provided that such method is consistent with the method used to
determine the yield to maturity of the Receivables.
With respect to the Receivables, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Receivables. Subsequent purchasers that
purchase Receivables at more than a de minimis discount should consult their
tax advisors with respect to the proper method to accrue such OID.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules
of Sections 1276 through 1278 to the extent an undivided interest in a
Receivable is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Receivable allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be
reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following
methods. If a Grantor Trust Certificate is issued with OID, the amount of
market discount that accrues during any accrual period would be equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the OID accruing during the period and the denominator
of which is the total remaining OID at the beginning of the accrual period.
For Grantor Trust Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator
of which is the total amount of stated interest remaining to be paid at the
beginning of the accrual period. For purposes of calculating market discount
under any of the above methods in the case of instruments (such as the Grantor
Trust Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of OID will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations might have on the tax treatment of a
Grantor Trust Certificate purchased at a discount or premium in the secondary
market.
A holder who acquired a Grantor Trust Certificate at a market
discount also may be required to defer a portion of its interest deductions
for the taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred to above applies.
Any such deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed as a deduction
not later than the year in which such market discount is includible in income.
If such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will
not apply.
Premium. To the extent a Grantor Trust Certificateholder is
considered to have purchased an undivided interest in a Receivable for an
amount that is greater than its stated redemption price at maturity of such
Receivable, such Grantor Trust Certificateholder will be considered to have
purchased the Receivable with "amortizable bond premium" equal in amount to
such excess. A Grantor Trust Certificateholder (who does not hold the
Certificate for sale to customers or in inventory) may elect under Section 171
of the Code to amortize such premium. Under the Code, premium is allocated
among the interest payments on the Receivables to which it relates and is
considered as an offset against (and thus a reduction of) such interest
payments. With certain exceptions, such an election would apply to all debt
instruments held or subsequently acquired by the electing holder. Absent such
an election, the premium will be deductible as an ordinary loss only upon
disposition of the Certificate or pro rata as principal is paid on the
Receivables.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that such Grantor Trust Certificateholder acquires
during the year of the election or thereafter. Similarly, a Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate
that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Grantor Trust Certificateholder owns or acquires. See
"--Premium" above. The election to accrue interest, discount and premium on a
constant yield method with respect to a Grantor Trust Certificate is
irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of
a Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which a Grantor Trust Certificate is a
"capital asset" within the meaning of Section 1221, and will be long-term
capital gain or loss if the Grantor Trust Certificate has been owned for more
than one year.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Generally, to the extent that a Grantor Trust
Certificate evidences ownership in underlying Receivables that were issued on
or before July 18, 1984, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 to (i) an owner that is not a U.S.
Person (as defined below) or (ii) a Grantor Trust Certificateholder holding on
behalf of an owner that is not a U.S. Person will be subject to federal income
tax, collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such
payments would not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Receivables issued after July 18,
1984, by natural persons if such Grantor Trust Certificateholder complies with
certain identification requirements (including delivery of a statement, signed
by the Grantor Trust Certificateholder under penalties of perjury, certifying
that such Grantor Trust Certificateholder is not a U.S. Person and providing
the name and address of such Grantor Trust Certificateholder). Additional
restrictions apply to Receivables where the obligor is not a natural person in
order to qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership (including an entity treated as
a corporation or partnership for United States federal income tax purposes)
organized in or under the laws of the United States, any State thereof or the
District of Columbia (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations) or an estate, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States or a trust if a court
within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations,
certain trusts in existence on August 20, 1996, and treated as United States
persons prior to such date, that elect to continue to be treated as United
States persons also will be a U.S. Person.
Information Reporting and Backup Withholding. The Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a Grantor Trust Certificateholder at any
time during such year, such information as may be deemed necessary or
desirable to assist Grantor Trust Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold Grantor
Trust Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown
on its federal income tax return, 31% backup withholding may be required with
respect to any payments. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against such recipient's federal
income tax liability.
New Withholding Regulations. Recently, the Treasury Department issued
the New Regulations which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations attempt
to unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
Trusts for which a FASIT Election is Made
General. It is the opinion of Tax Counsel that the Trust will, on the
startup day, qualify as a FASIT and its proposed method of operation will
enable it to continue to meet the requirements for qualification and taxation
as a FASIT under the Code assuming a timely FASIT election is made. Based on
the foregoing and assuming compliance with the Transaction Documents, certain
of the Securities will qualify as regular interests in a FASIT ("Regular
Securities") which will generally be treated as debt for U.S. federal income
tax purposes. The Small Business Job Protection Act of 1996 added Sections
860H through 860L of the Code (the "FASIT Provisions "), which provide for a
new type of entity for federal income tax purposes known as a "financial asset
securitization investment trust" (a "FASIT "). Although the FASIT provisions
of the Code became effective on September 1, 1997, no Treasury regulations or
other administrative guidance has been issued with respect to those
provisions. Accordingly, definitive guidance cannot be provided with respect
to many aspects of the tax treatment of the holders of Regular Securities and
the ownership interest (the "Ownership Securities," with the Regular
Securities, the "Securities") in a FASIT (the "FASIT Securityholders ").
Investors also should note that the FASIT discussion contained herein
constitutes only the material federal income tax consequences to holders of
FASIT Securities. The Receivables will only be added to or deleted from a
Trust Fund for which a FASIT election has been made only in a manner
consistent with additions or deletions that would be permitted in the case of
a REMIC.
FASIT Securities will be classified as either FASIT Regular
Securities, which generally will be treated as debt for federal income tax
purposes, or FASIT Ownership Securities, which generally are not treated as
debt for such purposes, but rather as representing rights and responsibilities
with respect to the taxable income or loss of the related Series FASIT. The
Prospectus Supplement for each Series of Securities will indicate whether one
or more FASIT elections will be made for that Series and which Securities of
such Series will be designated as Regular Securities, and which, if any, will
be designated as Ownership Securities.
<PAGE>
Qualification as a FASIT. The Trust Fund underlying a Series (or one
or more designated pools of assets held in the Trust Fund) will qualify under
the Code as a FASIT in which the FASIT Regular Securities and the FASIT
Ownership Securities will constitute the "regular interest" and the "ownership
interests," respectively, if (i) a FASIT election is in effect, (ii) certain
tests concerning (A) the composition of the FASIT's assets and (B) the nature
of the Securityholders' interests in the FASIT are met on a continuing basis,
and (iii) the Trust Fund is not a regulated investment company as defined in
Section 851(a) of the Code.
Asset Composition. In order for a Trust Fund (or one or more
designated pools of assets held by a Trust Fund) to be eligible for FASIT
status, substantially all of the assets of the Trust Fund (or the designated
pool) must consist of "permitted assets" as of the close of the third month
beginning after the closing date and at all times thereafter (the "FASIT
Qualification Test"). Permitted assets include (i) cash or cash equivalents,
(ii) debt instruments with fixed terms that would qualify as REMIC regular
interests if issued by a REMIC (generally, instruments that provide for
interest at a fixed rate, a qualifying variable rate, or a qualifying
interest-only ("IO") type rate, (iii) foreclosure property, (iv) certain
hedging instruments (generally, interest and currency rate swaps and credit
enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT interest,
(v) contract rights to acquire qualifying debt instruments or qualifying
hedging instruments, (vi) FASIT regular interests, and (vii) REMIC regular
interests. Permitted assets do not include any debt instruments issued by the
holder of the FASIT's ownership interest or by any person related to such
holder.
Interests in a FASIT. In addition to the foregoing asset
qualification requirements, the interests in a FASIT also must meet certain
requirements. All of the interests in a FASIT must belong to either of the
following: (i) one or more classes of regular interests or (ii) a single class
of ownership interest that is held by a fully taxable domestic C corporation.
In the case of Series that include FASIT Ownership Securities, the ownership
interest will be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it
is designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the Service plus 5%, and (vi)
it if pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interests (i.e., certain qualified floating rates and weighted average rates).
Interest will be considered to be based on a permissible variable rate if
generally, (i) such interest is unconditionally payable at least annually,
(ii) the issue price of the debt instrument does not exceed the total
noncontingent principal payments and (iii) interest is based on a "qualified
floating rate," an "objective rate," a combination of a single fixed rate and
one or more "qualified floating rate," one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that do not operate in a manner
that significantly accelerates or defers interest payments on such FASIT
regular interest.
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v), but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest". In addition, if a FASIT Security fails to meet the
requirement of clause (vi), but the interest payable on the Security consists
of a specified portion of the interest payments on permitted assets and that
portion does not vary over the life of the Security, the Security also will
qualify as a High-Yield Interest. A High-Yield Interest may be held only by
domestic C corporations that are fully subject to corporate income tax
("Eligible Corporations"), other FASITs, and dealers in securities who acquire
such interests as inventory, rather than for investment. In addition, holders
of High-Yield Interests are subject to limitations on offset of income derived
from such interest. See "Federal Income Tax Consequences--FASIT
Securities--Tax Treatment of FASIT Regular Securities--Treatment of High-Yield
Interests."
Consequences of Disqualification. If a Series FASIT fails to comply
with one or more of the Code's ongoing requirements for FASIT status during
any taxable year, the Code provides that its FASIT status may be lost for that
year and thereafter. If FASIT status is lost, the treatment of the former
FASIT and the interests therein for federal income tax purposes is uncertain.
The former FASIT might be treated as a grantor trust, as a separate
association taxable as a corporation, or as a partnership. The FASIT Regular
Securities could be treated as debt instruments for federal income tax
purposes or as equity interests. Although the Code authorizes the Treasury to
issue regulations that address situations where a failure to meet the
requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the FASIT's income for the period of time
in which the requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Regular Securities
General. Payments received by holders of FASIT Regular Securities
other than High-Yield Interests will be accorded the same tax treatment under
the Code as payments received on other taxable debt instruments. Holders of
FASIT Regular Securities must report income from such Securities under an
accrual method of accounting, even if they otherwise would have used the cash
receipts and disbursements method and accordingly, may report income prior to
the receipt of any cash distribution corresponding to such income. Except in
the case of FASIT Regular Securities issued with original issue discount or
acquired with market discount or premium, interest paid or accrued on a FASIT
Regular Security generally will be treated as ordinary income to the
Securityholder and a principal payment on such Security will be treated as a
return of capital to the extent that the Securityholder's basis is allocable
to that payment. FASIT Regular Securities issued with original issue discount
or acquired with market discount or premium generally will treat interest and
principal payments on such Securities in the same manner as other debt
instruments. High-Yield Securities may be held only by fully taxable domestic
C corporations, other FASITs, and certain securities dealers. Holders of
High-Yield Securities are subject to limitations on their ability to use
current losses or net operating loss carryforwards or carrybacks to offset any
income derived from those Securities.
Treatment of Realized Losses. Although not entirely clear, it appears
that holders of FASIT Regular Securities that are corporations should in
general be allowed to deduct as an ordinary loss any loss sustained during the
taxable year on account of any such FASIT Regular Security becoming wholly or
partially worthless, and that, in general, holders of FASIT Regular Securities
that are not corporations should be allowed to deduct as a short-term capital
loss any loss sustained during the taxable year on account of any such FASIT
Regular Securities becoming wholly worthless. Although the matter is unclear,
non-corporate holders of FASIT Regular Securities may be allowed a bad debt
deduction at such time that the principal balance of any such FASIT Regular
Security is reduced to reflect realized losses resulting from any liquidated
Underlying Assets. The Internal Revenue Service, however, could take the
position that non-corporate holders will be allowed a bad debt deduction to
reflect realized losses only after all Underlying Assets remaining in the
related FASIT have been liquidated or the FASIT Regular Securities of the
related Series have been otherwise retired. Potential investors and Holders of
the FASIT Regular Securities are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such FASIT Regular Securities, including any loss resulting
from the failure to recover previously accrued interest or discount income.
Special loss rules are applicable to banks and thrift institutions, including
rules regarding reserves for bad debts. Such taxpayers are advised to consult
their tax advisors regarding the treatment of losses on FASIT Regular
Securities.
In addition, FASIT Regular Securities held by a financial institution
to which Section 585 of the Code applies will be treated as evidences of
indebtedness for purposes of Section 582(c)(1) of the Code. FASIT Securities
will not qualify as "Government securities" for either REIT or RIC
qualification purposes.
Treatment of High-Yield Interest. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security
with losses. High-Yield Interests may be held only by Eligible Corporations,
other FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal to
the income from the High-Yield Interest multiplied by the highest corporate
income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transfer still will be treated as the holder of the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities backed
by the FASIT Regular Security and that have the same features as High-Yield
Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership
Security represents the residual equity interest in a FASIT. As such, the
holder of a FASIT Ownership Security determines its taxable income by taking
into account all assets, liabilities, and items of income, gain, deduction,
loss, and credit of a FASIT. In general, the character of the income to the
holder of a FASIT Ownership Interest will be the same as the character of such
income to the FASIT, except that any tax-exempt interest income taken into
account by the holder of a FASIT Ownership Interest is treated as ordinary
income. In determining that taxable income, the holder of a FASIT Ownership
Security must determine the amount of interest, original issue discount,
market discount, and premium recognized with respect to the FASIT's assets and
the FASIT Regular Securities issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders of
FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "Federal Income Tax Consequences--FASIT
Securities--Tax Treatment of FASIT Regular Securities--Treatment of High-Yield
Interests."
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to FASIT Ownership Securities. Accordingly, losses
on dispositions of a FASIT Ownership Security generally will be disallowed
where, within six months before or after the disposition, the seller of such
Security acquires any other FASIT Ownership Security or, in the case of a
FASIT holding mortgage assets, any interest in a Taxable Mortgage Pool, that
is economically comparable to a FASIT Ownership Security. In addition, if any
security that is sold or contributed to a FASIT by the holder of the related
FASIT Ownership Security was required to be marked-to-market under Code
section 475 by such holder, then section 475 will continue to apply to such
securities, except that the amount realized under the mark-to-market rules
will be the greater of the securities' value under present law or the
securities' value after applying special valuation rules contained in the
FASIT provisions. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established securities
market be determined by calculating the present value of the reasonably
expected payments under the instrument using a discount rate of 120% of the
applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration. Holders of
FASIT Securities will be subject to backup withholding to the same extent
holders of other debt instruments would be subject. For purposes of reporting
and tax administration, holders of record of FASIT Securities generally will
be treated in the same manner as holders of other debt instruments.
* * *
THE FEDERAL TAX CONSEQUENCES SET FORTH ABOVE MAY NOT BE APPLICABLE TO
A PARTICULAR NOTEHOLDER OR CERTIFICATEHOLDER DEPENDING UPON SUCH NOTEHOLDER'S
OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE
TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF FUTURE CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan"),
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit
Plan that purchased Notes or Certificates if assets of the Trust were deemed
to be assets of the Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of a
Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation
was applicable. An equity interest is defined under the Plan Assets Regulation
as an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The likely
treatment in this context of Notes and Certificates of a given series will be
discussed in the related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities of a given
series should consult its tax and/or legal advisors regarding whether the
assets of the related Trust would be considered plan assets, the possibility
of exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
Senior Certificates Issued by Trusts that Do Not Issue Notes
Unless otherwise specified in the related Prospectus Supplement, the
following discussion applies only to nonsubordinated Certificates (referred to
herein as "Senior Certificates") issued by a Trust that does not issue Notes.
The U.S. Department of Labor has granted to the lead Underwriter
named in the Prospectus Supplement an exemption (the "Exemption") from certain
of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Benefit Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include motor vehicle installment sales contracts such as the
Receivables. The Exemption will apply to the acquisition, holding and resale
of the Senior Certificates by a Benefit Plan, provided that certain conditions
(certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to
apply to the Senior Certificates are the following:
(i) The acquisition of the Senior Certificates by a Benefit Plan is
on terms (including the price for the Senior Certificates) that
are at least as favorable to the Benefit Plan as they would be
in an arm's length transaction with an unrelated party;
(ii) The rights and interests evidenced by the Senior Certificates
acquired by the Benefit Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust;
(iii) The Senior Certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in
one of the three highest generic rating categories from
Standard & Poor's Ratings Service, Moody's Investor Service,
Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc.;
(iv) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(v) The sum of all payments made to the Underwriters in connection
with the distribution of the Senior Certificates represents not
more than reasonable compensation for underwriting the Senior
Certificates; the sum of all payments made to and retained by
the Seller pursuant to the sale of the Contracts to the Trust
represents not more than the fair market value of such
Contracts; and the sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation
for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in
connection therewith; and
(vi) The Benefit Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501 (a)(1) of
Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest or prohibited transactions only if, among
other requirements, (i) in the case of the acquisition of Senior Certificates
in connection with the initial issuance, at least fifty (50) percent of the
Senior Certificates and of the aggregate interests in the
Trust are acquired by persons independent of the Restricted Group, (ii) the
Benefit Plan's investment in Senior Certificates does not exceed twenty-five
(25) percent of all of the Senior Certificates outstanding at the time of the
acquisition, and (iii) immediately after the acquisition, no more than
twenty-five (25) percent of the assets of Benefit Plans for which the
fiduciary renders investment advice or has discretionary authority are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does not
apply to Benefit Plans sponsored by the Depositor, the related Seller, any
Underwriter, the Trustee, the Servicer, any obligor with respect to Contracts
included in the Trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust, or any affiliate of
such parties (the "Restricted Group").
The Prospectus Supplement for each series will indicate the classes
of Securities offered thereby to which the Exemptions will apply.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement
with respect to the Securities of a given series (the "Underwriting
Agreement"), the Depositor will agree to cause the related Trust to sell to
the underwriters named therein and in the related Prospectus Supplement, and
each of such underwriters will severally agree to purchase, the principal
amount of each class of Notes and Certificates, as the case may be, of the
related series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as
the case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may
be, are purchased.
Each Prospectus Supplement will either (i) set forth the price at
which each class of Notes and Certificates, as the case may be, being offered
thereby will be offered to the public and any concessions that may be offered
to certain dealers participating in the offering of such Notes and
Certificates or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions
at varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, such public offering
prices and such concessions may be changed.
This Prospectus may be used, to the extent required, by the
Underwriter in connection with offers and sales related to market making
transactions.
Each Underwriting Agreement will provide that the Depositor will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust
Accounts in Eligible Investments acquired from such underwriters or from the
Depositor.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will
be passed upon for the related Trust and the Depositor by Brown & Wood LLP,
New York, New York, and for the Underwriter for such series by Brown & Wood
LLP. Material federal income tax matters will be passed upon for each Trust by
Brown & Wood LLP.
<PAGE>
INDEX OF TERMS
Actuarial Receivables..............................16
Administration Agreement...........................42
Administration Fee.................................43
Administrator......................................42
Advance.............................................6
Advances...........................................37
Applicable Trustee.................................30
APR.................................................6
Base Rate..........................................25
Benefit Plan.......................................60
Calculation Agent..................................25
Calculation Date...........................26, 27, 29
CD Rate............................................26
CD Rate Determination Date.........................26
CD Rate Security...................................25
Cede...............................................13
Cedel..............................................30
Cedel Participants.................................30
Certificate Balance.................................4
Certificate Distribution Account...................35
Certificate Pool Factor............................18
Certificates........................................1
Closing Date.......................................34
Code...............................................47
Collection Account.................................35
Collection Period..................................37
Commercial Paper Rate..............................26
Commercial Paper Rate Determination Date...........26
Commercial Paper Rate Security.....................25
Commission..........................................2
Company...................................1, 2, 3, 19
Composite Quotations...............................25
Cooperative........................................31
Cut-off Date.......................................14
Dealer Agreements..................................14
Dealers.........................................5, 14
Definitive Certificates............................31
Definitive Notes...................................31
Definitive Securities..............................31
Depositaries.......................................29
Depositor...........................................1
Depository.........................................19
Distribution Date..................................24
DTC................................................13
DTC's Nominee......................................13
Eligible Corporations..............................57
Eligible Deposit Account...........................36
Eligible Institution...............................36
Eligible Investments...............................36
ERISA...............................................8
Euroclear..........................................31
Euroclear Operator.................................31
Euroclear Participants.............................31
Events of Default..................................21
Exchange Act........................................2
Exemption..........................................60
FASIT...........................................8, 56
FASIT Provisions...................................56
FASIT Qualification Test...........................57
FASIT Securityholders..............................56
Federal Funds Rate.................................27
Federal Funds Rate Determination Date..............27
Federal Funds Rate Security........................25
Final Scheduled Maturity Date.......................6
Financed Motor Vehicles.........................4, 14
Financed Recreational Vehicles..................4, 14
Financed Vehicles...................................4
Fixed Rate Securities..............................25
Floating Rate Securities...........................25
foreign person.....................................48
FTC Rule...........................................46
Funding Period......................................3
Grantor Trust Certificateholders...................52
Grantor Trust Certificates.........................52
H.15(519)..........................................25
High-Yield Interest................................57
Indenture...........................................3
Indenture Trustee...................................1
Index Maturity.....................................25
Indirect Participants..............................29
Initial Cut-off Date................................4
Initial Pool Balance...............................42
Initial Receivables.................................4
Insolvency Event...................................40
Interest Rate.......................................3
Interest Reset Date................................25
Interest Reset Period..............................25
Investment Earnings................................36
IO ................................................57
IRS................................................46
Issuer..............................................3
LIBOR..............................................27
LIBOR Determination Date...........................27
LIBOR Reuters......................................28
LIBOR Security.....................................25
London Banking Day.................................28
Money Market Yield.................................27
Motor Vehicle Receivables..........................14
new partnership....................................50
New Regulations....................................49
Nonbank Seller.....................................10
Note Distribution Account..........................35
Note Pool Factor...................................17
Notes...............................................1
Obligors...........................................14
OID................................................47
OID regulations....................................47
old partnership....................................50
Ownership Securities...............................56
Participants...................................19, 29
Pass Through Rate...................................4
Payahead Account...................................35
Payaheads..........................................37
Payment Date.......................................20
Plan Assets Regulation.............................60
Pool Balance.......................................18
Pooling and Servicing Agreement.....................3
Precomputed Advance.................................6
Precomputed Receivables............................16
Pre-Funded Amount...................................5
Pre-Funding Account..............................1, 3
Prospectus Supplement...............................1
Purchase Amount....................................35
Rating Agencies....................................12
Receivables......................................1, 4
Receivables Pool...................................14
Receivables Purchase Agreement.....................34
Recreational Vehicle Receivables...................14
Registration Statement..............................2
Regular Securities..............................8, 56
Related Documents..................................22
Reserve Account....................................39
Restricted Group...................................61
Reuters Screen LIBO Page...........................28
Rule of 78's Receivables...........................16
Rules..............................................30
Sale and Servicing Agreement........................4
Schedule of Receivables............................34
Section 1286 Treasury Regulations..................53
Securities......................................1, 56
Securities Act......................................2
Seller.............................................15
Seller Affiliate....................................3
Senior Certificates................................60
Servicer.........................................1, 3
Servicer Default...................................40
Servicing Fee......................................38
Servicing Fee Rate.................................38
Short-Term Note....................................48
Simple Interest Advance.............................6
Simple Interest Receivables........................16
Spread.............................................25
Spread Multiplier..................................25
Strip Certificates..................................4
Strip Notes.........................................3
Subsequent Receivables...........................1, 5
Subsequent Transfer Date...........................34
Tax Counsel........................................47
Telerate Page 3750.................................28
Terms and Conditions...............................31
Transfer and Servicing Agreements..................34
Transferor.......................................1, 3
Treasury bills.....................................28
Treasury Rate......................................28
Treasury Rate Determination Date...................29
Treasury Rate Security.............................25
Trust............................................1, 3
Trust Accounts.....................................36
Trust Agreement.....................................3
Trustee..........................................1, 3
U.S. Person........................................56
UCC.............................................6, 35
Underwriting Agreement.............................61
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Securities (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of DTC, CEDEL or Euroclear. The Global Securities will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior debt issues. Investors'
securities custody accounts will be credited with their holdings against
payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish 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.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a CEDEL Participant or a Euroclear Participant, the
purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear, as applicable, will instruct its Depositary to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date. Payment will then be made by such
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the applicable 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 Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing systems,
through their 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 their 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. 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 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 over that
one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date. Finally, day traders that use CEDEL or Euroclear
and that purchase Global Securities from 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:
1. 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;
2. borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
3. staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8 or Form W-8BEN). Beneficial
owners of Notes that are non-U.S. Persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status) or Form W-8BEN (Certificate of Foreign Status of Beneficial
Owner for United States Tax Withholding). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Person with effectively connected income (Form
4224 or Form W-8ECI). A non-U.S. Person, including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States) or Form W-8ECI (Certificate of Foreign
Person's Claim for Exemption From Withholding 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 Notes
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
beneficial owner of Notes or such owner's 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 or Form W-8ECI
filer, such owner's agent, files by submitting the appropriate form to the
person through whom it holds the security (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 a citizen or resident of the United States, a
corporation or a partnership (including an entity treated as a corporation or
partnership for United States federal income tax purposes) organized in or
under the laws of the United States, any State thereof or the District of
Columbia (other than a partnership that is not treated as a United States
person under any applicable Treasury regulations) or an estate, the income of
which from sources outside the United States is includible in gross income for
federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States or a trust if a court within the
United States is able to exercise primary supervision of the administration of
the trust and one or more United States persons have the authority to control
all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to
such date, that elect to continue to be treated as United States persons also
will be a U.S. Person.
<PAGE>
==============================================================================
Prospectus Supplement
BMW Vehicle Owner Trust 1999-A
$190,000,000 [o]% Asset Backed Notes,
Class A-1 $400,000,000 [o]% Asset
Backed Notes, Class A-2 $300,000,000
[o]% Asset Backed Notes, Class A-3
$171,600,000 [o]% Asset Backed Notes,
Class A-4
$33,400,000 [o]% Asset Backed Certificates
BMW Financial Services NA, Inc.
BMW FS Funding Corporation
Sellers
BMW Financial Services NA, Inc.
Servicer
SSB Vehicle Securities Inc.
Depositor
Notes
Salomon Smith Barney
Chase Securities Inc.
Credit Suisse First Boston
Certificates
Salomon Smith Barney
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the Prospectus. We have not
authorized anyone to provide you with different information.
We are not offering these Securities in any state where the offer is
not permitted.
We do not claim the accuracy of the information in this Prospectus
Supplement and the Prospectus as of any date other than the dates stated on
their respective covers.
Dealers will deliver a Prospectus Supplement and Prospectus when
acting as underwriters of these Securities and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling these Securities
will deliver a Prospectus Supplement and Prospectus until December , 1999.
==============================================================================
