<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998.
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRIAD AUTO RECEIVABLES TRUSTS
(Issuer of the Securities)
------------------------
TRIAD FINANCIAL CORPORATION
(Sponsor of the trusts described herein)
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<S> <C> <C>
CALIFORNIA 7711 CENTER AVENUE, SUITE 100 33-0356705
(Jurisdiction) HUNTINGTON BEACH, CALIFORNIA 92647 (Identification no.)
(714) 373-8300
(Address, including zip code and
telephone number
including area code of principal
executive office)
</TABLE>
------------------------
HELEN R. KRAUS, ESQ.
TRIAD FINANCIAL CORPORATION
7711 CENTER AVENUE, SUITE 100
HUNTINGTON BEACH, CALIFORNIA 92647
(714) 373-8300
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------------
COPY TO:
MALCOLM S. DORRIS, ESQ.
DECHERT PRICE & RHOADS
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 698-3519
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement, as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO AGGREGATE PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Auto Receivables Asset Backed
Securities....................... $1,000,000 100% $1,000,000 $295
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(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains (i) a form of Prospectus Supplement
relating to future offerings by a Triad Auto Receivables Trust of a Series of
Asset Backed Securities described therein and (ii) a form of Prospectus relating
to the offering of Series of Asset Backed Securities by various Triad Auto
Receivables Trusts created from time to time by Triad Financial Corporation. The
form of Prospectus Supplement relates only to the securities described therein
and is a form that may be used, among others, by Triad Financial Corporation to
offer Asset Backed Securities under this Registration Statement.
<PAGE>
SUBJECT TO COMPLETION, DATED [ ]
FORM OF PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED [ ], 199[ ]
$[ ]
TRIAD AUTO RECEIVABLES OWNER TRUST 199[ ] - [ ]
$[ ] [ ]% ASSET BACKED NOTES, CLASS A-1
$[ ] [ ]% ASSET BACKED NOTES, CLASS A-2
$[ ] [ ]% ASSET BACKED NOTES, CLASS B
TRIAD FINANCIAL SPECIAL PURPOSE CORPORATION
(SELLER)
TRIAD FINANCIAL CORPORATION
(SERVICER)
The [ ]% Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), the [ ]%
Asset Backed Notes, Class A-2 (the "Class A-2 Notes; together with the Class A-1
Notes, the "Class A Notes") and the [ ]% Asset Backed Notes, Class B (the
"Class B Notes" and together with the Class A Notes, the "Notes") will be issued
pursuant to an Indenture (the "Indenture") between Triad Auto Receivables Owner
Trust 199[ ] - [ ], as Issuer (the "Issuer"), and [ ], as Indenture Trustee
(the "Indenture Trustee"). The Class A-2 Notes will be subordinated to the Class
A-1 Notes to the extent described herein; the Class B Notes will be subordinated
to the Class A Notes to the extent described herein. The Class A-1 Notes will
have an initial aggregate principal balance of $[ ], the Class A-2 Notes will
have an initial aggregate principal balance of $[ ] and the Class B Notes will
have an initial aggregate principal balance of $[ ]. The Reserve Account (as
defined herein) will serve as credit enhancement for the Notes.
The assets of the Issuer include a pool of non-prime motor vehicle retail
installment contracts, a security interest in the vehicles financed thereby, the
Reserve Account and certain other property, as more fully described herein. The
aggregate principal balance of such pool as of the Cutoff Date was $[ ].
Principal and interest will be distributed to the Class A-1 Noteholders, the
Class A-2 Noteholders and the Class B Noteholders on the [ ] day of each month
(or, if such day is not a Business Day, the next Business Day), commencing [ ].
Payments of interest on the Class A-2 Notes will be subordinated in priority of
payment to interest on the Class A-1 Notes, and payments of principal on the
Class A-2 Notes will be subordinated in priority of payment to principal due on
the Class A-1 Notes, to the extent described herein. Payments of interest on the
Class B Notes will be subordinated in priority of payment to interest on the
Class A Notes and payments of principal on the Class B Notes will be
subordinated in priority of payment to principal due on the Class A Notes, to
the extent described herein. The "Final Scheduled Payment Date" on the Notes is
[ ].
The Underwriter has agreed to purchase from the Seller the Notes at a
purchase price equal to [ ]% of the principal amount thereof, subject to the
terms and conditions set forth in the Underwriting Agreement referred to herein
under "Underwriting". The aggregate proceeds to the Seller, after deducting
expenses payable by the Seller, estimated at $[ ] will be $[ ]. The
Underwriter proposes to offer the Notes from time to time in negotiated
transactions or otherwise, at varying prices to be determined at the time of
sale. For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FACTORS SET
FORTH UNDER "RISK FACTORS" AT PAGE [ ] HEREIN AND PAGE [ ] IN THE ACCOMPANYING
PROSPECTUS.
THE NOTES WILL REPRESENT OBLIGATIONS OF THE ISSUER AND WILL NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF TRIAD FINANCIAL CORPORATION, THE SERVICER, THE
SELLER OR ANY AFFILIATE THEREOF. THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
---------------------
The date of this Prospectus Supplement is [ ].
<PAGE>
AVAILABLE INFORMATION
Triad Financial Corporation (the "Sponsor") has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement (together
with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at 500 West Madison, 14th Floor,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a website
(http://www.sec.gov) at which the Registration Statement and other information
regarding the Seller may be accessed.
The Servicer, on behalf of the Trust, will also file or cause to be filed
with the Commission such periodic reports as may be required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. Upon the receipt of a request by
an investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriters (as defined herein) 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 Sponsor, the Seller or the
Underwriters will promptly deliver, or cause to be delivered, without charge, a
paper copy of the Prospectus Supplement and Prospectus.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus Supplement and any
Prospectus with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus Supplement and any
Prospectus with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Notes offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus Supplement at any time does not imply that information herein is
correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Sponsor with respect to the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of any offering of the Notes offered hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust to the Indenture Trustee and Cede &
Co., as nominee of The Depository Trust Company ("DTC") and registered holder of
the Securities. Such reports will not constitute financial statements prepared
in accordance with generally accepted accounting principles. The Servicer will
file with the Commission such periodic reports as are required under the
Exchange Act, and the rules and regulations thereunder and as are otherwise
agreed to by the Commission. Copies of such periodic reports may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
ii
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN THE
ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED TERMS USED AND NOT OTHERWISE
DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED THERETO ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT OR THE PAGES INDICATED IN THE "INDEX OF TERMS" OR, TO THE
EXTENT NOT DEFINED HEREIN, HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE
PROSPECTUS.
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Issuer............................ Triad Auto Receivables Owner Trust 199[ ] - [ ], a
Delaware business trust (the "Issuer" or the "Trust"),
wholly-owned by Triad Financial Special Purpose
Corporation.
Seller............................ Triad Financial Special Purpose Corporation, a Delaware
corporation (the "Seller").
Servicer.......................... Triad Financial Corporation, a California corporation
("Triad" and, in its capacity as Servicer under the Sale
and Servicing Agreement, the "Servicer").
Owner Trustee..................... [Name and Address]
Indenture Trustee and
Backup Servicer................. [Name and Address]
Cutoff Date....................... [ ] (the "Cutoff Date").
Closing Date...................... [ ] (the "Closing Date").
Securities Offered................ The Notes will consist of three classes, entitled [ ]%
Asset Backed Notes, Class A-1 (the "Class A-1 Notes"),
the [ ]% Asset Backed Notes, Class A-2 (the "Class A-2
Notes"; together with the Class A-1 Notes, the "Class A
Notes") and [ ]% Asset Backed Notes, Class B (the
"Class B Notes"; together with the Class A Notes, the
"Notes"). The Notes will be offered for purchase in
minimum denominations of $[ ] and integral multiples of
$1,000 in excess thereof, except that one Note of each
Class may be issued in an additional amount equal to any
remaining portion of the original Note Balance of such
Class. The Notes will be offered in book entry form
only. See "Description of the Securities--Book Entry
Registration".
The "Class A-1 Percentage" of collections on the
Receivables will equal, as of any Payment Date, the
lesser of (a) a fraction (expressed as a percentage),
the numerator of which is the Class A-1 Note Balance,
before giving effect to any distributions of principal
on such Payment Date, and the denominator of which is
the Aggregate Principal Balance as of the opening of
business on the first day of the related Collection
Period and (b) [ ]%.
The "Class A-2 Percentage" of collections on the
Receivables will equal, as of any Payment Date, the
lesser of (a) a fraction (expressed as a percentage),
the numerator of which is the Class A-2 Note Balance,
before giving effect to any distributions of principal
on such Payment Date, and the denominator of which is
the Aggregate Principal Balance as of the opening of
business on the first day of the related Collection
Period and
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S-1
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(b) [ ]%. The "Class B Percentage" of collections on
the Receivables will equal, as of any Payment Date, the
lesser of (a) a fraction (expressed as a percentage),
the numerator of which is the Class B Note Balance,
before giving effect to any distributions of principal
on such Payment Date, and the denominator of which is
the Aggregate Principal Balance as of the opening of
business on the first day of the related Collection
Period and (b) [ ]%. The Class A-2 Notes are
subordinated to the Class A-1 Notes to the extent
described herein and the Class B Notes are subordinated
to the Class A Notes to the extent described herein. See
"Priority of Distribution Amounts" below and "The
Notes--Priority of Distribution Amounts." The Notes will
have a Final Scheduled Payment Date of [ ].
Trust Property.................... The property of the Trust (the "Trust Property") will
include: (i) a pool of certain motor vehicle retail
installment contracts sold and assigned by the Seller to
the Trust on the Closing Date (the "Receivables")
secured by new and used automobiles and light-duty
trucks (the "Financed Vehicles"); (ii) certain monies
payable thereunder after the Cutoff Date; (iii) security
interests in the Financed Vehicles; (iv) any proceeds
from claims on certain insurance policies; (v) certain
rights under the Receivables Purchase Agreement and the
Sale and Servicing Agreement; (vi) certain bank
accounts, including the Reserve Account, and the
proceeds thereof; and (vii) all proceeds of the
foregoing. See "Trust Property."
Initial Class A-1
Note Balance.................... The Class A-1 Notes will be issued in an initial
principal amount of $[ ] which is equal to the initial
Class A-1 Percentage of the Cutoff Date Principal
Balance. The "Class A-1 Note Balance" as of any date
will be equal to the initial Class A-1 Note Balance less
all principal distributed to holders of Class A-1 Notes
("Class A-1 Noteholders") prior to such date.
Class A-1 Interest Rate........... [ ]% per annum (the "Class A-1 Interest Rate"), payable
monthly in arrears at one-twelfth of the annual rate,
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Initial Class A-2
Note Balance.................... The Class A-2 Notes will be issued in an initial
principal amount of $[ ] which is equal to the initial
Class A-2 Percentage of the Cutoff Date Principal
Balance. The "Class A-2 Note Balance" as of any date
will be equal to the initial Class A-2 Note Balance less
all principal distributed to holders of Class A-2 Notes
("Class A-2 Noteholders") prior to such date.
Class A-2 Interest Rate........... [ ]% per annum (the "Class A-2 Interest Rate"), payable
monthly in arrears at one-twelfth of the annual rate,
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
</TABLE>
S-2
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<S> <C>
Initial Class B
Note Balance.................... The Class B Notes will be issued in an initial principal
amount of $[ ] which is equal to the initial Class B
Percentage of the Cutoff Date Principal Balance. The
"Class B Note Balance" as of any date will be equal to
the initial Class B Note Balance less all principal
distributed to holders of Class B Notes ("Class B
Noteholders") prior to such date.
Class B Interest Rate............. [ ]% per annum (the "Class B Interest Rate"), payable
monthly in arrears at one-twelfth of the annual rate,
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Receivables....................... Pursuant to a Receivables Purchase Agreement (the
"Receivables Purchase Agreement") between Triad and the
Seller, Triad will sell and assign all of its right,
title and interest in and to the Receivables, Financed
Vehicles and other property as described below to the
Seller. Pursuant to the Sale and Servicing Agreement,
the Seller will sell and assign to the Trust all of its
right, title and interest in and to the Receivables and
such other property. On the Closing Date, the Trust will
pledge the Receivables to the Indenture Trustee for the
benefit of the Noteholders pursuant to the Indenture.
The Receivables arise from loans generally originated by
automobile dealers for sale and assignment to Triad
pursuant to Triad's auto loan programs. Triad's auto
loan programs target automobile purchasers with marginal
credit ratings who are generally unable to obtain credit
from banks or other low-risk lenders. See "Triad and the
Servicer."
As of the Cutoff Date, the aggregate outstanding
principal balance of the Receivables was $[ ].
Each Receivable is either a Precomputed Receivable or a
Simple Interest Receivable. As of the Cutoff Date, the
Receivables had a weighted average annual percentage
rate ("APR") of approximately [ ]%, a weighted average
original term to [ ] months and a weighted average
remaining term to [ ] months. As of the Cutoff Date, no
Receivable had a scheduled maturity date later than
[ ]. See "The Receivables."
Payment Date...................... The [ ]th day of each month (or if such day is not a
Business Day, then the next Business Day), commencing
[ ] (each, a "Payment Date"). "Business Day" means any
day other than a Saturday, Sunday or other day on which
commercial banking institutions or trust companies in
New York, New York, the State in which the Corporate
Trust Office is located or the State in which the
executive offices of the Servicer are located are
authorized or required to be closed.
Interest.......................... Interest on each class of Notes will accrue from the
Cutoff Date or the most recent Determination Date on
which interest has been paid on such Notes to but
excluding the next
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S-3
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Determination Date. With respect to each class of Notes,
on each Payment Date, the Indenture Trustee will be
required to pay pro rata to the holders of record of the
applicable class of Notes as of the [ ]th day of the
month of such Payment Date (or if such [ ]th day is not
a Business Day, the immediately preceding Business Day)
(each such date, a "Record Date"), interest payable with
respect to the applicable class of Notes. The amount of
interest payable on the Class A-1 Notes on each Payment
Date is an amount equal to 30 days of interest at the
Class A-1 Interest Rate on the Class A-1 Note Balance as
of the close of business on the last day of the
preceding Collection Period (each such date, a
"Determination Date"). The amount of interest payable on
the Class A-2 Notes on each Payment Date is an amount
equal to 30 days of interest at the Class A-2 Interest
Rate on the Class A-2 Note Balance as of the close of
business on the related Determination Date. The payment
of interest on the Class A-2 Notes is subordinated to
the extent described in "Summary--Subordination" and
"The Notes-- Priority of Distribution Amounts."
The amount of interest payable on the Class B Notes on
each Payment Date is an amount equal to 30 days of
interest at the Class B Interest Rate on the Class B
Note Balance as of the close of business on the related
Determination Date. The payment of interest on the Class
B Notes is subordinated to the extent described in
"Summary--Subordination" and "The Notes--Priority of
Distribution Amounts."
Principal......................... On each Payment Date, principal will be payable to Class
A-1 Noteholders, Class A-2 Noteholders and Class B
Noteholders as of the related Record Date in an amount
equal to the sum of the following amounts with respect
to the related Collection Period, pro rata in accordance
with the Class A-1 Percentage, the Class A-2 Percentage
and the Class B Percentage, respectively:
(i) the principal portion of all Collected Funds
received by the Servicer during the related Collection
Period and deposited into the Collection Account on or
before the related Record Date (other than Collected
Funds received with respect to prepayments);
(ii) the principal portion of all prepayments received
during the related Collection Period (other than
Purchased Receivables);
(iii) the principal portion of the Purchase Amount of
all Receivables that became Purchased Receivables as of
the related Determination Date and the Principal Balance
of each Receivable that was required to be but was not
so purchased or repurchased;
(iv) the Principal Balance of each Receivable that first
became a Liquidated Receivable during the related
Collection Period; and
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(v) the aggregate amount of Cram Down Losses with
respect to the Receivables that have occurred during the
related Collection Period.
In addition, on the Final Scheduled Payment Date, to the
extent amounts are available therefor, the principal
required to be distributed to the Noteholders of each
Class will equal the then outstanding Class A-1 Note
Balance, the Class A-2 Note Balance and the Class B Note
Balance, respectively; PROVIDED, HOWEVER, payment of
principal to the Class A-2 Noteholders will be made only
after the full amount of principal and interest due on
the Class A-1 Notes is paid and payment of principal to
the Class B Noteholders will be made only after the full
amount of principal and interest due on the Class A
Notes is paid.
With respect to each Payment Date, the Class A-1
Noteholders' share of such principal payments (the
"Class A-1 Principal Payment Amount") is equal to the
Class A-1 Percentage of the amounts in clauses (i)
through (v) above, plus the Class A-1 Principal
Carryover Shortfall, if any, with respect to the
preceding Payment Date, except that on the Final
Scheduled Payment Date, the Class A-1 Principal Payment
Amount will equal the Class A-1 Note Balance as of the
Final Scheduled Payment Date.
With respect to each Payment Date, the Class A-2
Noteholders' share of such principal payments (the
"Class A-2 Principal Payment Amount") is equal to the
Class A-2 Percentage of the amounts in clauses (i)
through (v) above, plus the Class A-2 Principal
Carryover Shortfall, if any, with respect to the
preceding Payment Date, except that on the Final
Scheduled Payment Date, the Class A-2 Principal Payment
Amount will equal the Class A-2 Note Balance as of the
Final Scheduled Payment Date.
With respect to each Payment Date, the Class B
Noteholders' share of such principal payments (the
"Class B Principal Payment Amount") is equal to the
Class B Percentage of the amounts in clauses (i) through
(v) above, plus the Class B Principal Carryover
Shortfall, if any, with respect to the preceding Payment
Date, except that on the Final Scheduled Payment Date,
the Class B Principal Payment Amount will equal the
Class B Note Balance as of the Final Scheduled Payment
Date.
A "Collection Period" or a "related Collection Period"
with respect to a Payment Date or Record Date will be
the calendar month preceding the month in which such
Payment Date or Record Date occurs.
"Overcollateralization Amount" with respect to any
Payment Date will be an amount equal to the positive
difference, if any, between (a) the remaining Aggregate
Principal Balance as of the related Determination Date
and (b) the remaining Aggregate
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S-5
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Note Balance, after giving effect to distributions of
principal to the Noteholders pursuant to items (vi),
(viii) and (ix) as described in "Priority of
Distribution Amounts" below.
"Target Overcollateralization Amount" with respect to
any Payment Date will be an amount equal to [ ]% of the
remaining Aggregate Principal Balance as of the related
Determination Date.
Priority of
Distribution Amounts............ [On each Payment Date, to the extent of the Payment
Amount, the Indenture Trustee will distribute the
following amounts in the following order of priority:
(i) first, to the Servicer, the Servicer Fee (as defined
herein) for the related Collection Period, any
Supplemental Servicer Fee for the related Collection
Period and, so long as Triad is the Servicer, any
Servicer Expenses for the related or any prior
Collection Period and certain other amounts mistakenly
deposited in the Collection Account belonging to the
Servicer, if any, or otherwise required to be
distributed to the Servicer in accordance with the Sale
and Servicing Agreement;
(ii) second, to any Lockbox Bank (as defined herein),
the Indenture Trustee, the Owner Trustee and the Backup
Servicer, any accrued and unpaid fees and expenses
(including reasonable legal fees and expenses), in each
case, to the extent such Person (as defined herein) has
not previously received such amount from the Servicer;
(iii) third, to the Class A-1 Noteholders, the Class A-1
Interest Payment Amount for such Payment Date and the
Class A-1 Interest Carryover Shortfall, if any;
(iv) fourth, to the Class A-2 Noteholders, the Class A-2
Interest Payment Amount for such Payment Date and the
Class A-2 Interest Carryover Shortfall, if any;
(v) fifth, to the Class B Noteholders, the Class B
Interest Payment Amount for
such Payment Date and the Class B Interest Carryover
Shortfall, if any;
(vi) sixth, to the Class A-1 Noteholders, the Class A-1
Principal Payment Amount for such Payment Date, based on
the Class A-1 Percentage and the Class A-1 Principal
Carryover Shortfall, if any;
(vii) seventh, to the Class A-2 Noteholders, the Class
A-2 Principal Payment Amount for such Payment Date,
based on the Class A-2 Percentage and the Class A-2
Principal Carryover Shortfall, if any;
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<S> <C>
(viii) eighth, to the Class B Noteholders, the Class B
Principal Payment Amount for such Payment Date, based on
the Class B Percentage and the Class B Principal
Carryover Shortfall, if any;
(ix) ninth, to the Reserve Account to the extent
necessary to make the amount on deposit in the Reserve
Account equal to the Reserve Account Required Amount
(after giving effect to all withdrawals from the Reserve
Account on such date);
(x) tenth, to the Class A-1 Noteholders, to the Class
A-2 Noteholders and to the Class B Noteholders, as
principal, pro rata, until the Target
Overcollateralization Amount is reached; and
(xi) eleventh, to the Seller, as holder of the
Certificate.]
"Certificate" means a certificate evidencing the
beneficial ownership of a Certificateholder in the
Trust. See "The Notes-- Priority of Distribution
Amounts."
Subordination..................... Interest on the Class A-2 Notes will not be paid on any
Payment Date until interest on the Class A-1 Notes has
been paid in full. Interest on the Class B Notes will
not be paid on any Payment Date until interest on the
Class A Notes has been paid in full. Principal on the
Class A-2 Notes will not be paid on any Payment Date
until principal due on the Class A-1 Notes has been paid
in full. Principal on the Class B Notes will not be paid
on any Payment Date until principal due on the Class A
Notes has been paid in full. Accordingly, the Class A
Notes will receive the benefit of amounts otherwise due
on the Class B Notes as credit enhancement. See "The
Notes--Priority of Distribution Amounts."
Reserve Account................... On the Closing Date, the Seller will make an initial
deposit (the "Reserve Account Initial Deposit") of cash
into the Reserve Account in an amount of at least $[ ]
([ ]% of the Cutoff Date Principal Balance). As of any
Payment Date, the Reserve Account Required Amount will
be an amount equal to [ ]% of the remaining Aggregate
Principal Balance, subject to the Floor Amount, unless a
Reserve Account Trigger Event has occurred, in which
case the Reserve Account Required Amount shall generally
include all amounts required to be paid in items (x) and
(xi) as described in "Priority of Distribution Amounts"
above, until such Reserve Account Trigger Event has been
Deemed Cured (as defined herein). Funds will be
withdrawn from the Reserve Account on each Payment Date
to pay certain fees and to make required payments on the
Notes, to the extent funds are not otherwise available
therefor, as detailed under "The Notes--Priority of
Distribution Amounts" and "Reserve Account."
Purchase Obligations.............. Pursuant to the Receivables Purchase Agreement, Triad
and, pursuant to the Sale and Servicing Agreement, the
Seller will be obligated to repurchase or replace a
Receivable if the interests
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of the Noteholders or the Trust in such Receivable are
materially and adversely affected by a breach of
specified representations or warranties made by Triad
and the Seller with respect to the Receivable, if the
breach has not been cured by the last day of the first
full calendar month following the discovery by or notice
to Triad and the Seller of the breach.
Pursuant to the Sale and Servicing Agreement, the
Servicer will be obligated to purchase or replace a
Receivable if the interests of the Noteholders or the
Trust in such Receivable are materially and adversely
affected by a breach of certain of its servicing
obligations under the Sale and Servicing Agreement
(including its obligation to maintain perfection of the
first priority security interest created by each
Receivable in the related Financed Vehicle) if the
breach has not been cured by the last day of the first
full calendar month following discovery by or notice to
the Servicer of the breach. See "The Transaction
Documents--Sale and Assignment of Receivables."
Servicing......................... The Servicer will be obligated to purchase or replace a
Receivable if such Receivable or the interest of the
Trust or the Noteholders therein is materially adversely
affected by a breach of certain of its servicing
obligations under the Sale and Servicing Agreement
(including, but not limited to, its obligation to ensure
that the perfected security interest of the Indenture
Trustee in the related Financed Vehicle is maintained)
or certain other covenants with respect to the Servicer
if the breach has not been cured by the last day of the
first full calendar month following the discovery by or
notice to the Servicer of the breach. See "The
Receivables--Purchase Obligations".
The Servicer will be responsible for servicing, managing
and administering the Receivables (as defined herein)
and enforcing and making collections on the Receivables.
The Servicer will be required to carry out its duties
using the degree of skill and care that the Servicer
exercises in performing similar obligations with respect
to all comparable automotive receivables that it
services for itself or others, consistent with its
customary standards, policies and procedures and, in all
cases, in a manner consistent with prudent industry
practice.
The Servicer will have the right under the Sale and
Servicing Agreement to subcontract with a third party
servicer to provide certain servicing functions with
respect to the Receivables.
Under certain limited circumstances, the Servicer may
resign or be removed, in which event the Backup Servicer
will be appointed as successor Servicer as described
below. See "The Notes--Servicer Termination Events;
Rights upon Servicer Termination Event."
Servicer Fee...................... On each Payment Date, the Servicer will receive a fee
for servicing the Receivables (the "Servicer Fee") equal
to the product of one twelfth of [ ]% (the "Servicing
Fee Rate") and
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the Aggregate Principal Balance outstanding as of the
opening of business on the first day of the related
Collection Period. As additional servicing compensation,
the Servicer will receive a supplemental servicing fee
(the "Supplemental Servicer Fee") equal to any late
payment penalties, prepayment penalties, extension and
administration fees in connection with modifications,
extensions and prepayments of the Receivables collected
during such month. The Servicer will also receive any
liquidation expenses not otherwise reimbursed to the
Servicer, reasonable out-of-pocket expenses incurred in
connection with collection efforts relating to skip
trace services, legal fees and field calls and 30% of
any deficiencies recovered from an Obligor ("Servicer
Expenses"). See "The Transaction Documents--Servicing
Compensation."
Duties of Backup Servicer......... Pursuant to the Sale and Servicing Agreement, the Backup
Servicer will perform certain duties on a monthly basis.
In addition, following the resignation or removal of the
Servicer, the Backup Servicer has agreed to serve as the
successor Servicer under the Sale and Servicing
Agreement. See "The Transaction Documents--Backup
Servicer."
Optional Purchase
Receivables..................... The Servicer may purchase all the Receivables and the
other Trust Property on any Payment Date if, as of the
related Determination Date, the Aggregate Principal
Balance has declined to less than [ ]% of the Cutoff
Date Principal Balance, subject to specified limitations
in the Sale and Servicing Agreement (including those
described in "The Notes--Optional Purchase of
Receivables"). In such event, on the related Payment
Date, the Class A-1 Notes will be redeemed for an amount
equal to the Class A-1 Note Balance together with
accrued interest at the Class A-1 Interest Rate, the
Class A-2 Notes will be redeemed for an amount equal to
the Class A-2 Note Balance together with accrued
interest at the Class A-2 Interest Rate and the Class B
Notes will be redeemed for an amount equal to the Class
B Note Balance together with accrued interest at the
Class B Interest Rate. See "The Notes-- Optional
Purchase of Receivables."
Mandatory Redemption upon Event of
Default......................... The Notes may be accelerated and subject to immediate
payment at par upon the occurrence of an Event of
Default under the Indenture. See "The Notes--The
Indenture."
Book-Entry Registration........... The Notes initially will be represented by one or more
notes registered in the name of Cede & Co. ("Cede") as
the nominee of The Depository Trust Company ("DTC"), and
will only be available in the form of book-entries on
the records of DTC and participating members thereof.
Securities will be issued in definitive form only under
the limited circumstances described herein. All
references herein to "holders" of the Notes or
"Noteholders" shall reflect the rights of beneficial
owners of the
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Notes (the "Note Owners") as they may indirectly
exercise such rights through DTC and participating
members thereof, except as otherwise specified herein.
See "Registration of Notes" in this Prospectus
Supplement and "Certain Information Regarding the
Notes--Book Entry Registration" and "--Definitive Notes"
in the Prospectus.
Tax Status........................ On the Closing Date, Dechert Price & Rhoads ("Federal
Tax Counsel"), special tax counsel to Triad and the
Seller, will deliver an opinion to the effect that, for
Federal income tax purposes, the Class A Notes will be
classified as debt, the Class B Notes will either be
classified as debt or as partnership interests in the
Issuer, and the Issuer will not be classified 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
for federal, state and local income and franchise tax
purposes. See "Certain Federal Income Tax Consequences."
ERISA Considerations.............. A fiduciary or other person investing "plan assets" of
any employee benefit or other plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code") (a "Plan")
should carefully review with its legal advisors whether
the purchase or holding of the Notes could give rise to
a transaction prohibited or not otherwise permissible
under ERISA or Section 4975 of the Code.
[The Class B Notes may not be purchased by, transferred
to or held by a Plan or any person using "plan assets"
of any Plan to effect such acquisition or holding.
Notwithstanding the foregoing restriction, the Class B
Notes may be purchased by, transferred to or held by the
general account of an insurance company, but any such
insurance company shall, in the case of any Class B
Notes, be deemed to have represented and warranted that
the acquisition and holding of the Class B Notes will
not result in a non-exempt prohibited transaction as
described herein. See "ERISA Considerations."]
Ratings........................... As a condition to the issuance of the Notes, the Class
A-1 Notes must be rated at least "[ ]" or the
equivalent by a nationally recognized statistical rating
agency (the "Rating Agency"), the Class A-2 Notes must
be rated at least "[ ]" or the equivalent by the Rating
Agency and the Class B Notes must be rated at least
"[ ]" or the equivalent by the Rating Agency. There is
no assurance that a rating will not be lowered or
withdrawn by the Rating Agency based on a change in
circumstances deemed by such Rating Agency to adversely
affect the Notes. A rating is not a recommendation to
purchase, hold or sell the Notes, inasmuch as such
ratings do not comment as to market price or suitability
for a particular investor. See "Ratings."
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RISK FACTORS
In addition to the other information in this Prospectus Supplement and the
Prospectus, prospective Noteholders should consider the following factors, as
well as those matters discussed in "Risk Factors" in the Prospectus, in
evaluating an investment in the Notes:
LIMITED OPERATING HISTORY OF TRIAD. Generally, all of the Receivables were
acquired by Triad in its normal course of business in accordance with credit
underwriting criteria established by Triad. Triad commenced operations in 1989
as a prime automobile lender, but changed its focus to the non-prime market in
1993. Triad began servicing all new contract purchases in June 1996. Triad
therefore has limited historical performance data with respect to the motor
vehicle retail installment sale contracts it purchases and services. Although
Triad has calculated and presented herein its net loss experience with respect
to its portfolio of serviced contracts (the "Servicing Portfolio"), there can be
no assurance that the information presented will reflect actual experience with
respect to the Receivables.
TRIAD'S UNDERWRITING PROCESS; NATURE OF OBLIGORS. Triad purchases loans
generally originated by automobile dealers for sale and assignment to Triad. The
underwriting standards applied by Triad are not as stringent as those of the
finance companies of motor vehicle manufacturers or other financial
institutions, given that Triad purchases retail automobile installment sale
contracts which may not meet the credit standards of traditional primary
lenders. The Triad finance program focuses on the non-prime market, including
borrowers with sub-standard credit profiles who may not be able to receive
financing from more traditional sources. Accordingly, the borrowers may have had
credit problems in the past, including prior delinquencies, repossessions,
bankruptcy filings or charge-offs by other credit companies. As a result,
borrowers may have greater difficulty or be less likely to make their scheduled
payments, and the number of delinquencies and losses on the Receivables is
expected to be higher than would be the case if stricter credit guidelines had
been applied. Due to the credit quality of these borrowers, the Receivables have
been originated with higher APRs than more traditional lenders charge lower risk
borrowers. To the extent that the forms of credit enhancement described herein
are insufficient to cover losses on the Receivables, such losses will be borne
by Noteholders. Investors are urged to consider the credit quality of the
Receivables when analyzing an investment in the Notes. See "Triad's Automobile
Financing Program-- Underwriting."
CHANGE IN SERVICER. Triad believes that its credit loss and delinquency
experience reflect in part its trained staff and collection procedures. If a
Servicer Termination Event occurs under the Sale and Servicing Agreement and
Triad is removed as Servicer, or if Triad resigns or is terminated as Servicer,
the Backup Servicer has agreed to assume the obligations of successor Servicer
under the Sale and Servicing Agreement. See "The Notes--Servicer Termination
Events; Rights Upon Servicer Termination Event." There can be no assurance,
however, that collections with respect to the Receivables will not be adversely
affected by any change in Servicer.
LIMITED ASSETS; SUBORDINATION. The Trust does not have, nor is it permitted
or expected to have, any significant assets or sources of funds other than the
Receivables including certain insurance policies related thereto, and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders. The Notes represent limited obligations of the Trust secured by the
property described under "Trust Property" herein, and the Notes will not be
insured or guaranteed by Triad, the Servicer, the Seller, the Indenture Trustee
or any other person or entity. The Noteholders must rely on any amounts
available under certain collateral accounts established in connection with the
transactions contemplated hereby, in the Reserve Account established in the name
of the Indenture Trustee for the benefit of the Noteholders, the proceeds from
the repossession and sale of Financed Vehicles that secure defaulted
Receivables, certain insurance policies related to the Financed Vehicles and the
other property described under "Trust Property" herein. Certain factors, such as
the Indenture Trustee not having perfected security interests in the Financed
Vehicles, may affect the Indenture Trustee's ability to realize on the
collateral securing the
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Receivables and thus may reduce the proceeds to be distributed to the
Noteholders on a current basis. See "Risk Factors--Certain Legal Aspects."
The Class A-2 Noteholders will not receive any payment of interest with
respect to a Collection Period until the full amount of interest on the Class
A-1 Notes and any related Class A-1 Interest Carryover Shortfall for such
Collection Period have been paid in full. The Class B Noteholders will not
receive any payment of interest with respect to a Collection Period until the
full amount of interest on the Class A-1 Notes, the full amount of interest on
the Class A-2 Notes, any related Class A-1 Interest Carryover Shortfall and any
related Class A-2 Interest Carryover Shortfall for such Collection Period have
been paid in full. The Class A-2 Noteholders will not receive any payment of
principal with respect to a Collection Period until the full amount of principal
on the Class A-1 Notes and any related Class A-1 Principal Carryover Shortfall
for such Collection Period have been paid in full. The Class B Noteholders will
not receive any payment of principal with respect to a Collection Period until
the full amount of principal on the Class A-1 Notes, the full amount of
principal on the Class A-2 Notes, any related Class A-1 Principal Carryover
Shortfall and any related Class A-2 Principal Carryover Shortfall for such
Collection Period have been paid in full. See "The Notes--Priority of
Distribution Amounts."
GEOGRAPHIC CONCENTRATION OF RECEIVABLES. As of the Cutoff Date, Obligors
with respect to approximately [ ]% of the Receivables (based on Principal
Balance and mailing addresses as of the Cutoff Date) were located in California.
See the tables set forth under "The Receivables." Accordingly, adverse economic
conditions or other factors particularly affecting California could adversely
affect the delinquency, loan loss or repossession experience of the Receivables.
YIELD AND PREPAYMENT CONSIDERATIONS. Interest on the Receivables will be
payable to the Class A-1 Noteholders, the Class A-2 Noteholders and the Class B
Noteholders on each Payment Date in an amount equal to one-twelfth of the Class
A-1 Interest Rate on the Class A-1 Note Balance, the Class A-2 Interest Rate on
the Class A-2 Note Balance and the Class B Interest Rate on the Class B Note
Balance, respectively, in each case as of the close of business on the related
Determination Date. The Receivables have different APRs as set forth in "The
Receivables." However, the weighted average APR of the Receivables exceeds each
of (i) the sum of the Servicing Fee Rate and the Class A-1 Interest Rate, (ii)
the sum of the Servicing Fee Rate and the Class A-2 Interest Rate and (iii) the
sum of the Servicing Fee Rate and the Class B Interest Rate.
The weighted average life of the Notes will be reduced by full or partial
prepayments on the Receivables. Each of the Receivables are prepayable at any
time. 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 the consent of Triad unless the loan is repaid by the Obligor at the
time of such sale or transfer. (For this purpose, the term "prepayments"
includes prepayments in full or in part, including without limitation, certain
partial prepayments related to refunds of extended service contract costs and
unearned insurance premiums, liquidations due to default, as well as receipts of
proceeds from physical damage, credit life and credit accident and health
insurance policies and certain other repurchases of Receivables for other
reasons.) The rate of prepayment on the Receivables may also may be influenced
by the structure of the loan, the nature of the Obligors and the Financed
Vehicles and servicing decisions. In addition, under certain circumstances, the
Seller and Triad are obligated to repurchase Receivables as a result of breaches
of representations and warranties, pursuant to the Sale and Servicing Agreement
and the Receivables Purchase Agreement, respectively. Under certain
circumstances, the Servicer is obligated to purchase receivables pursuant to the
Sale and Servicing Agreement as a result of specified uncured breaches of
covenants by it. The Servicer may also purchase all the Receivables and the
other Trust Property, and the Notes will be redeemed upon such purchase, on any
Payment Date if, as of the related Determination Date, the Aggregate Principal
Balance has declined to less than [ ]% of the Cutoff Date Principal Balance,
subject to specified limitations in the Sale and Servicing Agreement. See "The
Notes--Optional Purchase of Receivables."
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Triad has limited historical experience with respect to prepayments. Neither
the Trust, the Seller nor Triad is aware of publicly available industry
statistics that set forth principal prepayment experience for motor vehicle
retail installment contracts similar to the Receivables. Neither the Trust, the
Seller nor Triad makes any representation as to the actual prepayment rates that
will be experienced on the Receivables. The Trust, the Seller and Triad,
however, believe that the actual rate of prepayments will result in a shorter
weighted average life than the scheduled weighted average life of the
Receivables. The amounts paid to Noteholders will include prepayments on the
Receivables. The Noteholders will bear all reinvestment risk resulting from the
timing of payments on the Notes.
LITIGATION. Due to the consumer-oriented nature of Triad's industry and the
application of certain laws and regulations, industry participants are regularly
named as defendants in litigation alleging violations of federal and state laws
and regulations and consumer law torts, including fraud. Many of these actions
involve alleged violations of consumer protection laws. A significant judgment
against Triad or others within the industry in connection with any such
litigation could have a material adverse effect on Triad's financial condition,
results of operations and/or its ability to perform its obligations under the
Receivables Purchase Agreement, the Sale and Servicing Agreement and the Trust
Agreement.
RATINGS OF THE NOTES. As a condition to the issuance of the Notes, the
Class A-1 Notes will be rated at least "[ ]" or the equivalent by the Rating
Agency, the Class A-2 Notes will be rated at least "[ ]" or the equivalent by
the Rating Agency and the Class B Notes will be rated at least "[ ]" or the
equivalent by the Rating Agency. There is no assurance that a rating will not be
lowered or withdrawn by the Rating Agency based on a change in circumstances
deemed by such Rating Agency to adversely affect the Notes. A rating is not a
recommendation to purchase, hold or sell the Notes, inasmuch as such ratings do
not comment as to market price or suitability for a particular investor. See
"Ratings."
TRUST PROPERTY
Each Note represents a limited obligation of the Trust secured by a security
interest in all payments received on or after the Cutoff Date under certain
motor vehicle retail installment contracts between dealers (the "Dealers") and
the purchasers or co-purchasers of the Financed Vehicles or any other person who
owes payments under the Receivables (the "Obligors"). The Receivables were
generally originated by Dealers in accordance with Triad's requirements under
agreements with Dealers for assignment to Triad and were so assigned. All the
Receivables will be sold and assigned by Triad to the Seller pursuant to the
Receivables Purchase Agreement and by the Seller to the Trust pursuant to the
Sale and Servicing Agreement. On the Closing Date, the Trust will pledge the
Receivables to the Indenture Trustee for the benefit of the Noteholders pursuant
to the Indenture.
The Trust Property also will include: (i) such amounts as from time to time
may be held in one or more separate trust accounts established and maintained by
the Indenture Trustee pursuant to the Sale and Servicing Agreement, including
the Collection Account and the Reserve Account, and the proceeds of such
accounts, as described below (see "The Transaction Documents--Trust Accounts");
(ii) security interests in the Financed Vehicles granted by the Obligors
pursuant to the Receivables and any accessions thereto; (iii) the interest of
the Seller in any proceeds from claims on any credit life, credit disability,
and physical damage insurance policies or other insurance policies covering the
Financed Vehicles or Obligors; (iv) certain rights under the Sale and Servicing
Agreement and the Receivables Purchase Agreement; (v) amounts payable to the
Seller under all Dealer Recourse (defined herein) obligations and (vi) any and
all payments on and proceeds of the foregoing. Pursuant to the Dealer
Agreements, the Dealers generally are obligated to pay Triad for the unpaid
balance, losses and expenses of those Receivables which do not meet certain
limited representations made by the Dealers (such obligations referred to herein
as "Dealer Recourse"). Such representations and warranties relate primarily to
the origination of the contracts and the perfection of the security interests in
the related Financed Vehicles, and do not typically relate to the
creditworthiness of the related Obligors or the collectability of such
contracts. Although the Dealer Agreements with respect to the Receivables will
not be assigned to the Indenture Trustee, the Sale and
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Servicing Agreement will require the Seller to cause the amount of any recovery
by Triad in respect to any Receivable pursuant to any Dealer Recourse to be
deposited in the Collection Account in satisfaction of the Seller's obligations
under the Sale and Servicing Agreement. The sales by the Dealers of installment
sale contracts to Triad do not generally provide for recourse against the
Dealers for unpaid amounts in the event of a default by an Obligor thereunder,
other than in connection with the breach of the foregoing representations and
warranties. There can be no assurance that Triad will pursue all claims under
the Dealer Agreements nor that Triad will prevail if any such claim is made.
TRIAD AND THE SELLER
Triad Financial Special Purpose Corporation (the "Seller") was incorporated
in the State of Delaware on September 26, 1996 and is a wholly-owned subsidiary
of Triad. The Seller has been organized for limited purposes, which include
selling and assigning receivables sold to it by Triad to the Trust and similar
securitization entities and any activities incidental to and necessary or
convenient for the accomplishment of such purposes. The principal executive
office of the Seller is located at 7711 Center Avenue, Suite 390, Huntington
Beach, California 92647. The telephone number of such office is (714) 373-8300.
For further information regarding Triad and the Seller, see "Triad and the
Seller" in the Prospectus.
TRIAD'S AUTOMOBILE FINANCING PROGRAM
Triad was incorporated in the State of California in 1989. Triad engages
primarily in the business of purchasing, selling and servicing retail automobile
installment sales contracts ("Contracts") originated by Dealers. Triad currently
has relationships with approximately 2,000 Dealers operating in 29 states
(Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana,
Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Mississippi, Missouri,
Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South
Carolina, Tennessee, Texas, Utah, Virginia and Washington). Each dealer has
executed a Dealer Agreement which provides representations and warranties with
respect to each Contract sold to Triad. Dealer relationships are developed and
maintained by Triad-employed sales representatives. Triad currently employs 40
market representatives, eight of whom serve the California market. Triad
specializes in Contracts with borrowers ("Non-prime Borrowers") who generally
would not be expected to qualify for traditional financing such as that provided
by commercial banks or automobile manufacturers' captive finance companies.
Non-prime Borrowers generally have limited credit history, lower than average
income or past credit problems. Triad offers five distinct automobile financing
programs to its Dealers. The offerings vary based upon the Obligor's overall
credit quality and the pricing established by Triad. These variations affect the
coupon charged on the contract. For all such programs, the maximum loan to
wholesale value ratio, including approved additional items such as taxes,
license fees and warranties, is equal to 150%.
UNDERWRITING
Loan underwriting is centralized at Triad's headquarters. Dealers typically
remit applications to the operations center via facsimile. Credit analysts
underwrite each application using Triad's written underwriting guidelines. After
completion of the credit analysis, the underwriter makes a final decision
regarding the application; such decision may include an approval, a conditional
approval or a turndown. A conditional approval is an agreement by Triad to fund
the application under certain specific conditions as determined by Triad. Once a
Dealer chooses Triad as its funding source, it assembles the financing package
in accordance with Triad's requirements. The primary elements of the standard
package include the contract, credit application, proof of residence, proof of
income, an agreement to provide insurance, and titling paperwork. Packages are
generally delivered via overnight mail. To minimize dealer misrepresentations,
Triad conducts five independent verifications for each package: (1) application
information, generally verified directly with the Obligor; (2) mortgage or
rental information, generally verified directly with the Obligor's mortgage
holder or landlord, as appropriate; (3) insurance, verified directly with the
insurance
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agent; (4) employment and income levels, verified directly with the Obligor's
employer; and (5) reference information. Triad also reviews each contract for
completeness and accuracy. Triad attempts to maintain a two-day turn-around time
from when it receives a complete funding package until it purchases the contract
from the Dealer. Funding packages with deficiencies are not funded and are
returned to the submitting Dealer. Triad's quality control department performs
an additional review of the financing package which Triad's management believes
enhances its origination procedures.
SERVICING AND COLLECTIONS
Triad's servicing responsibilities consist of collecting, accounting for and
posting of all payments received with respect to its Servicing Portfolio,
responding to borrower inquiries, taking steps to maintain the security interest
granted in Financed Vehicles or other collateral, investigating delinquencies,
communicating with the Obligors, repossessing and liquidating collateral when
necessary, and generally monitoring each loan and the related collateral. Triad
began servicing all new contract purchases in June 1996.
Triad currently performs all servicing and collection functions from its
centralized operations center in Huntington Beach, California. Triad sends
payment invoices to Obligors each month for amounts due under the Contracts,
including amounts past due and late charges thereon, if any. Each Obligor has
been instructed to make payments with respect to the Contracts to a Lockbox
maintained by the Lockbox Bank. See "Description of the Transaction
Documents--Payments on Accounts." Subject to applicable law, Triad's current
collection policies establish the following procedures. Triad initiates
collection activities once a payment is five days contractually past due. The
initial contacts are made through phone calls, with continued attempts to
contact the Obligor for payment at least every two days thereafter. In cases
where an Obligor has broken a promise to make a payment by a certain date, such
Obligor is called within a day. If Triad's collection department is unsuccessful
in contacting an Obligor by phone, alternative methods of contact, such as the
use of outside agent field calls or location gathering via references,
employers, landlords, or other credit references are pursued, generally within
15 to 20 days of the account becoming delinquent. Triad presently intends to
maintain a ratio of one collector for approximately every 550 contracts
serviced, with one supervisor for approximately every 10 collectors.
The decision to repossess a vehicle is influenced by many factors, such as
previous account history, reasons for delinquency and cooperation of the
Obligor. As part of the collection process, all practical means of contacting
the Obligor are attempted. If, at any point, a collector feels that there is
little or no chance that Triad will be able to establish contact with the
Obligor or that the Obligor will not make the required payments, the collector
will submit such contract for repossession. All contracts submitted are
evaluated by collection supervisors to determine if more follow-up work is
needed prior to repossession. If so determined, the supervisor provides
suggestions to assist the collector in further efforts to locate the Obligor. If
the supervisor feels all leads have been exhausted, the contract will be
forwarded to the collection manager for review. If the collection manager agrees
with the supervisor, it will be returned to the collector "approved" for
repossession.
Once the decision to repossess a vehicle is made, the account is referred to
an outside agency which handles the actual repossession. Most state laws require
that the Obligor be sent a Notice of Intent to Sell, which informs the borrower
of the lender's intent to sell the vehicle. The various states provide for a
period of time, generally 15 to 20 days, during which the Obligor may have the
right, depending on the applicable statute, either to reinstate the contract by
making all past due payments and paying the repossession and storage expenses,
or to redeem the vehicle by paying the contract in full, plus expenses
associated with repossession and storage of the vehicle. If the Obligor does not
exercise his right to reinstate the contract or redeem the vehicle, as provided
by the applicable statute, Triad immediately begins the process to sell the
vehicle at public auction. The vehicle is usually sold within 31 to 45 days
after being repossessed. After a repossessed vehicle is sold, Triad's collection
staff applies for rebates on any extended warranty or life, accident and health
insurance policies that may have been financed as part of the vehicle purchase.
S-15
<PAGE>
Triad's collection policies generally do not allow for loan extensions;
PROVIDED, HOWEVER, in those circumstances where extensions are granted, Triad
typically does not (a) grant more than three extensions with respect to a
Receivable, (b) grant more than one extension per calendar year with respect to
a Receivable or (c) grant an extension for more than one calendar month with
respect to a Receivable.
INFORMATION TECHNOLOGY AND SYSTEMS
Triad's information technology needs are met with a system consisting of
client servers, a personal computer local area network and a mainframe computer
provided by a vendor. Triad's loan accounting and collections systems, Shaw IL
2000 and CS 2000, are housed on a mainframe computer provided by Affiliated
Computer Services, Inc. ("ACS"). ACS's mainframe is located in Dallas, Texas and
communicates with Triad's operation center through a dedicated, leased telephone
line. Triad's credit application processing system, APPRO, is maintained on a
client server at Triad's operations center in Huntington Beach.
DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth information relating to the delinquency and
loss experience of Triad for the periods indicated. Scheduled Payments made by
the Obligor must be at least 90% of such Scheduled Payment for a contract to be
considered current with respect to such Scheduled Payment. The data presented in
the delinquency and loss tables below are for illustrative purposes only. There
is no assurance that the delinquency and credit loss experience with respect to
Triad's automobile, light-duty truck and sports utility vehicle installment
contracts in the future, or that the experience of the Trust Property with
respect to the Receivables pledged to the Indenture Trustee for the benefit of
the Noteholders, will be similar to that set forth below. Losses and
delinquencies are affected by, among other things, general and regional economic
conditions and the supply of and demand for automobiles, light-duty trucks and
sports utility vehicles.
S-16
<PAGE>
TRIAD FINANCIAL CORPORATION
HISTORICAL DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997 AS OF JUNE 30, 1997
----------------------------------------- ------------------------------------------
% OF % OF
NO. OF PRINCIPAL PRINCIPAL NO. OF PRINCIPAL PRINCIPAL
RECEIVABLES BALANCE BALANCE RECEIVABLES BALANCE BALANCE
------------- ------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Principal Balance at Period
End(1), (2).............................. 5,423 $ 71,601,339 100.00% 8,195 $ 105,465,298 100.00%
----- ------------- ----------- ----- -------------- -----------
----- ------------- ----------- ----- -------------- -----------
Delinquencies(3)
31-60 Days............................... 81 $ 1,145,807 1.60% 106 $ 1,374,687 1.30%
61-90 Days............................... 6 64,946 0.09 23 287,357 0.27
91+ Days................................. 6 99,426 0.14 8 126,995 0.12
----- ------------- ----------- ----- -------------- -----------
Total Delinquencies........................ 93 $ 1,310,179 1.83% 137 $ 1,789,039 1.70%
Amount in Repossession(4).................. 45 $ 615,233 0.86% 96 $ 1,051,533 1.00%
----- ------------- ----------- ----- -------------- -----------
Total Delinquencies and Amount in
Repossession............................. 138 $ 1,925,412 2.69% 233 $ 2,840,572 2.69%
----- ------------- ----------- ----- -------------- -----------
----- ------------- ----------- ----- -------------- -----------
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------------
% OF
NO. OF PRINCIPAL PRINCIPAL
RECEIVABLES BALANCE BALANCE
----------- -------------- -----------
<S> <C> <C> <C>
Aggregate Principal Balance at Period
End(1), (2).............................. 10,714 $ 135,148,169 100.00%
----------- -------------- -----------
----------- -------------- -----------
Delinquencies(3)
31-60 Days............................... 169 $ 2,111,018 1.56%
61-90 Days............................... 62 793,279 0.59
91+ Days................................. 19 254,826 0.19
----------- -------------- -----------
Total Delinquencies........................ 250 $ 3,159,123 2.34%
Amount in Repossession(4).................. 130 $ 1,735,378 1.28%
----------- -------------- -----------
Total Delinquencies and Amount in
Repossession............................. 380 $ 4,894,501 3.62%
----------- -------------- -----------
----------- -------------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF MARCH 31, 1998
---------------------------------------- ----------------------------------------
% OF % OF
NO. OF PRINCIPAL PRINCIPAL NO. OF PRINCIPAL PRINCIPAL
RECEIVABLES BALANCE BALANCE RECEIVABLES BALANCE BALANCE
----------- -------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Principal Balance at Period
End(1), (2)............................. 14,239 $ 178,820,032 100.00% 18,065 $ 222,579,214 100.00%
----------- -------------- ----------- ----------- -------------- -----------
----------- -------------- ----------- ----------- -------------- -----------
Delinquencies(3)
31-60 Days.............................. 283 $ 3,536,717 1.98% 243 $ 3,005,925 1.35%
61-90 Days.............................. 91 1,175,834 0.66 50 636,024 0.29
91+ Days................................ 49 612,742 0.34 25 313,044 0.14
----------- -------------- ----------- ----------- -------------- -----------
Total Delinquencies....................... 423 $ 5,325,293 2.98% 318 $ 3,954,993 1.78%
Amount in Repossession(4)................. 271 $ 3,325,167 1.86% 298 $ 3,692,886 1.66%
----------- -------------- ----------- ----------- -------------- -----------
Total Delinquencies and Amount in
Repossession............................ 694 $ 8,650,460 4.84% 616 $ 7,647,879 3.44%
----------- -------------- ----------- ----------- -------------- -----------
----------- -------------- ----------- ----------- -------------- -----------
<CAPTION>
AS OF JUNE 30, 1998
----------------------------------------
% OF
NO. OF PRINCIPAL PRINCIPAL
RECEIVABLES BALANCE BALANCE
----------- -------------- -----------
<S> <C> <C> <C>
Aggregate Principal Balance at Period
End(1), (2)............................. 23,278 $ 275,701,781 100.00%
----------- -------------- -----------
----------- -------------- -----------
Delinquencies(3)
31-60 Days.............................. 544 $ 6,504,170 2.36%
61-90 Days.............................. 125 1,471,899 0.53
91+ Days................................ 42 519,163 0.19
----------- -------------- -----------
Total Delinquencies....................... 711 $ 8,495,232 3.08%
Amount in Repossession(4)................. 273 $ 3,082,642 1.12%
----------- -------------- -----------
Total Delinquencies and Amount in
Repossession............................ 984 $ 11,577,874 4.20%
----------- -------------- -----------
----------- -------------- -----------
</TABLE>
- ------------------------
(1) The aggregate principal balance is equal to the gross receivable less
unearned finance charges on Precomputed Receivables plus the principal
balance on Simple Interest Receivables.
(2) Represents the aggregate principal balance of all contracts purchased and
serviced by Triad.
(3) Prior to May 30, 1998 Scheduled Payments not made by the Obligors must be
less than $40 for a contract to be considered current.
(4) Represents the aggregate principal balance as of the repossession date.
S-17
<PAGE>
TRIAD FINANCIAL CORPORATION
HISTORICAL NET LOSS EXPERIENCE
<TABLE>
<CAPTION>
DURING THE THREE-MONTH PERIOD ENDED
----------------------------------------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Average Aggregate Principal Balance(1),
(2).................................. $ 58,244,815 $ 89,203,495 $ 119,831,579 $ 157,030,572 $ 200,583,686
Gross Charge-Offs(3)................... 276,769 1,050,485 1,251,613 2,318,711 4,102,536
Recoveries(4).......................... 24,453 216,364 228,287 339,306 632,487
------------- ------------- -------------- -------------- --------------
Net Losses............................. $ 252,316 $ 834,121 $ 1,023,326 $ 1,979,405 $ 3,470,049
------------- ------------- -------------- -------------- --------------
Net Losses as a Percentage of Average
Aggregate Principal Balance(5)....... 0.43% 0.94% 0.85% 1.26% 1.73%
------------- ------------- -------------- -------------- --------------
------------- ------------- -------------- -------------- --------------
<CAPTION>
YEAR ENDED
6/30/98 6/30/98
-------------- --------------
<S> <C> <C>
Average Aggregate Principal Balance(1),
(2).................................. $ 245,536,237 $ 181,183,145
Gross Charge-Offs(3)................... 3,226,167 10,899,027
Recoveries(4).......................... 535,192 1,735,272
-------------- --------------
Net Losses............................. $ 2,690,975 $ 9,163,755
-------------- --------------
Net Losses as a Percentage of Average
Aggregate Principal Balance(5)....... 1.10% 5.06%
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(1) The aggregate principal balance is equal to the gross receivable less
unearned finance charges on Precomputed Receivables plus the principal
balance on Simple Interest Receivables.
(2) Other than for the Year Ended June 30, 1998, represents the three-month
average for the related period of the aggregate principal balance of all
contracts purchased and serviced by Triad.
(3) Gross Charge-Offs are defined as the remaining principal balance of the
charged-off contract less the net proceeds of the liquidation of the related
vehicle.
(4) Recoveries include post-liquidation amounts received on previously
charged-off contracts, including deficiency payments, rebates on related
extended service contracts and insurance policies.
(5) Other than for the Year Ended June 30, 1998, net loss percentages are not
annualized.
S-18
<PAGE>
CHARGE-OFF POLICIES AND NET LOSSES
Triad's charge-off policy relating to repossessed vehicles, bankruptcy,
"skip" accounts and thefts or collisions is as follows:
REPOSSESSIONS. When a vehicle has been repossessed and sold, the proceeds
from the sale of the vehicle, net of the costs incurred in its repossession,
storage and disposition, will be applied against the outstanding balance of the
Receivable. A charge-off will be made in an amount equal to the Principal
Balance of the Receivable less the net proceeds of the liquidation of the
related Financed Vehicle.
BANKRUPTCIES. If Triad receives a bankruptcy notice with respect to an
Obligor, the contract will be charged of in an amount equal to the current
outstanding principal balance of the contract at the time of charge-off. The
charge-off actually taken upon the earlier of (a) the month in which the Obligor
allows the contract to become 120 days or more delinquent in the case of an
Obligor that files for protection under Chapter 7 or Chapter 13 of the United
States Bankruptcy Code, 11 U.S.C. 101 et seq. (the "Bankruptcy Code") or (b)
Triad's receipt of notice of the results of the bankruptcy proceedings. The
initial charge-off is adjusted, if necessary, to reflect the results of the
bankruptcy proceedings.
"SKIP" ACCOUNTS. Triad defines "skip" accounts as contracts for which (a)
Triad is unable to contact or locate an Obligor for a period of 120 days and (b)
Triad is unable to locate the related Financed Vehicle. Triad charges off the
contract, with a charge-off equal to the current outstanding principal balance
of the contract, and continues collection efforts. If Triad subsequently makes
contact with the Obligor, and the vehicle is repossessed and sold, proceeds from
the disposition of the collateral, net of the costs incurred in repossessing,
storing and disposing of the vehicle, and/or rebates from the cancellation of
outstanding insurance policies and/or extended service contracts are recorded as
recoveries.
THEFTS OR COLLISIONS. Theft or collision contracts are charged-off upon the
earlier of (a) Triad's receipt of proceeds from the Obligor's insurance policy
if the account becomes more than 30 days past due and (b) the month in which the
contract becomes 120 days delinquent. The charge-off is equal to the amount of
the net deficiency resulting from the application of insurance proceeds to the
current outstanding principal balance of the contract. Insurance proceeds
received after a contract is charged-off are recorded as recoveries.
Where permitted by local statute, charged-off Receivables are pursued for
any deficiencies by Triad's loss prevention staff. A deficiency letter is sent
to the Obligor within five days of the deficiency being established. A follow-up
call to the Obligor is made within ten days after the deficiency letter has been
sent. During this call, an attempt is made to negotiate a settlement of the
deficiency balance. The first offer is generally made in an amount equal to 85%
of the deficiency balance, but a 65% settlement is acceptable. Triad generally
prefers to avoid establishing a monthly payment plan, as its experience has been
that the Obligor will typically only make payments until such time as he is able
to purchase a replacement vehicle. Triad will generally garnish the salary of a
defaulted Obligor in states in which salary garnishment for recovery of
deficiency balances is permitted.
INSURANCE
In addition to the physical damage insurance policies maintained by the
Obligors naming Triad as the loss payee, Triad may maintain collateral
protection for uninsured physical damage in a manner that is customary and
standard for servicers of receivables in the same general area as the Servicer
and for receivables comparable to the Receivables, which may include
self-insurance. Triad also maintains fidelity coverage insuring against losses
through wrongdoing of its officers and employees.
S-19
<PAGE>
THE BACKUP SERVICER
If a Servicer Termination Event occurs and remains unremedied and Triad is
terminated as Servicer or resigns as Servicer, [ ], will serve as successor
Servicer (in such capacity, the "Backup Servicer"). The Backup Servicer will
receive a fee on each Distribution Date equal to the product of one-twelfth
times $[ ] as compensation for, among other things, (i) standing by to act as
successor Servicer and (ii) confirming certain calculations made by the Servicer
on the monthly statement to Noteholders, including but not limited to (a)
interest and principal payments due to the Noteholders and (b) Receivables
performance ratios related to a Reserve Account Trigger Event and/or Servicer
Termination Trigger Event.
THE RECEIVABLES
Pursuant to the Receivables Purchase Agreement, Triad will sell and assign
to the Seller all of its right, title and interest in and to the Receivables and
the other Trust Property, and the Seller, pursuant to the Sale and Servicing
Agreement, will sell and assign to the Trust all of its right, title and
interest in and to the Receivables and such other Trust Property. The Trust will
then pledge all of its right, title and interest in and to the Receivables to
the Indenture Trustee for the benefit of the Noteholders pursuant to the
Indenture. The Receivables consist of motor vehicle retail installment
contracts. The Receivables were purchased by Triad in the ordinary course of its
business pursuant to its finance programs and underwriting standards. As
detailed herein, such credit guidelines may be less stringent than those applied
in the origination of other automobile loans by other lenders. See "Triad and
the Servicer--Underwriting."
No selection procedures adverse to the Noteholders were utilized in
selecting the Receivables sold and assigned to the Seller and then sold and
assigned to the Trust. The Receivables existing as of the Cutoff Date were
selected from Triad's portfolio according to several criteria. Among such
criteria, each Receivable (1) arises from the delivery and acceptance of a
Financed Vehicle and which delivery and acceptance has been fully performed by
the Obligor and the Dealer party thereto, (2) arises from the normal course of
the Dealer's business, (3) is not in default, (4) the Obligor of which is a
natural person residing in any state or the District of Columbia, (5) the
Obligor of which is not a government or a governmental subdivision or agency,
(6) met Triad's underwriting criteria at the time of purchase, (7) is
denominated and payable in Dollars in the United States, (8) is in full force
and effect and constitutes the legal, valid and binding obligation of the
Obligor in accordance with its terms, (9) is not subject to any dispute,
litigation, counterclaim or defense, or any offset or right of offset at the
time of purchase by Triad, and to the best of Triad's knowledge, any exercisable
right of recission, (10) has an original term to maturity of not less than [ ]
or more than [ ] months, (11) provides for equal monthly payments which will
cause the Receivable to fully amortize during its term, (12) has an Amount
Financed of not less than [ ]or more than [ ] and (13) has an APR of not less
than the lesser of (A) [ ] and (B) the maximum interest rate permissible by law
with respect to such Receivable.
PAYMENTS ON THE 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. Each Receivable provides for repayment of the Amount Financed by an
Obligor according to (i) the Rule of 78's (a "Rule of 78's Receivables"), (ii)
the actuarial method (an "Actuarial Receivable" and together with Rule of 78's
Receivables, the "Precomputed Receivables") or (iii) the simple interest method
(a "Simple Interest Receivable").
Under a Rule of 78's Receivable, the rate at which the amount of finance
charges is earned and, correspondingly, the amount of each scheduled monthly
payment allocated to reduction of the outstanding principal balance of the
related Receivable are calculated in accordance with the "Rule of 78's". Under
the
S-20
<PAGE>
Rule of 78's, the portion of a payment allocable to interest earned during that
month is determined by multiplying the total amount of add-on interest payable
over the term of the Receivable by a fraction, the denominator of which is equal
to the sum of a series of numbers beginning with one and ending with the number
of scheduled monthly payments due under the related Receivable, and the
numerator of which is the number of payments remaining under such Receivable
before giving effect to the payment to which the fraction is being applied. The
difference between the amount of the scheduled monthly payment made by the
Obligor and the amount of earned add-on interest calculated for the month is
applied to principal reduction.
An Actuarial Receivable provides for amortization of the loan over a series
of fixed level monthly installments. Each scheduled monthly payment is deemed to
consist of an amount of interest equal to 1/12 of the stated APR of the
Receivable multiplied by the outstanding principal balance of the Receivable and
an amount of principal equal to the remainder of such scheduled monthly payment.
All payments received by the Servicer on or in respect of Precomputed
Receivables, including the final scheduled payment, will be allocated pursuant
to the Sale and Servicing Agreement on an actuarial basis. No adjustment will be
made in the event of early or late payments, although in the latter case the
Obligor may be subject to a late charge.
"Simple Interest Receivables" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Receivables, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date immediately preceding the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if an
Obligor pays a fixed monthly installment before its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be less than it would have been had the payment been made
as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, if an Obligor
pays a fixed monthly installment after its scheduled due date, the portion of
the payment allocable to 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.
In the event of a prepayment in full (voluntarily or by acceleration) of a
Precomputed Receivable, a "rebate" in the loan accounting records of the
Servicer may be made to the Obligor of that portion of the total amount of
payments under such Receivable allocable to "unearned" finance charges. In the
event of the prepayment in full (voluntarily or by acceleration) of a Simple
Interest Receivable, a "rebate" will not be made to the Obligor, but the Obligor
will be required to pay interest only to the date immediately preceding the date
of prepayment. The amount of such rebate under a Precomputed Receivable
generally will be less than or equal to the remaining scheduled payments of
interest that would have been due under a Simple Interest Receivable for which
all remaining payments were made on schedule.
The amount of a rebate under a Rule of 78's Receivable calculated in
accordance with the Rule of 78's generally will be less than the amount of a
rebate on an Actuarial Receivable calculated in accordance with the actuarial
method. Distributions to Noteholders will not be affected by Rule of 78's
rebates under the Rule of 78's Receivables because pursuant to the Sale and
Servicing Agreements such distributions will be determined using the actuarial
method. Amounts received upon prepayment in full of a Rule of 78's Receivable in
excess of the then outstanding principal balance of such Receivable and accrued
interest thereon (calculated pursuant to the actuarial method) will not be
passed through to Noteholders.
S-21
<PAGE>
PURCHASE OR REPLACEMENT OBLIGATIONS
Pursuant to the Receivables Purchase Agreement and the Sale and Servicing
Agreement, Triad and the Seller, respectively, will be obligated to repurchase
or replace any Receivable sold and assigned to the Trust as to which a breach
has occurred as to certain representations or warranties made by Triad and the
Seller with respect to the Receivable, if such breach has not been cured by the
last day of the first full calendar month following the discovery by or notice
to Triad and the Seller of the breach, if such breach will materially and
adversely affect the interests of the Noteholders or the Trust in such
Receivable. The Indenture Trustee will also have certain rights to enforce the
corresponding obligations of the Seller under the Sale and Servicing Agreement
and of Triad under the Receivables Purchase Agreement. See "The Transaction
Documents--Sale and Assignment of Receivables" and "Trust Property."
The Sale and Servicing Agreement also provides that if the Servicer breaches
certain of its servicing obligations thereunder (including but not limited to
its obligation to maintain perfection of the first priority security interest of
Triad created by each Receivable in the related Financed Vehicle) or certain
other covenants with regard to the Servicer, in each case only in a manner that
materially and adversely affects the interests of the Noteholders or the Trust
in any Receivable, the Servicer will purchase or replace such Receivable from
the Trust, unless such breach has been cured by the last day of the first full
calendar month following the discovery by or notice to the Servicer of the
breach.
COMPOSITION OF THE POOL OF RECEIVABLES
The tables below set forth information regarding the composition and
characteristics of the pool of Receivables as of the Cutoff Date. The
information provided herein regarding the composition and characteristics of the
pool of Receivables will change to reflect the actual composition and
characteristics of the Receivables as of the Cutoff Date.
COMPOSITION OF THE RECEIVABLES(1)
(AS OF THE CUTOFF DATE)
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $[ ]
Number of Receivables....................................... [ ]
Average Amount Financed..................................... $[ ]
Range of Amounts Financed................................... $[ ] to $[ ]
Average Current Principal Balance........................... $[ ]
Range of Current Principal Balances......................... $[ ] to $[ ]
Weighted Average APR........................................ [ ]%
Range of APRs............................................... [ ]% to [ ]%
Weighted Average Original Term to Scheduled Maturity(2)..... [ ] months
Range of Original Terms to Scheduled Maturity............... [ ] to [ ] months
Weighted Average Remaining Term to Scheduled Maturity(2).... [ ] months
Range of Remaining Terms to Scheduled Maturity.............. [ ] to [ ] months
</TABLE>
- ------------------------
(1) For purposes of the Principal Balance as of the Cutoff Date, the Principal
Balance of each Rule of 78's Receivable is calculated in accordance with the
Rule of 78's.
(2) Rounded to the nearest month.
S-22
<PAGE>
DISTRIBUTION OF RECEIVABLES BY CURRENT PRINCIPAL BALANCE
(AS OF THE CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL NUMBER CURRENT OF AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
CURRENT PRINCIPAL BALANCE RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------------------------------------------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
$[ ]......................................................
TOTAL...................................................... [ ] 100.00% $ [ ] 100.00%
--- ------ ----- ------
--- ------ ----- ------
</TABLE>
DISTRIBUTION OF RECEIVABLES BY AMOUNT FINANCED
(AS OF THE CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL NUMBER CURRENT OF AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
AMOUNT FINANCED RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------------------------------------------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
$[ ]...................................................... [ ] [ ] [ ] [ ]
TOTAL...................................................... [ ] 100.00% $ [ ] 100.00%
--- ------ ----- ------
--- ------ ----- ------
</TABLE>
DISTRIBUTION OF RECEIVABLES BY APR
(AS OF THE CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL NUMBER CURRENT OF AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
RANGE OF APRS RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------------------------------------------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
[Percent].................................................. [ ] [ ] [ ] [ ]
TOTAL...................................................... [ ] 100.00% $ [ ] 100.00%
--- ------ ----- ------
--- ------ ----- ------
</TABLE>
DISTRIBUTION OF RECEIVABLES BY MODEL YEAR OF FINANCED VEHICLE
(AS OF THE CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL NUMBER CURRENT OF AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
MODEL YEAR RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------------------------------------------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
[Year]..................................................... [ ] [ ] [ ] [ ]
TOTAL...................................................... [ ] 100.00% $ [ ] 100.00%
--- ------ ----- ------
--- ------ ----- ------
</TABLE>
- ------------------------
(1) Percentages may not add up to 100.00% due to rounding.
S-23
<PAGE>
DISTRIBUTION OF RECEIVABLES BY REMAINING TERM TO SCHEDULED MATURITY
(AS OF THE CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL NUMBER CURRENT OF AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
RANGE OF REMAINING TERMS RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------------------------------------------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
[Range of months].......................................... [ ] [ ] [ ] [ ]
TOTAL...................................................... [ ] 100.00% $ [ ] 100.00%
--- ------ ----- ------
--- ------ ----- ------
</TABLE>
DISTRIBUTION OF RECEIVABLES BY ORIGINAL TERM TO SCHEDULED MATURITY
(AS OF THE CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL NUMBER CURRENT OF AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
RANGE OF ORIGINAL TERMS RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------------------------------------------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
[Range of months].......................................... [ ] [ ] [ ] [ ]
TOTAL...................................................... [ ] 100.00% $ [ ] 100.00%
--- ------ ----- ------
--- ------ ----- ------
</TABLE>
DISTRIBUTION OF RECEIVABLES BY PRINCIPAL PLACE OF BUSINESS OF DEALER
(AS OF THE CUTOFF DATE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL NUMBER CURRENT OF AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
STATE RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------------------------------------------- ------------- ---------------- ----------- -------------
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[State].................................................... [ ] [ ] [ ] [ ]
TOTAL...................................................... [ ] 100.00% $ [ ] 100.00%
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(1) Percentages may not add up to 100.00% due to rounding.
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MATURITY AND PREPAYMENT ASSUMPTIONS
All the Receivables are prepayable at any time. 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 the consent of Triad unless
the loan is repaid by the Obligor at the time of such sale or transfer. (For
this purpose the term "prepayments" includes prepayments in full, or in part,
including, without limitation, certain partial prepayments related to refunds of
extended service contract costs and unearned insurance premiums, liquidations
due to default, as well as receipts of proceeds from physical damage, credit
life and credit accident and health insurance policies and certain other
Receivables repurchased for administrative reasons.) The rate of prepayment on
the Receivables may also be influenced by the structure of the loan, the nature
of the Obligors and the Financed Vehicles and servicing decisions as discussed
above. In addition, under certain circumstances, the Seller and Triad are
obligated to repurchase or replace Receivables as a result of breaches of
representations and warranties pursuant to the Sale and Servicing Agreement and
the Receivables Purchase Agreement, respectively, and under certain
circumstances, the Servicer is obligated to purchase Receivables pursuant to the
Sale and Servicing Agreement as a result of breaches of certain covenants.
Subject to certain conditions, the Servicer has the option, to purchase or
replace the Receivables when the aggregate principal balance thereof is [ ]% or
less of the Cutoff Date Principal Balance.
If prepayments are received on the Receivables, the actual weighted average
life of the Receivables may be shorter than the scheduled weighted average life
(i.e., the weighted average life assuming that payments will be made as
scheduled and that no prepayments will be made). "Weighted average life" means
the average amount of time during which each dollar of principal on a Receivable
is outstanding.
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables will be borne by the Noteholders. See also "The
Notes--Optional Purchase of Receivables" regarding the Servicer's right to
purchase the Receivables and the other Trust Property on any Record Date as of
which the Aggregate Principal Balance has declined to less than [ ]% of the
Cutoff Date Principal Balance.
YIELD CONSIDERATIONS
On each Payment Date, interest on the Receivables will be passed through to
the Noteholders of each Class in an amount equal to one-twelfth of the related
Interest Rate multiplied by the Note Balance of the applicable Class on the
immediately preceding Determination Date. In the event of prepayments on
Receivables, Noteholders will nonetheless be entitled to receive interest for
the full month on the Notes. See also "The Receivables--Maturity and Prepayment
Assumptions".
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Receivables will be applied by the Seller to the purchase of the Receivables
from Triad, to the payment of the Reserve Account Initial Deposit and to the
payment of related expenses. Net amounts remaining after such payments, if any,
will be distributed by the Seller to its sole shareholder, Triad.
THE TRUST
The Issuer, Triad Auto Receivables Owner Trust 199[ ]-[ ], is a business
trust formed, prior to its purchase of the Receivables and the issuance of the
Notes, under the laws of the State of Delaware pursuant to the Trust Agreement,
between the Seller, as Holder of the Certificate (as defined in the Trust
Agreement), the Servicer and the Owner Trustee (the "Trust Agreement"), for the
purpose of carrying out the transactions described in this Prospectus
Supplement. After its formation, the Trust will not engage in any business
activity other than acquiring and holding the Trust Property, issuing the Notes
and Certificate and making payments thereon.
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Each Note will represent a limited obligation of the Trust. The Trust
Property will include, among other things, the Receivables and the other Trust
Property described in "Trust Property" above.
THE OWNER TRUSTEE
[ ], the Owner Trustee under the Trust Agreement, is a [ ] and its
principal offices are located at [ ]. The Owner Trustee will perform limited
administrative functions under the Trust Agreement. The Owner Trustee's
liability in connection with the issuance and sale of the Notes is limited
solely to the express obligations of the Owner Trustee set forth in the Trust
Agreement and the Sale and Servicing Agreement.
THE INDENTURE TRUSTEE
[ ] will be the Indenture Trustee under the Indenture. [ ] is a [ ], the
corporate trust office of which is located at [ ].
THE NOTES
THE NOTES OFFERED HEREBY WILL BE ISSUED PURSUANT TO THE INDENTURE, A FORM OF
WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT. 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 IS QUALIFIED IN ITS ENTIRETY
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 ACCOMPANYING
PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE.
GENERAL
The Notes initially will be represented by notes registered in the name of
Cede as the nominee of DTC, and will only be available in the form of
book-entries on the records of DTC and participating members thereof in
denominations of $1,000. All references to "holders" or "Noteholders" and to
authorized denominations, when used with respect to the Notes, shall reflect the
rights of Note Owners, and limitations thereof, as they may be indirectly
exercised through DTC and its participating members, except as otherwise
specified herein. See "Registration of Notes" in this Prospectus Supplement.
In general, the Class A-1 Noteholders will be entitled to receive, on each
Payment Date, the Class A-1 Principal Payment Amount, based on the Class A-1
Percentage and the Class A-1 Interest Payment Amount; subject to the priority of
payments to the Class A-1 Noteholders, as described in "Summary-- Priority of
Distribution Amounts", the Class A-2 Noteholders will be entitled to receive on
each Payment Date, the Class A-2 Principal Payment Amount, based on the Class
A-2 Percentage and the Class A-2 Interest Payment Amount; subject to the
priority of payments to the Class A Noteholders, as described in
"Summary--Priority of Distribution Amounts", the Class B Noteholders will be
entitled to receive, on each Payment Date, the Class B Principal Payment Amount,
based on the Class B Percentage and the Class B Interest Payment Amount.
OPTIONAL PURCHASE OF RECEIVABLES
As an administrative convenience, the Servicer may purchase all the
Receivables and other Trust Property on any Payment Date if, as of the related
Determination Date, the Aggregate Principal Balance has declined to less than
[ ]% of the Cutoff Date Principal Balance. To exercise such option, the
Servicer must pay the aggregate Purchase Amounts for the Receivables and will
succeed to all interests in and to the Trust Property. The purchase price paid
by the Servicer will be deposited into the Collection Account and distributed
pursuant to "Priority of Distribution Amounts" below.
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Such purchase will cause a redemption of the Notes; PROVIDED, HOWEVER, that
the Servicer will provide the Indenture Trustee, the Backup Servicer and the
Rating Agency at least 10 days' prior written notice of any redemption. The
Indenture Trustee will give notice to each Noteholder at least five days prior
to any such redemption. The redemption price for each Note will be no less than
the outstanding principal balance of such Note on the date of redemption plus
accrued and unpaid interest thereon (the "Redemption Price"). The Servicer will
deposit the Redemption Price into the Collection Account, and the Indenture
Trustee will distribute the amounts so deposited in accordance with the
"Priority of Distribution Amounts" below.
DISTRIBUTIONS FROM THE TRUST
No later than 12:00 p.m. New York City time on each Record Date, the
Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be purchased by the Servicer with respect to the related Collection Period.
The Servicer will determine prior to such Record Date, the Class A-1 Interest
Payment Amount, the Class A-2 Interest Payment Amount, the Class B Interest
Payment Amount, the Class A-1 Principal Payment Amount, the Class A-2 Principal
Payment Amount, the Class B Principal Payment Amount, the Class A-1 Payment
Amount, the Class A-2 Payment Amount, the Class B Payment Amount, the Reserve
Account Required Amount, the Overcollateralization Amount and the Target
Overcollateralization Amount.
For purposes hereof, the following terms shall have the following meanings:
"Defaulted Receivable" means any Receivable (a) for which the related
Financed Vehicle has been repossessed by the Servicer or (b) for which the
Obligor is more than 120 days past due or (c) with respect to which the Servicer
has determined in good faith that no further proceeds are expected to be
received in respect of such Receivable.
"Liquidated Receivable" means any Receivable (a) which has been liquidated
by the Servicer through the sale of the Financed Vehicle or the Receivable or
(b) for which the Obligor is more than 120 days past due, or (c) with respect to
which the Servicer has determined in good faith that no further proceeds are
expected to be received in respect of such Receivable.
"Principal Balance" of a Receivable (a) as of the Cutoff Date, means the
Amount Financed minus (i) in the case of a Precomputed Receivable, that portion
of all payments (including all Scheduled Payments and any prepayments in full or
partial prepayments) actually received on or prior to such date and allocable to
principal in accordance with the actuarial method and (ii) in the case of a
Simple Interest Receivable, that portion of all payments (including all
Scheduled Payments and any prepayments in full or partial prepayments) actually
received on or prior to such date and allocable to principal in accordance with
the simple interest method, and (b) as of any date after the Cutoff Date, means
the Principal Balance as of the Cutoff Date minus (1) in the case of a
Precomputed Receivable, that portion of all payments (including all Scheduled
Payments and any prepayments in full or partial prepayments) actually received
on or prior to such date (but after the Cutoff Date) and allocable to principal
in accordance with the actuarial method, (2) in the case of a Simple Interest
Receivable, that portion of all payments (including all Scheduled Payments and
any prepayments in full or partial prepayments) actually received on or prior to
such date (but after the Cutoff Date) and allocable to principal in accordance
with the simple interest method and (3) any Cram Down Loss in respect of such
Receivable. The Principal Balance of a Liquidated Receivable for purposes other
than the definition of Principal Payment Amount shall be equal to $0.
"Purchase Amount" means, with respect to a Receivable, the Principal Balance
plus interest thereon at the respective APR from the last day through which
interest has been paid to the last day of the immediately preceding Collection
Period if purchased prior to the Record Date immediately following the end of
such Collection Period, and otherwise through the last day of the month of
repurchase.
"Principal Payment Amount" means, with respect to any Payment Date other
than the Final Scheduled Payment Date, the sum of the following amounts, without
duplication: (a) the principal portion
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of all Scheduled Payments on Precomputed Receivables (calculated in accordance
with the actuarial method) and all payments of principal received on Simple
Interest Receivables (calculated in accordance with the simple interest method)
during such Collection Period; (b) the principal portion of all prepayments
received during the preceding Collection Period; (c) the portion of the Purchase
Amount allocable to principal of each Receivable that became a Purchased
Receivable as of the last day of the preceding Collection Period and the
Principal Balance of each Receivable that was required to be but was not so
purchased or repurchased; (d) the Principal Balance of each Receivable that
first became a Liquidated Receivable during the preceding Collection Period and
(e) the aggregate amount of Cram Down Losses with respect to the Receivables
that have occurred during the preceding Collection Period.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, subsequent to the date on which such Receivable
became a Liquidated Receivable net of the reasonable costs of liquidation
including reasonable out-of-pocket expenses of the Servicer in connection with
such liquidation plus any amounts required by law to be remitted to the Obligor.
"Scheduled Payment" means, for any Collection Period for any Receivable, the
amount indicated in such Receivable as required to be paid by the Obligor in
such Collection Period (without giving effect to deferments of payments granted
to Obligors by the Servicer pursuant to the Sale and Servicing Agreement or any
rescheduling of payments in an insolvency or similar proceeding).
CALCULATION OF PAYMENT AMOUNTS. (a) The Class A-1 Noteholders will be
entitled to receive, to the extent funds are available therefor, the "Class A-1
Payment Amount" with respect to each Payment Date. The "Class A-1 Payment
Amount" with respect to a Payment Date will be an amount equal to the sum of (i)
the "Class A-1 Principal Payment Amount", consisting of the Class A-1 Percentage
of the Principal Payment Amount, PLUS (ii) the Class A-1 Interest Payment
Amount", consisting of 30 days' interest (calculated on the basis of a 360-day
year consisting of twelve 30-day months) at the Class A-1 Interest Rate on the
Class A-1 Note Balance as of the close of business on the last day of the
related Collection Period.
(b) The Class A-2 Noteholders will be entitled to receive, to the extent
funds are available therefor, the "Class A-2 Payment Amount" with respect to
each Payment Date. The "Class A-2 Payment Amount" with respect to a Payment Date
will be an amount equal to the sum of (i) the "Class A-2 Principal Payment
Amount", consisting of the Class A-2 Percentage of the Principal Payment Amount,
PLUS (ii) the "Class A-2 Interest Payment Amount", consisting of 30 days'
interest (calculated on the basis of a 360-day year consisting of twelve 30-day
months) at the Class A-2 Interest Rate on the Class A-2 Note Balance as of the
close of business on the last day of the related Collection Period; PROVIDED,
HOWEVER, that payment of interest and principal to the Class A-2 Noteholders
will be subordinated to the extent described under "The Notes--Distributions
from the Trust; Priority of Distribution Amounts."
(c) The Class B Noteholders will be entitled to receive, to the extent funds
are available therefor, the "Class B Payment Amount" with respect to each
Payment Date. The "Class B Payment Amount" with respect to a Payment Date will
be an amount equal to the sum of (i) the "Class B Principal Payment Amount",
consisting of the Class B Percentage of the Principal Payment Amount, PLUS (ii)
the "Class B Interest Payment Amount", consisting of 30 days' interest
(calculated on the basis of a 360-day year consisting of twelve 30-day months)
at the Class B Interest Rate on the Class B Note Balance as of the close of
business on the last day of the related Collection Period; PROVIDED, HOWEVER,
that payment of interest and principal to the Class B Noteholders will be
subordinated to the extent described under "The Notes--Distributions from the
Trust; Priority of Distribution Amounts".
On and after the Final Scheduled Payment Date, the Class A-1 Principal
Payment Amount, the Class A-2 Principal Payment Amount and the Class B Principal
Payment Amount will equal the then outstanding Class A-1 Note Balance, Class A-2
Note Balance and the Class B Note Balance, respectively.
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For purposes hereof, the following terms shall have the following meanings:
"Class A-1 Interest Carryover Shortfall" means, as of the close of business
on any Payment Date, the excess of (a) the Class A-1 Interest Payment Amount for
such Payment Date and any outstanding Class A-1 Interest Carryover Shortfall
from the immediately preceding Payment Date plus interest on such outstanding
Class A-1 Interest Carryover Shortfall, to the extent permitted by law, at the
Class A-1 Interest Rate from such preceding Payment Date through the current
Payment Date (calculated on the basis of a 360-day year consisting of twelve
30-day months), over (b) the amount of interest that the Holders of the Class
A-1 Notes actually received on such current Payment Date.
"Class A-1 Principal Carryover Shortfall" means, as of the close of business
on any Payment Date, the excess of (a) the Class A-1 Principal Payment Amount
and any outstanding Class A-1 Principal Carryover Shortfall from the immediately
preceding Payment Date, over (b) the amount of principal that the Holders of the
Class A-1 Notes actually received on such current Payment Date.
"Class A-2 Interest Carryover Shortfall" means, as of the close of business
on any Payment Date, the excess of (a) the Class A-2 Interest Payment Amount for
such Payment Date and any outstanding Class A-2 Interest Carryover Shortfall
from the immediately preceding Payment Date plus interest on such outstanding
Class A-2 Interest Carryover Shortfall, to the extent permitted by law, at the
Class A-2 Interest Rate from such preceding Payment Date through the current
Payment Date (calculated on the basis of a 360-day year consisting of twelve
30-day months), over (b) the amount of interest that the Holders of the Class
A-2 Notes actually received on such current Payment Date.
"Class A-2 Principal Carryover Shortfall" means, as of the close of business
on any Payment Date, the excess of (a) the Class A-2 Principal Payment Amount
and any outstanding Class A-2 Principal Carryover Shortfall from the immediately
preceding Payment Date, over (b) the amount of principal that the Holders of the
Class A-2 Notes actually received on such current Payment Date.
"Class B Interest Carryover Shortfall" means, as of the close of business on
any Payment Date, the excess (a) of the Class B Interest Payment Amount for such
Payment Date and any outstanding Class B Interest Carryover Shortfall from the
immediately preceding Payment Date plus interest on such outstanding Class B
Interest Carryover Shortfall, to the extent permitted by law, at the Class B
Interest Rate from such preceding Payment Date through the current Payment Date
(calculated on the basis of a 360-day year consisting of twelve 30-day months),
over (b) the amount of interest that the Holders of the Class B Notes actually
received on such current Payment Date.
"Class B Principal Carryover Shortfall" means, as of the close of business
on any Payment Date, the excess of (a) the Class B Principal Payment Amount and
any outstanding Class B Principal Carryover Shortfall from the immediately
preceding Payment Date, over (b) the amount of principal that the Holders of the
Class B Notes actually received on such current Payment Date.
PRIORITY OF DISTRIBUTION AMOUNTS
On each Payment Date to the extent of the Payment Amount, the Indenture
Trustee will (based on the information contained in the Servicer's Certificate
delivered on the related Record Date) distribute the following amounts in the
following order of priority:
(i) first, to the Servicer, the Servicer Fee (as defined herein) for the
related Collection Period, any Supplemental Servicer Fee for the related
Collection Period and so long as Triad is the Servicer, any Servicer
Expenses for the related or any prior Collection Period and certain other
amounts mistakenly deposited in the Collection Account belonging to the
Servicer, if any, or otherwise required to be distributed to the Servicer in
accordance with the Sale and Servicing Agreement;
(ii) second, to any Lockbox Bank (as defined herein), the Indenture
Trustee, the Owner Trustee and the Backup Servicer, any accrued and unpaid
fees and expenses (including reasonable legal fees
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and expenses), in each case, to the extent such Person (as defined herein)
has not previously received such amount from the Servicer;
(iii) third, to the Class A-1 Noteholders, the Class A-1 Interest Payment
Amount for such Payment Date and the Class A-1 Interest Carryover Shortfall,
if any;
(iv) fourth, to the Class A-2 Noteholders, the Class A-2 Interest
Payment Amount for such Payment Date and the Class A-2 Interest Carryover
Shortfall, if any;
(v) fifth, to the Class B Noteholders, the Class B Interest Payment
Amount for such Payment Date and the Class B Interest Carryover Shortfall,
if any;
(vi) sixth, to the Class A-1 Noteholders, the Class A-1 Principal
Payment Amount for such Payment Date, based on the Class A-1 Percentage and
the Class A-1 Principal Carryover Shortfall, if any;
(vii) seventh, to the Class A-2 Noteholders, the Class A-2 Principal
Payment Amount for such Payment Date, based on the Class A-2 Percentage and
the Class A-2 Principal Carryover Shortfall, if any;
(viii) eighth, to the Class B Noteholders, the Class B Principal Payment
Amount for such Payment Date, based on the Class B Percentage and the Class
B Principal Carryover Shortfall, if any;
(ix) ninth, to the Reserve Account to the extent necessary to make the
amount on deposit in the Reserve Account equal to the Reserve Account
Required Amount (after giving effect to all withdrawals from the Reserve
Account on such date);
(x) tenth, to the Class A-1 Noteholders, to the Class A-2 Noteholders
and to the Class B Noteholders, as principal, pro rata, until the Target
Overcollateralization Amount is reached; and
(xi) eleventh, to the Seller, as holder of the Certificate.
STATEMENTS TO NOTEHOLDERS
On each Payment Date, the Indenture Trustee must provide to each Noteholder
and the Rating Agency a statement prepared by the Servicer based on the
information in the related Servicer's Certificate, which statement sets forth
certain information required under the Sale and Servicing Agreement. Each such
statement will include the following information with respect to such Payment
Date or the immediately preceding Collection Period, as applicable:
(i) the amount of such payment allocable to interest with respect to the
Class A-1, Class A-2 and Class B Notes, as applicable;
(ii) the Class A-1 Percentage, the Class A-2 Percentage and the Class B
Percentage;
(iii) the amount of such payment allocable to principal on or with
respect to the Class A-1 Notes, Class A-2 and Class B Notes, as applicable;
(iv) the amount of such payment payable out of amounts withdrawn from
the Reserve Account, the Reserve Account Required Amount and the amount
remaining in the Reserve Account;
(v) the amount of fees paid by the Trust with respect to such Collection
Period, including any Servicer Fee, Supplemental Servicer Fee, and Servicer
Expenses;
(vi) the Class A-1 Note Balance, the Class A-2 Note Balance and the
Class B Note Balance, as applicable;
(vii) the Class A-1 Interest Carryover Shortfall, the Class A-1 Principal
Carryover Shortfall, the Class A-2 Interest Carryover Shortfall, the Class
A-2 Principal Carryover Shortfall, the Class B Interest Carryover Shortfall
and the Class B Principal Carryover Shortfall, if any;
(viii) the Class A-1 Note Factor, the Class A-2 Note Factor and the Class
B Note Factor;
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(ix) the Delinquency Ratio, Cumulative Default Ratio and Repossession
Inventory Ratio;
(x) whether any Reserve Account Trigger Event or Servicer Termination
Trigger Event has occurred;
(xi) whether any Reserve Account Trigger Event or Servicer Termination
Trigger Event that may have occurred as of a prior Record Date is Deemed
Cured;
(xii) the number of Receivables and the aggregate Principal Balance due
thereof, for which the related Obligors are delinquent in making Scheduled
Payments (A) between 31 and 60 days, (B) between 61 and 90 Days, (C) between
91 and 120 days and (D) more than 120 days;
(xiii) the number of Receivables which became Liquidated Receivables, and
the aggregate principal amount thereof net of Recoveries;
(xiv) the number of Receivables which became Defaulted Receivables, and
the aggregate principal amount thereof;
(xv) the number and the aggregate Purchase Amount of Receivables that
became Purchased Receivables during the related Collection Period and the
number and aggregate Purchase Amount of Receivables that were required to be
repurchased during the related Collection Period but were not so
repurchased;
(xvi) the Principal Balance, APR and model year of each Receivable that
was replaced and the Principal Balance, APR and model year of the
corresponding Replacement Receivable;
(xvii) the number and the aggregate Principal Balance of Receivables with
respect to which, to the knowledge of the Servicer, Obligors became the
subject of bankruptcy proceedings during such Collection Period (or during a
prior Collection Period, if the Servicer first became aware of such
proceeding during the current Collection Period);
(xviii) the amount of any Deficiency Claim Amounts deposited in the
Collection Account from the Reserve Account;
(xvix) the Collector to Current Receivable Ratio and the Collector to
Delinquent Receivable Ratio;
(xx) the Overcollateralization Amount and the Target
Overcollateralization Amount; and
(xxi) the beginning balance, amount of claims paid, amount of deposits
made, and ending balance of the applicable collateral self-insurance fund,
if any.
Each amount set forth pursuant to subclauses (i), (ii) and (iv) will be
expressed as a dollar amount per $1,000 of the initial principal amount of a
Note of the related class. Within the required period of time after the end of
each calendar year, the Indenture Trustee will furnish to each person who at any
time during such calendar year was a Noteholder, a statement as to the aggregate
amounts of interest and principal paid to such Noteholder and such other
information as the Servicer deems necessary to enable such Noteholder to prepare
its tax returns. See "Certain Federal Income Tax Consequences."
RESERVE ACCOUNT
Pursuant to the Sale and Servicing Agreement, the Seller will cause the
Indenture Trustee to establish the Reserve Account in the name of the Indenture
Trustee for the benefit of the Noteholders. On the Closing Date, the Seller will
make an initial deposit of cash into the Reserve Account in the amount of at
least $[ ] ([ ]% of the Cutoff Date Principal Balance) (the "Reserve Account
Initial Deposit"). On each Payment Date, additional amounts will be deposited
into the Reserve Account from collections on the Receivables to the extent funds
are available therefor as described under "The Notes--Priority of Distribution
Amounts." Funds will be withdrawn from the Reserve Account on or before each
Payment Date to pay any Deficiency Claim Amount for such Payment Date. The
aggregate amount required to be
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on deposit in the Reserve Account at any time (the "Reserve Account Required
Amount") is described below.
Amounts, if any, on deposit in the Reserve Account on any Payment Date in
excess of the Reserve Account Required Amount for each Payment Date will be
released as described in "Priority of Distribution Amounts" above, so long as
(a) no Reserve Account Trigger Event has occurred or (b) all Reserve Account
Trigger Events which have occurred have been Deemed Cured. Upon occurrence of a
Reserve Account Trigger Event and until such Reserve Account Trigger Event has
been Deemed Cured, such excess amounts on deposit in the Reserve Account will
not be released, but will be retained in the Reserve Account for the benefit of
the Noteholders and distributed as described in "--Priority of Distribution
Amounts" above.
For the purposes hereof, the following terms have the following meanings:
"Reserve Account Required Amount" means, with respect to any Record Date, an
amount equal to the greater of (a) [ ]% of the Aggregate Principal Balance and
(b) the Floor Amount, unless a Reserve Account Trigger Event has occurred, in
which case the Reserve Account Required Amount shall include all amounts
required to be paid in items (x) and (xi) as described in "Priority of
Distribution Amounts" until such Reserve Account Trigger Event has been Deemed
Cured; PROVIDED, HOWEVER, that the Reserve Account Required Amount shall be
[ ]% of the Aggregate Principal Balance for each Payment Date following the
point in time that the Cumulative Default Ratio as described in clause (c) of
the definition of a Reserve Account Trigger Event is greater than [ ]%, but
less than [ ]%, notwithstanding such Reserve Account Trigger Event being Deemed
Cured.
"Floor Amount" at any time will equal the lesser of (a) the Note Balance and
(b) $[ ].
"Reserve Account Trigger Event" means, with respect to any Record Date, that
any one of the following events shall have occurred: (a) the Delinquency Ratio
for each of the three preceding Collection Periods exceeds [ ]%; (b) the
Repossession Inventory Ratio is greater than [ ]%; or (c) the Cumulative
Default Ratio exceeds (i) [ ]% as of any Determination Date from the initial
Determination Date through and including the sixth Determination Date, (ii)
[ ]% as of any Determination Date from the seventh Determination Date through
and including the twelfth Determination Date, (iii) [ ]% as of any
Determination Date from the thirteenth Determination Date through and including
the eighteenth Determination Date, (iv) [ ]% as of any Determination Date from
the nineteenth Determination Date through and including the twenty-fourth
Determination Date or (v) [ ]% as of any Determination Date thereafter.
"Delinquency Ratio" means, with respect to any Determination Date, a
fraction (expressed as a percentage), (a) the numerator of which is equal to the
aggregate of the Principal Balances of all Receivables for which the related
Financed Vehicles have not been repossessed by the Servicer and with respect to
which more than 10% of a Scheduled Payment is 61 or more days past due as of
such Determination Date, and (b) the denominator of which is equal to the
Aggregate Principal Balance as of such Determination Date.
"Cumulative Default Ratio" means, with respect to any Determination Date, a
fraction (expressed as a percentage), (a) the numerator of which is equal to the
sum of (i) the aggregate of the Principal Balances of all Receivables which have
become Defaulted Receivables and (ii) the amount of any Cram Down Losses, and
(b) the denominator of which is equal to the Cutoff Date Principal Balance.
"Deemed Cured" means, as of a Determination Date, (a) with respect to a
Servicer Termination Trigger Event that has occurred, that no Servicer
Termination Trigger Event shall have occurred as of such Determination Date or
as of either of the two immediately preceding Determination Dates, and (b) with
respect to a Reserve Account Trigger Event that has occurred, that no Reserve
Account Trigger Event shall have occurred as of such Determination Date or as of
either of the two immediately preceding Determination Dates; PROVIDED, HOWEVER,
that a Reserve Account Trigger Event resulting from a Cumulative Default
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Ratio exceeding [ ]% shall never be Deemed Cured until the Class A-1 Note
Balance, the Class A-2 Note Balance and the Class B Note Balance have been
reduced to zero.
"Repossession Inventory Ratio" means, with respect to any Determination
Date, a fraction (expressed as a percentage), (a) the numerator of which is
equal to the aggregate of the Principal Balances of all Receivables for which
the related Financed Vehicles have been repossessed but not yet liquidated by
the Servicer and (b) the denominator of which is equal to the Aggregate
Principal Balance as of such Determination Date.
THE INDENTURE
THE INDENTURE TRUSTEE. [ ] is the Indenture Trustee under the
Indenture. For the purpose of meeting the legal requirements of certain
jurisdictions, the Indenture Trustee may appoint co-trustees or separate
trustees of all or any part of the trust estate and confer upon such party such
powers, duties, obligations, rights and trusts as the Indenture Trustee deems
necessary, or desirable. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the Indenture Trustee by the
Indenture will be conferred or imposed upon the Indenture Trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
Indenture Trustee shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who will exercise and perform
such rights, powers, duties, and obligations solely at the direction of the
Indenture Trustee.
The Indenture Trustee may resign at any time after 60 days' written notice
to the Issuer and Noteholders in which event the Trust will be obligated to
appoint a successor trustee. The Trust may remove the Indenture Trustee if,
among other reasons, the Indenture Trustee ceases to be eligible to continue as
such under the Indenture, becomes legally unable to act or becomes insolvent. In
such circumstances, the Trust will be obligated to appoint a successor trustee.
Any resignation or removal of the Indenture Trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
of a successor trustee.
The Sale and Servicing Agreement will provide that the Indenture Trustee
will be entitled to indemnification by the Servicer for and will be held
harmless against, any loss, liability, fee, disbursement or expense incurred by
the Indenture Trustee not resulting from the Indenture Trustee's own willful
misfeasance, bad faith or negligence and other than by reason of a breach of any
of the Indenture Trustee's representations or warranties set forth in the Sale
and Servicing Agreement. The Sale and Servicing Agreement will further provide
that the Servicer will indemnify the Indenture Trustee for certain taxes that
may be asserted in connection with the transaction.
The Indenture Trustee makes no representations as to the validity or
sufficiency of the Sale and Servicing Agreement, the Notes (other than the
authentication of the Notes) or any Receivables or the Related Documents and is
not accountable for the use or application by the Seller or the Servicer of any
funds paid to the Seller or the Servicer in respect of the Notes or the
Receivables, or the investment of any monies received by the Servicer before
such monies are deposited in the Collection Account. The Indenture Trustee has
not independently verified the Receivables. The Indenture Trustee is required to
perform only those duties specifically required of it under the Sale and
Servicing Agreement and the Indenture. The Indenture Trustee shall determine
whether the certificates, reports or other instruments required to be furnished
to the Indenture Trustee under the Sale and Servicing Agreement and the
Indenture conform to the requirements of the Sale and Servicing Agreement and
the Indenture, respectively.
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT. The Trust and
Indenture Trustee may, without consent of the Noteholders, enter into one or
more supplemental indentures for any of the following purposes: (i) to correct
or amplify the description of the property subject to the lien of the Indenture
or add additional property thereto; (ii) to evidence the succession of another
Person to the Trust and the assumption by such successor of the covenants of the
Trust; (iii) to add additional covenants for the benefit
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of the Noteholders or to surrender any, right or power conferred on the Trust;
(iv) to convey, transfer, assign, mortgage or pledge any additional property to
or with the Indenture Trustee; (v) to cure any ambiguity, or to correct or
supplement any provision in the Indenture or in any supplemental indenture that
may be inconsistent with any other provision of the Indenture or any
supplemental indenture; (vi) to add to or change any of the provisions of the
Indenture as shall be necessary and permitted to facilitate the administration
by more than one trustee; and (vii) to add any provisions to, change in any
manner or eliminate any of the provisions of the Indenture or modify in any
manner the rights of Noteholders under such Indenture; provided that any such
action must not, as evidenced by an opinion of counsel, adversely affect in any
material respect the interests of any Noteholder.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT. With the consent of the
Note Majority, the Trust and the Indenture Trustee may execute one or more
supplemental indentures to add, change or eliminate any other provisions of the
Indenture, modify in any manner the rights of the Noteholders or provide for the
acceptance of the appointment of a successor Indenture Trustee. Without the
consent of the Holder of each outstanding related Note affected thereby,
however, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate thereon or the redemption price with respect
thereto, change the provisions of the Indenture relating to the application of
collections on, or the proceeds of the sale of, the collateral to the payment of
principal of or interest on the Notes, change any place of payment where or the
coin or currency in which any Note or any interest thereon is payable; (ii)
impair the right to institute suit for the enforcement of certain provisions of
the Indenture regarding payment; (iii) reduce the percentage of the aggregate
amount of the outstanding Notes the consent of the Holders of which is required
for any such supplemental indenture or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of the Indenture
or of certain defaults thereunder and their consequences as provided for in the
Indenture; (iv) modify or alter the provisions of the Indenture regarding
certain aspects of what constitutes an "Outstanding" Note; (v) 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 but unpaid interest on the outstanding
Notes; (vi) modify the provision of the Indenture requiring consent of
Noteholders except to increase the percentage of the aggregate principal amount
of the Notes required to amend the sections of the Indenture or to provide
additional provisions requiring the consent of each Noteholder prior to
modification or waiver; (vii) modify any of the provisions of the Indenture
affecting the calculation of the amount of any payment of interest or principal
due on any Note on any Payment Date; (viii) 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 any such
collateral or deprive the Holder of any Note of the security afforded by the
lien of the Indenture; or (ix) become effective if the Rating Agency Condition
in respect thereof has not been satisfied.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. "Events of Default" under
the Indenture will consist of: (i) any failure to pay interest on the Notes as
and when the same becomes due and payable, which failure continues unremedied
for two days; (ii) any failure to make any required payment of principal on the
Notes; (iii) a default in the observance or performance in any material respect
of any covenant or agreement of the Trust made in the Indenture, or any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect as of the time made, and the continuation of any such default or the
failure to cure such breach of a representation or warranty for a period of 30
days after there shall have been given to the Trust by the Indenture Trustee, or
to the Trust and the Indenture Trustee by the Holders of at least 25% of the
aggregate outstanding principal balance of the Notes, a written notice in
accordance with the Indenture; (iv) certain events of bankruptcy, insolvency,
receivership or liquidation with respect to the Seller or the Trust; and (v)
failure to pay the unpaid principal balance of any class of Notes on the
respective Final Scheduled Payment Date for such class. However, the amount of
principal required to be paid to
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Noteholders under the Indenture will generally be limited to amounts available
in the Collection Account. Therefore, the failure to pay principal on a class of
Notes generally will not result in the occurrence of an Event of Default until
the Final Scheduled Payment Date for such class of Notes.
If an Event of Default occurs and is continuing with respect to the Notes,
the Indenture Trustee may, or if requested by the Note Majority must, declare
all the Notes to be immediately due and payable. Such declaration by the
Indenture Trustee may, under certain circumstances, be rescinded by the Note
Majority.
If an Event of Default occurs, the Indenture Trustee may institute
proceedings to collect amounts due or foreclose on property held by the
Indenture Trustee for the benefit of the Noteholders, exercise remedies as a
secured party, sell the Receivables, elect to have the Trust maintain possession
of such Receivables and continue to apply collections on such Receivables as if
there had been no declaration of acceleration or make demand on the Servicer to
deliver all Servicer Receivables Files to the Indenture Trustee. However, the
Indenture Trustee is prohibited from selling the related Receivables following
an Event of Default, unless (i) the holders of all the 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) the Indenture Trustee determines that the proceeds of the
Receivables would not be sufficient on an ongoing basis to make all payments on
the Notes as such payments would have become due if such obligations had not
been declared due and payable. Following a declaration upon an Event of Default
that the Notes are immediately due and payable, Noteholders will be entitled to
repayment of interest and principal in accordance with the "Priority of
Distribution Amounts" above.
If an Event of Default occurs and is continuing with respect to the Notes,
the Indenture Trustee will be under no obligation to exercise any of the rights
or powers under the Indenture at the request or direction of any of the Holders
of such Notes if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions for
indemnification and the preceding paragraph, the Note Majority will have the
right to direct the time, method and place of conducting any proceeding or any
remedy available to the Indenture Trustee and the Note Majority 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
the Indenture that cannot be modified without the waiver or consent of all of
the Holders of such outstanding Notes.
No Holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Holder previously has given to the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
Holders of not less than 25% of the Note Balance have made written request of
the Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such Holders have offered the Indenture Trustee indemnity
reasonably satisfactory to the Indenture Trustee, and (iv) the Indenture Trustee
has for 60 days failed to institute such proceeding.
NOTE FACTORS; STATEMENT TO NOTEHOLDERS; SERVICER REPORTS TO THE INDENTURE
TRUSTEE
The "Class A-1 Note Factor" will be a seven-digit decimal number that the
Servicer will compute each month indicating the Class A-1 Note Balance as of the
close of business on the Determination Date in that month as a fraction of the
respective original outstanding principal balance of the Class A-1 Notes. The
Class A-1 Note Factor will be 1.0000000 as of the Cutoff Date; thereafter, the
Class A-1 Note Factor will decline to reflect reductions in the Class A-1 Note
Balance as a result of scheduled payments collected, partial prepayments,
prepayments and liquidations of the Receivables. The amount of a Class A-1
Noteholder's pro rata share of the Class A-1 Note Balance can be determined on
any date by multiplying the original denomination of the Holder's Note by the
Class A-1 Note Factor as of the close of business on the most recent Payment
Date.
The "Class A-2 Note Factor" will be a seven-digit decimal number that the
Servicer will compute each month indicating the Class A-2 Note Balance as of the
close of business on the Determination Date in that month as a fraction of the
respective original outstanding principal balance of the Class A-2 Notes. The
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Class A-2 Note Factor will be 1.0000000 as of the Cutoff Date; thereafter, the
Class A-2 Note Factor will decline to reflect reductions in the Class A-2 Note
Balance as a result of scheduled payments collected, partial prepayments,
prepayments and liquidations of the Receivables. The amount of a Class A-2
Noteholder's pro rata share of the Class A-2 Note Balance can be determined on
any date by multiplying the original denomination of the Holder's Note by the
Class A-2 Note Factor as of the close of business on the most recent Payment
Date.
The "Class B Note Factor" will be a seven-digit decimal number that the
Servicer will compute each month indicating the Class B Note Balance as of the
close of business on the Determination Date in that month as a fraction of the
respective original outstanding principal balance of the Class B Notes. The
Class B Note Factor will be 1.0000000 as of the Cutoff Date; thereafter, the
Class B Note Factor will decline to reflect reductions in the Class B Note
Balance as a result of scheduled payments collected, partial prepayments,
prepayments and liquidations of the Receivables. The amount of a Class B
Noteholder's pro rata share of the Class B Note Balance can be determined on any
date by multiplying the original denomination of the Holder's Note by the Class
B Note Factor as of the close of business on the most recent Payment Date.
Under the Sale and Servicing Agreement, the Servicer will perform certain
monitoring and reporting functions for the Trust, including the preparation and
delivery of the Servicer's Certificate on each Record Date to the Indenture
Trustee, the Backup Servicer, and the Rating Agency setting forth specified
information with respect to the preceding Collection Period.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Sale and Servicing Agreement,
the Indenture Trustee will be required to mail to each person who at any time
during such calendar year will have been a Noteholder a statement containing
certain information related to such Noteholder's preparation of federal income
tax returns.
RATINGS
It is a condition to issuance of the Notes that the Class A-1 Notes be rated
at least "[ ]" or the equivalent by the Rating Agency, the Class A-2 Notes be
rated at least "[ ]" or the equivalent by the Rating Agency and the Class B
Notes be rated at least "[ ]" or the equivalent by the Rating Agency. A rating
is not a recommendation to purchase, hold or sell the Notes, inasmuch as such
ratings do not comment as to market price or suitability for a particular
investor. There is no assurance that the ratings will remain for any given
period of time or that the ratings will not be lowered or withdrawn entirely by
the Rating Agency if in its judgment circumstances in the future so warrant.
REGISTRATION OF NOTES
The Notes will initially be registered in the name of Cede, the nominee 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
Securities Exchange Act of 1934, as amended. 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 certificates. 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. See "Certain Information Regarding
the Notes--Book-Entry Registration" in the Prospectus.
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THE TRANSACTION DOCUMENTS
THE FOLLOWING SUMMARY DESCRIBES CERTAIN TERMS OF THE TRANSACTION DOCUMENTS.
FORMS OF THE TRANSACTION DOCUMENTS HAVE BEEN FILED AS EXHIBITS TO THE
REGISTRATION STATEMENT. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, ALL THE PROVISIONS IN
THE TRANSACTION DOCUMENTS. THE FOLLOWING SUMMARY SUPPLEMENTS, AND TO THE EXTENT
INCONSISTENT THEREWITH REPLACES, THE DESCRIPTION OF THE GENERAL TERMS AND
PROVISIONS OF THE TRUST DOCUMENTS (AS SUCH TERM IS USED IN THE PROSPECTUS) SET
FORTH IN THE PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE.
SALE AND ASSIGNMENT OF RECEIVABLES
At the time of issuance of the Notes, the Seller will sell and assign to the
Trust the Seller's entire interest in the Receivables, including its security
interests in the Financed Vehicles. On or before the Closing Date, the Trust
will pledge the Receivables to the Indenture Trustee for the benefit of the
Noteholders pursuant to the Indenture. Each Receivable will be identified in a
schedule to the Sale and Servicing Agreement. The Indenture Trustee will,
concurrently with such pledge, authenticate and deliver the Notes, which have
been executed on behalf of the Trust.
In the Receivables Purchase Agreement and the Sale and Servicing Agreement,
Triad and the Seller will represent and warrant to the Seller and the Trust,
respectively, that, among other things: (i) as of the Cutoff Date, the
information provided in the schedule to the Sale and Servicing Agreement with
respect to the Receivables is correct in all material respects; (ii) at the date
of issuance of the Notes, the Receivables are, to the best of its knowledge,
free and clear of all liens or claims existing or that have been filed for work,
labor, storage or materials that are liens prior to the security interest in the
Financed Vehicle granted by the Receivables and no right of setoff, counterclaim
or rescission has been asserted or, to the best of its knowledge, threatened
with respect to the Receivables; (iii) at the date of issuance of the Notes,
each of the Receivables is secured by (or will be when all necessary steps have
been taken to result in) a first priority perfected security interest in the
Financed Vehicle in favor of Triad; and (iv) each Receivable, at the time it was
originated, complied, and at the date of issuance of the Notes, complies in all
material respects with applicable federal, state and local laws, including
consumer credit, truth in lending, equal credit opportunity and disclosure laws.
Pursuant to the Receivables Purchase Agreement and the Sale and Servicing
Agreement, Triad and the Seller, respectively, will be obligated to repurchase
or replace a Receivable from the Seller and the Trust, respectively, if the
interests of the Noteholders or the Trust in such Receivable are materially
adversely affected by a breach of any representation or warranty made by Triad
or the Seller, respectively, with respect to the Receivable, if such breach has
not been cured following discovery by or notice to Triad or the Seller,
respectively, of the breach. Pursuant to the Sale and Servicing Agreement, the
Servicer will be obligated to purchase or replace a Receivable from the Trust if
the interests of the Noteholders or the Trust in such Receivable are materially
adversely affected by a breach of certain of its servicing obligations under the
Sale and Servicing Agreement (including its obligation to maintain perfection of
the first priority security interest created by each Receivable in the related
Financed Vehicle or certain other covenants with respect to the Servicer), if
the breach has not been cured following the discovery or notice to the Servicer
of the breach. Each Receivable will be purchased from the Trust or replaced by
Triad, the Seller or the Servicer, as the case may be, at a price equal to the
Purchase Amount. The purchase or replacement obligations will constitute the
sole remedy available to the Noteholders or the Indenture Trustee for any such
uncured breaches.
Pursuant to the Sale and Servicing Agreement, the Servicer will service and
administer the Receivables. The documents evidencing the Receivables will be
delivered to the Indenture Trustee on the Closing Date. In addition, Triad's
accounting records and computer systems will be marked to reflect such sale and
assignment, and UCC financing statements reflecting such sale and assignment
will be filed. See "Certain Legal Aspects of the Receivables--Security Interests
in Vehicles."
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ACCOUNTS
Each Obligor has been instructed to make payments with respect to the
Receivables to a Lockbox which has been established and will be maintained by
[ ] (the "Lockbox Bank"). Upon receipt of payments in the Lockbox, the Lockbox
Bank will deposit funds into an account maintained by the Lockbox Bank at a
depository institution (the "Lockbox Account"). The Indenture Trustee will
establish the Collection Account (the "Collection Account") and the Reserve
Account (the "Reserve Account") in the name of the Indenture Trustee for the
benefit of the Noteholders. All payments made on or with respect to the
Receivables previously deposited in the Lockbox Account will be transferred to
the Collection Account within two Business Days of the receipt of available
funds therein. All payments with respect to the Notes will be made by the
Indenture Trustee from the Collection Account. Upon receipt, but in no event
later than two Business Days after the receipt thereof, each of the Servicer,
Triad and the Seller will remit all amounts received by it in respect of the
Receivables in the form of checks with payment coupons directly to the Lockbox.
Other payments received by each of the Servicer, Triad and the Seller will be
deposited into a local servicing account for processing, and then transferred to
the Collection Account. The Collection Account will be maintained with the
Indenture Trustee as long as the Indenture Trustee's deposits have a rating
acceptable to the Rating Agency. If the deposits of the Indenture Trustee no
longer have such acceptable rating, the Indenture Trustee shall cause such
accounts to be moved to a bank or trust company having such acceptable ratings.
The Collection Account and the Reserve Account will be initially established
and maintained in the trust department of the Indenture Trustee. All the trust
accounts will be invested in eligible investments as specified in the Sale and
Servicing Agreement.
SERVICING PROCEDURES
The Servicer will make all reasonable efforts to collect all payments due
with respect to the Receivables and will continue such collection procedures as
it follows with respect to all comparable motor vehicle receivables that it
services for itself or others, in a manner consistent with the Sale and
Servicing Agreement. If the Servicer determines that eventual payment in full of
a Receivable is unlikely, the Servicer will follow its normal collection
practices and procedures, including the repossession and disposition of the
Financed Vehicle securing the Receivable at a public or private auction, or the
taking of any other action permitted by applicable law.
COLLECTIONS
The Servicer or the Seller, as the case may be, will remit or cause to be
remitted the aggregate Purchase Amount of any Receivables required to be
purchased by it from the Trust to the Collection Account. Under the Sale and
Servicing Agreement, the amounts of any recoveries in respect of any Receivables
repurchased by Dealers pursuant to any Dealer Recourse constitute collections on
the Receivables.
For purposes of the Sale and Servicing Agreement, collections on a
Receivable (other than a Receivable purchased by the Servicer or the Seller)
which are not late fees or other administrative fees and expenses collected
during a Collection Period are required to be applied first to the Scheduled
Payment. To the extent that such collections on a Receivable during a Collection
Period exceed the Scheduled Payment on such Receivable, the collections are
required to be applied to prepay the Receivable in full. If the collections are
insufficient to prepay the Receivable in full, any partial prepayment of
principal during a Collection Period will be immediately applied to reduce the
principal balance of the Receivable during such Collection Period.
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SERVICING COMPENSATION
The Servicer is entitled under the Sale and Servicing Agreement to receive
on each Payment Date the Servicer Fee equal to the product of one-twelfth of the
Servicing Fee Rate and the Principal Balance outstanding at the beginning of the
calendar month immediately preceding the month in which such Payment Date
occurs. If the Backup Servicer, or any other entity becomes the successor
Servicer, it will receive compensation at the Servicing Fee Rate. The Servicer
will also collect and retain the Supplemental Servicer Fee as additional
servicing compensation, which includes any late fees, prepayment charges and
other administrative fees or similar charges allowed by applicable law with
respect to the Receivables. Payments by or on behalf of Obligors will be
allocated to scheduled payments, late fees and other charges and principal and
interest in accordance with the Servicer's normal practices and procedures. The
Servicer Fee, the Supplemental Servicer Fee and Servicer Expenses will be paid
out of collections from the Receivables pursuant to the distribution described
under "The Notes--Priority of Distribution Amounts".
The Servicer Fee, the Supplemental Servicer Fee and Servicer Expenses will
compensate the Servicer for performing the functions of a third-party servicer
of the Receivables as an agent for the Trust, including collecting and posting
all payments, responding to inquiries of Obligors on the Receivables,
investigating delinquencies, reporting any required tax information to Obligors,
paying costs of collections and monitoring the collateral. In addition, the
Servicer Fee will (a) compensate the Servicer for administering the Receivables,
including accounting for collections, furnishing monthly and annual statements
with respect to payments and generating federal income tax information, if any,
and (b) reimburse the Servicer for certain taxes, independent accountants' fees
and other costs incurred in connection with administering the Receivables.
BACKUP SERVICING AND BACKUP SERVICING COMPENSATION
Pursuant to the Sale and Servicing Agreement, the Backup Servicer will
perform certain duties as the Backup Servicer. In addition, following the
resignation or removal of the Servicer, the Backup Servicer has agreed to serve
as the successor Servicer under the Sale and Servicing Agreement. The Backup
Servicer will be required to carry out its duties in accordance with the
customary and usual procedures of institutions which perform similar functions.
On each Payment Date, the Backup Servicer will be entitled to receive a fee for
acting as Backup Servicer (the "Backup Servicer Fee") equal to the product of
one-twelfth times [ ].
The Sale and Servicing Agreement will provide that the Backup Servicer may
not resign from its obligations and duties as Backup Servicer thereunder, except
as otherwise provided below or upon determination that, by reason of a change in
legal requirements, the Backup Servicer's performance of such duties would be in
violation of such legal requirements and a Note Majority does not elect to waive
the obligations of the Backup Servicer to perform the duties that render it
legally unable to act or to delegate those duties to another Person. No such
resignation will become effective until a successor backup servicer has assumed
the Backup Servicer's servicing obligations and duties under the Sale and
Servicing Agreement. Notwithstanding the foregoing, the Backup Servicer may
resign for any reason, provided an entity acceptable to the Controlling Party
has assumed the Backup Servicer's obligations and duties under the Sale and
Servicing Agreement prior to the effectiveness of any such resignation and the
Rating Agency Condition is satisfied with respect thereto.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement will provide that the Servicer will cause a
firm of nationally recognized independent certified public accountants to
deliver to the Servicer, on or before June 30 of each year, commencing June 30,
[ ], a statement to the effect that such firm has audited the books and records
of the Servicer and issued its report thereon from the fiscal year ended on the
immediately
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preceding March 31. The Servicer will deliver a copy of such report to the
Indenture Trustee, the Backup Servicer and the Rating Agency.
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee, the Backup Servicer and the Rating Agency, on or before March
31 of each year, commencing March 31, [ ], of a certificate signed by an
officer of the Servicer stating that, to such officer's knowledge, the Servicer
has fulfilled its obligations under the Sale and Servicing Agreement throughout
the preceding 12 months (or, for the initial report, for such longer period as
will have elapsed from the date of issuance of the Notes) or, if there has been
a default in the fulfillment of any such obligation, describing each such
default. A copy of such certificate may be obtained by any Noteholder by a
request in writing to the Indenture Trustee addressed to the Corporate Trust
Office.
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, by reason of a change in legal requirements, the Servicer's
performance of such duties would be in violation of such legal requirements and
a Note Majority does not elect to waive the obligations of the Servicer to
perform the duties that render it legally unable to act or to delegate those
duties to another Person. No such resignation will become effective until the
Backup Servicer or a successor servicer has assumed the Servicer's 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 stockholders, directors, officers, employees or agents,
will be liable to the Trust or the Indenture Trustee 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
the Servicer's material breach of the Sale and Servicing Agreement, willful
misfeasance, bad faith or negligence (other than errors in judgment) in the
performance of its duties.
Subject to the provisions of the Sale and Servicing Agreement, any entity
into which the Servicer may be merged or consolidated, resulting from any
merger, conversion or consolidation to which the Servicer is a party, which
acquires all or substantially all of the assets of the Servicer, or succeeding
to the business of the Servicer, which in any case assumes the obligations of
the Servicer, will be the successor of the Servicer, under the Sale and
Servicing Agreement. The Servicer may at any time perform certain specific
duties as Servicer through other subcontractors.
SERVICER TERMINATION EVENTS; RIGHTS UPON SERVICER TERMINATION EVENT
A "Servicer Termination Event" under the Sale and Servicing Agreement will
include: (i) the Servicer's failure to make deposits into the Collection Account
or to deliver to the Indenture Trustee any proceeds or payments payable to the
Noteholders required to be so deposited or delivered in accordance with the Sale
and Servicing Agreement, which failure continues unremedied for a period of two
Business Days (one Business Day with respect to payment of Purchase Amounts)
after the earlier of (x) discovery of such failure by the Servicer and (y)
notice of such failure is given by the Indenture Trustee to the Servicer; (ii)
the Servicer's failure or failures to satisfy any other covenant or agreement
set forth in the Sale and Servicing Agreement, which failure or failures,
individually or in the aggregate, materially and adversely affect the rights of
Noteholders and remains uncured for a period of 30 days after the earlier of the
date on which (a) it obtains actual knowledge of such failure and (b) written
notice of such failure to the Servicer by the Indenture Trustee or the Note
Majority; (iii) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings with respect to the Servicer
indicating its insolvency; and (iv) a Servicer Termination Trigger Event has
occurred and has not been Deemed Cured.
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A "Servicer Termination Trigger Event" means that any one of the following
events shall have occurred and shall not have been cured: (a) the average of the
Delinquency Ratios for each of the three preceding Collection Periods exceeds
[ ]%; (b) the Repossession Inventory Ratio is greater than [ ]% or (c) the
Cumulative Default Ratio exceeds (i) [ ]% as of any Determination Date from the
initial Determination Date through and including the sixth Determination Date,
(ii) [ ]% as of any Determination Date from the seventh Determination Date
through and including the twelfth Determination Date, (iii) [ ]% as of any
Determination Date from the thirteenth Determination Date through and including
the eighteenth Determination Date or (iv) [ ]% as of any Determination Date
thereafter; PROVIDED, HOWEVER, that following the appointment of a successor
Servicer, no Servicer Termination Trigger Event shall have been deemed to occur
in accordance with this definition until the seventh Determination Date
succeeding the appointment of such successor Servicer.
As long as a Servicer Termination Event under the Sale and Servicing
Agreement remains unremedied, a Note Majority may terminate all of the rights
and obligations of the Servicer under the Sale and Servicing Agreement. Upon
such termination, all authority, power, obligations and responsibilities of the
Servicer under the Sale and Servicing Agreement (other than obligations and
responsibilities arising prior to such termination) will automatically pass to
the Backup Servicer (or such other successor servicer appointed by the Indenture
Trustee).
WAIVER OF PAST DEFAULTS
A Note Majority 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 will impair the Noteholders' rights with respect to subsequent
defaults.
AMENDMENT
The Sale and Servicing Agreement may be amended by the Issuer, the Seller,
Triad, the Servicer, the Indenture Trustee and the Backup Servicer, without the
consent of any of the Certificateholders or the Noteholders, to cure any
ambiguity, to correct or supplement any provision therein or for the purpose of
adding any provision to or changing in any manner or eliminating any provision
thereof or modifying in any manner the rights of the Noteholders; PROVIDED,
HOWEVER, that such action must not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of the Noteholders. The
Seller, the Issuer, Triad, the Servicer, the Backup Servicer and the Indenture
Trustee may also amend the Sale and Servicing Agreement with the consent of a
Note Majority to add, change or eliminate any provisions of the Sale and
Servicing Agreement or to modify the rights of the Noteholders, PROVIDED,
HOWEVER, that such action will not: (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
Receivables or distributions that shall be required to be made on any Note, the
Class A-1 Interest Rate, the Class A-2 Interest Rate or the Class B Interest
Rate; (ii) reduce the aforesaid percentage of the Class A-1 Note Balance, the
Class A-2 Note Balance or Class B Note Balance which is required to consent to
any such amendment, without the consent of the Holders of all Notes of such
Class then outstanding; (iii) result in a downgrade or withdrawal of the then
current rating of any Class of Note by the Rating Agency without the consent of
each Noteholder; or (iv) change the Reserve Account Required Amount or Target
Overcollateralization Amount without the consent of each Noteholder and the
Rating Agency.
LIST OF NOTEHOLDERS; VOTING OF NOTES
Upon written request by three or more Noteholders or any one or more
Noteholders with an aggregate principal balance evidencing not less than [ ]%
of the Note Balance and upon compliance by such Noteholders with certain other
provisions of the Sale and Servicing Agreement, the Indenture Trustee will
afford such Noteholders within five Business Days after receipt of such request
access during business
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hours to the current list of Noteholders for purposes of communicating with
other Noteholders with respect to their rights under the Sale and Servicing
Agreement and the Notes.
If Triad, the Seller or any of their affiliates owns any Notes, such Note
will not have voting rights under the Sale and Servicing Agreement or the other
Related Documents.
The Sale and Servicing Agreement will not provide for the holding of any
annual or other meetings of Noteholders.
TERMINATION
The respective obligations of the Issuer, the Seller, the Servicer, the
Backup Servicer and the Indenture Trustee pursuant to the Sale and Servicing
Agreement will terminate upon the latest of: (i) the maturity or other
liquidation of the last Receivable and the payment to Noteholders of amounts
required to be paid under the Notes and the Indenture; or (ii) the payment to
Noteholders of all amounts required to be paid to them pursuant to the Indenture
and the expiration of any preference period related thereto.
In order to avoid excessive administrative expense, the Servicer has the
option, to purchase from the Trust, as of the last day of any month as of which
the Aggregate Principal Balance with respect to the Receivables is less than or
equal to [ ]% of the Cutoff Date Principal Balance, all remaining Receivables
at a price equal to the aggregate of the Purchase Amounts thereof as of such
last day, plus the appraised value of any other property held by the Trust. The
Indenture Trustee will give written notice of termination to each Noteholder of
record. The final distribution to any Noteholder will be made only upon
surrender and cancellation of such Holder's Note at the office or agency of the
Trustee specified in the notice of termination; PROVIDED, HOWEVER, that if on
the Payment Date upon which final payment of the Notes is to be made, there are
five or fewer Noteholders of record, such final payment to such Noteholder will
be made by check or wire transfer as described above and each such Noteholder
shall present and surrender its Note at the office or agency designated in the
notice of final distribution referred to above within 30 days after such Payment
Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain Federal income tax
consequences of the purchase, ownership and disposition of the Notes. This
discussion does not address every aspect of the Federal income tax laws that may
be relevant to holders of Notes in light of their personal investment
circumstances or to certain types of Noteholders subject to special treatment
under the Federal income tax laws (including, without limitation, banks and
thrifts, insurance companies, dealers in securities, foreign investors,
regulated investment companies, individuals, trusts and estates and pass-through
entities, the equity holders of which are any of the foregoing). This discussion
is directed to prospective purchasers who purchase Notes in the initial
distribution thereof and who hold the Notes as "capital assets" within the
meaning of Section 1221 of the Code. Prospective purchasers 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.
The following summary is based upon current provisions of the Code, the
Treasury regulations promulgated thereunder, judicial authority, and ruling
authority, all of which are subject to change, which change may be retroactive.
The Issuer will be provided with an opinion of Federal Tax Counsel regarding
certain Federal income tax matters discussed below. An opinion of Federal Tax
Counsel, however, is not binding on the Internal Revenue Service (the "IRS") or
the courts. Moreover, there are no cases or IRS rulings on similar transactions
with terms similar to those of the Notes. As a result, the IRS may disagree with
all or a part of the discussion below. No ruling on any of the issues discussed
below will be sought from the IRS.
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TAX CHARACTERIZATION OF THE ISSUER
Federal Tax Counsel is of the opinion that the Issuer will not be classified
as an association (or publicly traded partnership) taxable as a corporation for
Federal income tax purposes. This opinion will be based on the assumption of
compliance by all parties with the terms of the Trust Agreement and related
documents.
If the Issuer were taxable as a corporation for Federal income tax purposes,
the Issuer would be subject to corporate income tax on its taxable income. The
Issuer'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.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Issuer will agree, and the
Class A Noteholders will agree by their purchase of Class A Notes, to treat the
Class A Notes as debt for Federal, state and local income and franchise tax
purposes. Federal Tax Counsel will advise the Issuer that in its opinion the
Class A Notes will be classified as debt for Federal income tax purposes.
The Issuer will agree, and the Class B Noteholders will agree by their
purchase of Class B Notes, to treat the Class B Notes as debt for Federal, state
and local income and franchise tax purposes. Federal Tax Counsel will opine
that, for Federal income tax purposes, the Class B Notes will be classified as
either debt or as partnership interests in the Issuer and not as equity
interests in an association taxable as a corporation. The discussion below,
unless otherwise noted, assumes the characterization of the Notes, as debt, is
correct.
OID, INDEXED SECURITIES, ETC. It is not anticipated that the Notes will be
issued with original issue discount ("OID") within the meaning of Section 1273
of the Code.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed below, the Notes will not be considered issued with OID. If the Notes
were treated as being issued with OID, the excess of the "stated redemption
price at maturity" of the Notes over their issue price would constitute 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.
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, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of 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, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used by a corporate taxpayer
only to offset capital gains, and by an individual taxpayer only to the extent
of capital gains plus $3,000 of other income.
POSSIBLE ALTERNATIVE TREATMENTS OF THE CLASS B NOTES. If the IRS
successfully asserted that the Class B Notes did not represent debt for Federal
income tax purposes, Federal Tax Counsel is of the opinion that the Class B
Notes would be treated as equity interests in the Issuer. If the Notes are
recharacterized as equity interests in the Issuer and the Issuer were respected
as a partnership, certain Noteholders could
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have adverse tax consequences. For example, income to foreign holders might be
subject to U.S. tax and U.S. tax return filing and withholding requirements,
income to certain tax exempt holders might constitute unrelated business taxable
income generally subject to tax at corporate income tax rates, and individual
holders might be subject to certain limitations on their ability to deduct their
share of the Issuer's expenses.
Alternatively, if, contrary to the opinion of Federal Tax Counsel, the
Issuer were treated as a publicly traded partnership taxable as a corporation,
it would be subject to Federal income tax (and any similar state or local taxes)
at corporate tax rates on its taxable income generated by ownership of the
Receivables. Such a tax could result in reduced distributions to Noteholders.
Distributions to Noteholders generally would not be deductible in computing the
taxable income of the publicly traded partnership. In addition, all or a portion
of any such distributions would, to the extent of the current and accumulated
earnings and profits of such corporation, be treated as dividend income to the
Noteholders, and in the case of Noteholders that are foreign persons would be
subject to withholding tax.
FOREIGN HOLDERS. Interest paid (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) does not own actually or constructively 10% or more of the
capital or profits of interests in the Issuer (including a holder of 10% of the
outstanding Class B Notes) and is not actually or constructively a "10 percent
shareholder" of Triad, the Seller or a 66 controlled foreign corporation" with
respect to which the Issuer or Triad is a "related person" within the meaning of
the Code and (ii) provides the Trustee or other person who is otherwise required
to withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under 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 the information provided in this statement
changes, the Foreign Person must inform the Issuer within 30 days of such
change. If a Note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by a Form W-8 or substitute form provided
by the Foreign Person that owns the Note. If such interest is not portfolio
interest, then it will be subject to United States Federal income and
withholding tax at a rate of 30%, 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 (a) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Person and (b) 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.
If the IRS were to contend successfully that the Notes are interests in a
partnership (not taxable as a corporation), a Noteholder that is a foreign
person might be required to file a U.S. Federal income tax return and pay tax on
its share of partnership income at regular U.S. rates, including the branch
profits tax, and would be subject to withholding tax on its share of partnership
income. If the Notes were recharacterized as interests in a "publicly traded
partnership" taxable as a corporation, distributions on the Notes treated as
dividends would generally be subject to withholding tax on the gross amount of
such dividends at the rate of 30% unless such rate were reduced by an applicable
treaty. If the Notes are recharacterized as equity interests in a partnership,
or, contrary to the opinion of Federal Tax Counsel, in a publicly traded
partnership taxable as a corporation, any taxes required to be so withheld will
be treated for all purposes of the Notes as having been paid to the related
Noteholder.
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
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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 Issuer will be required to withhold 31%
of the amount otherwise payable to the holder, and remit the withheld amount to
the IRS as a credit against the holder's Federal income tax liability.
CERTAIN STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences" above, potential purchasers should consider the
state income tax consequences of the acquisition, ownership and disposition of
the Notes. State income tax law may vary substantially from state to state, and
this discussion does not purport to describe any aspect of the income tax laws
of any state. Therefore, potential purchasers should consult their own tax
advisors with respect to the various tax consequences of an investment in the
Notes.
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 subject to those provisions, and
entities deemed to hold plan assets of such plans (each, a "Benefit Plan"), from
engaging in certain transactions involving "plan assets" with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code with
respect to the Benefit Plan. A violation of these "prohibited transaction" rules
may generate excise tax and other penalties and liabilities under ERISA and the
Code for such persons. ERISA also imposes certain duties on persons who are
fiduciaries of Benefit Plans subject to ERISA. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Benefit Plan is considered to be a fiduciary of such Benefit
Plan (subject to certain exceptions not here relevant).
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes if assets of the Issuer 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 the Issuer 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 Issuer 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. Although there is little guidance on
the subject, the Issuer believes that, at the time of their issuance the [Class
A] Notes should be treated as indebtedness without substantial equity features
for purposes of the Plan Assets Regulation. The debt status of the Notes could
be affected subsequent to their issuance by certain changes in the financial
condition of the Issuer.
[The debt status of the Class B Notes for these purposes is unclear and
therefore no Class B Note or interest therein may be sold or transferred to any
Benefit Plan subject to Title I of ERISA or Section 4975 of the Code unless such
sale or transfer is to an "insurance company general account" as defined in
Prohibited Transaction Class Exemption ("PTCE") 95-60 and the conditions set
forth in PTCE 95-60 have been satisfied. By its purchase of a Class B Note, each
purchaser shall be deemed to represent and warrant that it is purchasing the
Class B Note in compliance with the foregoing restrictions.]
Without regard to whether Notes are treated as an equity interest under the
Plan Assets Regulation, the acquisition or holding of Notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if the
Issuer, Triad, the Servicer the Backup Servicer, the Indenture Trustee or the
Owner Trustee is or becomes a party in interest or a disqualified person with
respect to such Benefit Plan. Certain exemptions from the prohibited transaction
rules could be applicable to the purchase and holding
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of Notes by a Benefit Plan depending on the type and circumstances of the plan
fiduciary making the decision to acquire such Notes. Included among these
exemptions, each of which contains several conditions which must be satisfied
before the exemption applies, are: PTCE 90-1, regarding certain transactions
entered into by insurance company pooled separate accounts; PTCE 95-60,
regarding certain transactions entered into by insurance company general
accounts; PTCE 96-23, regarding certain transactions effected by "in-house asset
managers"; PTCE 91-38 regarding certain transactions entered into by bank
collective investment funds; and PTCE 84-14, regarding certain transactions
effected by "qualified professional asset managers." By acquiring a Note, each
purchaser and each transferee of a Note shall be deemed to represent and warrant
that either (i) it is not acquiring a Note with the assets of a Benefit Plan; or
(ii) its purchase and holding of the Notes will not result in a nonexempt
prohibited transaction under Section 406(a) of ERISA or Section 4975 of the
Code.
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)
may not be subject to ERISA requirements. However, governmental plans can be
subject, under federal, fiduciary, state or local law, to restrictions which are
similar to ERISA and church plans may be subject to other types of prohibited
transaction restrictions under the Code.
A Benefit Plan fiduciary considering the purchase of Notes should consult
its tax and/or legal advisors regarding whether the assets of the Issuer would
be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential consequences.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated [ ], (the "Underwriting Agreement") among Triad, the Seller,
and [ ] (the "Underwriter"), the Seller has agreed to cause the Seller to sell
to the Underwriter, and the Underwriter has agreed to purchase, Notes in the
following respective amounts:
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Total.......................................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will
purchase all the Notes offered hereby if any of such Notes are purchased. Triad
and the Seller have been advised by the Underwriter that the Underwriter
proposes to offer the Notes from time to time for sale in negotiated
transactions or otherwise, at varying prices to be determined at the time of
sale. The Underwriter may effect such transactions by selling the Notes to or
through dealers and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter and any
purchasers of Notes for whom they may act as agents. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the Notes
may be deemed to be underwriters, and any discounts or commissions received by
them and any profit on the resale of Notes by them may be deemed to be
underwriting discounts or commissions, under the Notes Act.
The Notes are a new issue of securities with no established trading market.
The Underwriter has advised Triad and the Seller that it intends to act as a
market maker for the Notes. However, the Underwriter is not obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of any trading market for the Notes.
Triad and the Seller have agreed to indemnify the Underwriter against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriter may be required to make in respect
thereof.
LEGAL MATTERS
Certain legal matters relating to the Notes and certain bankruptcy, federal
income tax and other matters will be passed upon for the Seller and Triad by
Dechert Price & Rhoads, New York, New York. Certain legal matters under
California law will be passed upon for the Seller and Triad by California
counsel, and Helen R. Kraus, General Counsel of Triad.
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GLOSSARY
AGGREGATE PRINCIPAL BALANCE: With respect to the Closing Date, the Cutoff
Date Principal Balance, and with respect to any Record Date, the sum of the
Principal Balances (computed as of the related Determination Date) for all
Receivables (other than Liquidated Receivables and Purchased Receivables).
AMOUNT FINANCED: With respect to a Receivable, the aggregate amount
advanced extended under such Receivable toward the purchase price of the
Financed Vehicle and related costs, including amounts of credit extended in
respect of accessories, insurance premiums, service and warranty policies or
contracts and other items customarily financed as part of motor vehicle retail
installment contracts or promissory notes, and related costs.
AVAILABLE FUNDS: With respect to any Record Date, the sum of (i) the
Collected Funds received by the Servicer during the related Collection Period,
(ii) all Purchase Amounts deposited in the Collection Account for the related
Collection Period, (iii) all income received from investments of funds in the
Collection Account during the related Collection Period and (iv) any funds in
the Reserve Account in excess of the Reserve Account Required Amount to be
released from the Reserve Account.
CERTIFICATEHOLDER: A holder of a certificate evidencing a beneficial
interest in the Trust.
CLASS: A class of Notes.
CLASS A-1 NOTE BALANCE: Initially, [ ] and, thereafter, an amount equal to
the initial Class A-1 Note Balance reduced by all amounts distributed to the
Class A-1 Noteholders that are allocable to principal.
CLASS A-2 NOTE BALANCE: Initially, [ ] and, thereafter, an amount equal to
the initial Class A-2 Note Balance reduced by all amounts distributed to the
Class A-2 Noteholders that are allocable to principal.
CLASS B NOTE BALANCE: Initially, [ ] and, thereafter, an amount equal to
the initial Class B Note Balance reduced by all principal paid to the Class B
Notes.
COLLECTED FUNDS: With respect to any Record Date, the amount of funds in
the Collection Account representing collections on the Receivables received by
the Servicer during the related Collection Period, including all Liquidation
Proceeds collected during the related Collection Period (but excluding any
Purchase Amounts) and all amounts paid by Dealers under Dealer Agreements or
Dealer Assignments with respect to the Receivables during the related Collection
Period.
COLLECTOR TO CURRENT RECEIVABLE RATIO: The ratio of collectors employed by
the Servicer to the aggregate number of Managed Receivables with respect to
which 10% or less of Scheduled Payments is 31 or more days past due.
COLLECTOR TO DELINQUENT RECEIVABLE RATIO: The ratio of collectors employed
by the Servicer to the aggregate number of Managed Receivables with respect to
which more than 10% of all Scheduled Payments is 31 or more days past due.
CONTROLLING PARTY: The Indenture Trustee for the benefit of the
Noteholders; PROVIDED, HOWEVER, that the Owner Trustee for the benefit of the
Certificateholder will be the Controlling Party after all unpaid principal and
interest on the Notes shall have been paid in full.
CORPORATE TRUST OFFICE: The office of the Indenture Trustee at which its
corporate trust business shall be principally administered, which office as of
the date hereof is located at [ ].
CRAM DOWN LOSS: With respect to a Receivable, if a court of appropriate
jurisdiction in an insolvency proceeding shall have issued an order reducing the
amount owed on a Receivable or otherwise modifying or restructuring the
Scheduled Payments to be made on a Receivable, an amount equal to such reduction
in Principal Balance of such Receivable or the reduction in the net present
value (using as the discount rate
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the lower of the APR on such Receivable or the rate of interest, if any,
specified by the court in such order) of the Scheduled Payments as so modified
or restructured. A Cram Down Loss shall be deemed to have occurred on the date
of issuance of such order.
DEALER AGREEMENT: An agreement generally between Triad and a Dealer
relating to the sale of retail installment contracts to Triad and all documents
and instruments relating thereto.
DEALER ASSIGNMENT: With respect to a Receivable, the executed assignment
conveying such Receivable to Triad.
DEFICIENCY CLAIM AMOUNT: With respect to any Record Date, the positive
difference, if any, of (i) the sum of the amounts payable on the related Payment
Date pursuant to clauses (i) through (vi) under the heading "The Notes--Priority
of Distribution Amounts" minus (ii) the amount of Available Funds with respect
to such Record Date, which amount will be withdrawn from the Reserve Account to
the extent funds are on deposit therein and deposited into the Collection
Account on the related Payment Date.
HOLDER OR NOTEHOLDER: The Person in whose name a Note is registered in the
Note Register.
LIQUIDATION PROCEEDS: With respect to a Liquidated Receivable, all amounts
realized with respect to such Receivable (other than amounts withdrawn from the
Reserve Account) net of (i) reasonable expenses incurred by the Servicer in
connection with the collection of such Receivable and the repossession and
disposition of the related Financed Vehicle and (ii) amounts that are required
to be refunded to the Obligor on such Receivable; PROVIDED, HOWEVER, that the
Liquidation Proceeds with respect to any Receivable will in no event be less
than zero.
MANAGED RECEIVABLE: Any retail installment contract (including any related
promissory note) for a Financed Vehicle, and all rights and obligations
thereunder, generally originated by and currently serviced by Triad for
Obligors.
NOTE BALANCE: As of any date of determination, the sum of the Class A-1
Note Balance, the Class A-2 Note Balance and the Class B Note Balance.
NOTE MAJORITY: As of any date of determination, Holders of Class A Notes
and Class B Notes representing more than 50% of the Note Balance.
PAYMENT AMOUNT: With respect to a Payment Date, the sum of (i) the
Available Funds as of the related Record Date, plus (ii) the Deficiency Claim
Amount, if any, with respect to such Payment Date.
PERSON: Any legal person, including any individual, corporation, limited
liability company, partnership, joint venture, estate, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof or any other entity.
PURCHASED RECEIVABLE: A Receivable that was purchased as of the close of
business on the last day of a Collection Period by the Seller or the Servicer as
the result of the violation of certain representations or warranties of the
Seller under the Sale and Servicing Agreement or a breach by the Servicer of
certain of the Servicer's obligations.
RATING AGENCY CONDITION: With respect to any action, that the Rating Agency
has been given prior notice thereof and that the Rating Agency has notified
Triad, the Seller, the Servicer and the Indenture Trustee in writing that such
action will not result in a reduction or withdrawal of the then current rating
of the Class A-1 Notes, Class A-2 Notes or the Class B Notes.
RELATED DOCUMENTS: The Sale and Servicing Agreement, the Indenture, the
Trust Agreement, the Notes, the Receivables Purchase Agreement, the Note
Purchase Agreement, and the other agreements executed in connection with the
closing of the transactions described herein.
S-49
<PAGE>
SALE AND SERVICING AGREEMENT: The Sale and Servicing Agreement between
Triad, in its individual capacity and as Servicer, Triad Financial Special
Purpose Corporation, as Seller, Triad Auto Receivables Owner Trust 199[ ]-[ ] as
purchaser, and [ ], as Indenture Trustee and Back-up Servicer.
SERVICER'S CERTIFICATE: With respect to each Record Date, a certificate,
completed by and executed on behalf of the Servicer, in accordance with the
applicable Sale and Servicing Agreement provisions.
SERVICER RECEIVABLES FILES: The following documents or instruments in the
Servicer's possession with respect to each Receivable: (i) documents evidencing
or relating to any Insurance Policy; and (ii) any and all other documents (in
original or electronic form) that the Servicer keeps on file in accordance with
its customary procedures relating to the individual Receivable, Obligor or
Financed Vehicle.
STATE: Any state of the United States or the District of Columbia.
TRANSACTION DOCUMENTS: The Receivables Purchase Agreement, the Indenture,
the Sale and Servicing Agreement, the Note Purchase Agreement and the Trust
Agreement.
TRUST AGREEMENT: The Trust Agreement between Triad Financial Special
Purpose Corporation, as Holder of the Certificate, Triad, as Servicer, and [ ],
as Owner Trustee.
S-50
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found.
<TABLE>
<S> <C>
Actuarial Receivable............................................................. S-20
Aggregate Principal Balance...................................................... S-48
Amount Financed.................................................................. S-48
APR.............................................................................. S-3
Available Funds.................................................................. S-48
Backup Servicer.................................................................. S-20
Backup Servicer Fee.............................................................. S-39
Benefit Plan..................................................................... S-45
Business Day..................................................................... S-3
Cede............................................................................. S-9
Certificate...................................................................... S-7
Certificateholder................................................................ S-48
Class............................................................................ S-48
Class A Notes.................................................................... i
Class A-1 Interest Carryover Shortfall........................................... S-29
Class A-1 Interest Rate.......................................................... S-2
Class A-1 Note Balance........................................................... S-48, S-1
Class A-1 Note Factor............................................................ S-35
Class A-1 Noteholders............................................................ S-5
Class A-1 Notes.................................................................. i
Class A-1 Payment Amount......................................................... S-28
Class A-1 Percentage............................................................. S-1
Class A-1 Principal Carryover Shortfall.......................................... S-29
Class A-1 Principal Payment Amount............................................... S-5
Class A-2 Interest Carryover Shortfall........................................... S-29
Class A-2 Interest Rate.......................................................... S-2
Class A-2 Note Balance........................................................... S-48, S-1
Class A-2 Note Factor............................................................ S-35
Class A-2 Noteholders............................................................ S-2
Class A-2 Notes.................................................................. i
Class A-2 Payment Amount......................................................... S-28
Class A-2 Percentage............................................................. S-1
Class A-2 Principal Carryover Shortfall.......................................... S-29
Class A-2 Principal Payment Amount............................................... S-5
Class B Interest Carryover Shortfall............................................. S-29
Class B Interest Payment Amount.................................................. S-28
Class B Interest Rate............................................................ S-3
Class B Note Balance............................................................. S-48
Class B Note Factor.............................................................. S-36
Class B Noteholders.............................................................. S-3
Class B Notes.................................................................... i
Class B Payment Amount........................................................... S-28
Class B Percentage............................................................... S-2
Class B Principal Carryover Shortfall............................................ S-29
Class B Principal Payment Amount................................................. S-5
Closing Date..................................................................... S-1
</TABLE>
S-51
<PAGE>
<TABLE>
<S> <C>
Code............................................................................. S-10
Collected Funds.................................................................. S-48
Collection Account............................................................... S-38
Collection Period................................................................ S-5
Collector to Current Receivable Ratio............................................ S-48
Collector to Delinquent Receivable Ratio......................................... S-48
Commission....................................................................... ii
Contracts........................................................................ S-14
Controlling Party................................................................ S-48
Corporate Trust Office........................................................... S-48
Cram Down Loss................................................................... S-48
Cumulative Default Ratio......................................................... S-32
Cutoff Date...................................................................... S-1
Dealer Agreement................................................................. S-49
Dealer Assignment................................................................ S-49
Dealer Recourse.................................................................. S-13
Dealers.......................................................................... S-13
Deemed Cured..................................................................... S-32
Defaulted Receivable............................................................. S-27
Deficiency Claim Amount.......................................................... S-49
Delinquency Ratio................................................................ S-32
Determination Date............................................................... S-4
DTC.............................................................................. ii
ERISA............................................................................ S-10
Events of Default................................................................ S-34
Exchange Act..................................................................... ii
Federal Tax Counsel.............................................................. S-10
Final Scheduled Payment Date..................................................... i
Financed Vehicles................................................................ S-2
Floor Amount..................................................................... S-32
Foreign Person................................................................... S-44
Holder........................................................................... S-49
Indenture Trustee................................................................ i
IRS.............................................................................. S-42
Issuer........................................................................... i
Liquidated Receivable............................................................ S-27
Liquidation Proceeds............................................................. S-49
Lockbox Account.................................................................. S-38
Lockbox Bank..................................................................... S-38
Managed Receivable............................................................... S-49
Non-prime Borrowers.............................................................. S-14
Note Balance..................................................................... S-49
Note Majority.................................................................... S-49
Noteholder....................................................................... S-9
Note Owners...................................................................... S-10
Notes............................................................................ i
Obligors......................................................................... S-13
OID.............................................................................. S-43
Overcollateralization Amount..................................................... S-5
Payment Amount................................................................... S-49
Payment Date..................................................................... S-3
</TABLE>
S-52
<PAGE>
<TABLE>
<S> <C>
Person........................................................................... S-49
Plan............................................................................. S-10
Plan Assets Regulation........................................................... S-45
Precomputed Receivables.......................................................... S-20
Principal Balance................................................................ S-27
Principal Payment Amount......................................................... S-27
PTCE............................................................................. S-45
Purchase Amount.................................................................. S-27
Purchased Receivable............................................................. S-49
Rating Agency.................................................................... S-10
Rating Agency Condition.......................................................... S-49
Receivables...................................................................... S-3
Receivables Purchase Agreement................................................... S-3
Record Date...................................................................... S-4
Recoveries....................................................................... S-28
Redemption Price................................................................. S-27
Registration Statement........................................................... ii
Related Documents................................................................ S-49
Repossession Inventory Ratio..................................................... S-33
Reserve Account.................................................................. S-7
Reserve Account Initial Deposit.................................................. S-31
Reserve Account Required Amount.................................................. S-32
Reserve Account Trigger Event.................................................... S-32
Rule of 78's Receivables......................................................... S-20
Sale and Servicing Agreement..................................................... S-50
Scheduled Payment................................................................ S-28
Securities Act................................................................... ii
Seller........................................................................... S-1
Servicer......................................................................... S-1
Servicer Expenses................................................................ S-9
Servicer Fee..................................................................... S-8
Servicer Receivables Files....................................................... S-50
Servicer Termination Event....................................................... S-40
Servicer Termination Trigger Event............................................... S-41
Servicer's Certificate........................................................... S-50
Servicing Fee Rate............................................................... S-8
Servicing Portfolio.............................................................. S-11
Simple Interest Receivable....................................................... S-20
Sponsor.......................................................................... 11
State............................................................................ S-50
Supplemental Servicer Fee........................................................ S-9
Target Overcollateralization Amount.............................................. S-6
Transaction Documents............................................................ S-50
Trust............................................................................ S-1
Trust Agreement.................................................................. S-50
Trust Property................................................................... S-2
UCC.............................................................................. S-37
Weighted Average Life............................................................ S-25
</TABLE>
S-53
<PAGE>
SUBJECT TO COMPLETION, DATED XXXXXX
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SHALL THERE BE ANY SALE OF THOSE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
TRIAD AUTO RECEIVABLES TRUSTS
AUTO RECEIVABLES BACKED NOTES AND CERTIFICATES ISSUABLE IN SERIES
TRIAD FINANCIAL SPECIAL PURPOSE CORPORATION
SELLER
TRIAD FINANCIAL CORPORATION
SPONSOR AND SERVICER
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more Series (each, a "Series"), in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (each, a "Prospectus Supplement"). Each Series of Securities may
include one or more classes of Notes and one or more classes of Certificates,
which will be issued by a trust to be formed by the Seller for the purpose of
issuing one or more Series of such Securities (each, a "Trust"). A Trust issuing
Securities as described in this Prospectus and the related Prospectus Supplement
shall be referred to herein as the "Issuer."
Each class of Securities of any Series will evidence beneficial ownership in
a segregated pool of assets (the "Trust Property") (such Securities,
Certificates) or will represent indebtedness of the Issuer secured by the Trust
Property (such Securities, Notes), as described herein and in the related
Prospectus Supplement. The Trust Property may consist of any combination of
retail installment sales contracts between manufacturers, dealers or certain
other originators and retail purchasers secured by new and used automobiles and
light-duty trucks financed thereby, or participation interests therein, together
with all monies received relating thereto (the "Contracts"). The Trust Property
will also include a security interest in the underlying new and used automobiles
and light-duty trucks (the "Financed Vehicles") and property relating thereto,
together with the proceeds thereof (together with the Contracts, the
"Receivables"). If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to the Trust Property or any class
of Securities may include any one or more of the following: a financial guaranty
insurance policy (a "Policy") issued by an insurer specified in the related
Prospectus Supplement, a reserve account, letters of credit, credit or liquidity
facilities, third party payments or other support, cash deposits or other
arrangements. In addition to or in lieu of the foregoing, credit enhancement may
be provided by means of subordination, cross-support among the Receivables or
overcollateralization. See "Description of the Trust Documents--Credit and Cash
Flow Enhancement." Except to the extent that a Prospectus Supplement for a
Series provides for a pre-funding period, the Receivables included in the Trust
Property for a Series will have been originated or acquired by Triad Financial
Corporation ("Triad") on or prior to the date of issuance of the related
Securities, as described herein and in the related Prospectus Supplement. The
Receivables included in a Trust will be serviced by a servicer (the "Servicer")
as described in the related Prospectus Supplement.
Each Series of Securities may include one or more classes (each, a "Class").
A Series may include one or more Classes of Securities entitled to principal
distributions, with disproportionate, nominal or no interest distributions, or
to interest distributions, with disproportionate, nominal or no principal
distributions. The rights of one or more Classes of Securities of any Series may
be senior or subordinate to the rights of one or more of the other Classes of
Securities. A Series may include two or more Classes of Securities which differ
as to the timing, order or priority of payment, interest rate or amount of
distributions of principal or interest or both. Information regarding each Class
of Securities of a Series, together with certain characteristics of the related
Receivables, will be set forth in the related Prospectus Supplement. The rate of
payment in respect of principal of the Securities of any Class will depend on
the priority of payment of such a Class and the rate and timing of payments
(including prepayments, defaults, liquidations or repurchases of Receivables) on
the related Receivables. A rate of payment lower or higher than that anticipated
may affect the weighted average life of each Class of Securities in the manner
described herein and in the related Prospectus Supplement. See "Description of
the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" PAGE 10 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO
NOT REPRESENT OBLIGATIONS OF TRIAD, ANY SELLER, ANY SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL
INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF TRIAD, ANY SELLER, ANY SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY TRIAD,
ANY SELLER, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES,
EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. SEE ALSO "RISK
FACTORS" PAGE 10.
------------------------------
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.
------------------------
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters as more fully described under "Plan of
Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any Series, and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder, among other things, will set forth with respect to such Series of
Securities: (i) a description of the Class or Classes of each Securities, (ii)
the rate of interest, the "Pass-Through Rate" or "Interest Rate" or other
applicable rate (or the manner of determining such rate) and authorized
denominations of such Class of such Securities; (iii) certain information
concerning the Receivables and insurance polices, cash accounts, letters of
credit, financial guaranty insurance policies, third party guarantees or other
forms of credit enhancement, if any, relating to one or more pools of
Receivables or all or part of the related Securities; (iv) the specified
interest, if any, of each Class of Securities in, and manner and priority of,
the distributions from the Trust Property; (v) information as to the nature and
extent of subordination with respect to such Series of Securities, if any; (vi)
the payment date to Securityholders; (vii) information regarding the Servicer(s)
for the related Receivables; (viii) the circumstances, if any, under which the
Trust Property may be subject to early termination; (ix) information regarding
tax considerations; and (x) additional information with respect to the method of
distribution of such Securities.
AVAILABLE INFORMATION
The Sponsor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a website (http://www.sec.gov) containing reports,
proxy and information statements and other information regarding registrants,
including the Seller, that file electronically with the Commission.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Sponsor with respect to the Registration
Statement, either on its own behalf or on behalf of a Trust, relating to any
Series of Securities referred to in the accompanying Prospectus Supplement, with
the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), after the date of this
Prospectus and prior to the termination of any offering of the Securities issued
by the Issuer, shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or replaces such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
ii
<PAGE>
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
documents expressly incorporated therein by reference). Requests should be
directed to Triad Financial Corporation, 7711 Center Avenue, Suite 100,
Huntington Beach, California 92647 (telephone number (714) 373-8300).
REPORTS TO SECURITYHOLDERS
So long as the Securities of a Series are in book-entry form, monthly and
annual reports concerning the Securities and the Trust will be sent by the
Trustee to Cede & Co., as the nominee of DTC and as registered holder of the
Securities pursuant to the related Trust Documents. DTC will supply such reports
to Securityholders in accordance with its procedures. To the extent required by
the Exchange Act, each Trust will provide financial information to the
Securityholders which has been examined and reported upon, with an opinion
expressed by, an independent public accountant; to the extent not so required,
such financial information will be unaudited. Each Trust will be formed to own
the Receivables, hold and administer the Pre-Funding Account, if any, to issue
the Securities and to acquire the Subsequent Receivables, if available. No Trust
will have any assets or obligations prior to issuance of the Securities and will
engage in no activities other than those described herein. Accordingly, no
financial statements with respect to the Trust are included in the related
Prospectus Supplement.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement..................................................... i
Available Information..................................................... i
Incorporation Of Certain Documents By Reference........................... i
Reports To Securityholders................................................ ii
Summary Of Terms.......................................................... 1
Risk Factors.............................................................. 10
The Trust Property........................................................ 16
Acquisition Of Receivables By The Seller.................................. 17
The Issuers............................................................... 17
The Receivables........................................................... 18
Triad's Automobile Financing Program...................................... 20
Pool Factors.............................................................. 21
Use Of Proceeds........................................................... 22
Triad And The Seller...................................................... 22
The Trustee............................................................... 23
Description Of The Securities............................................. 23
Forward Commitments; Pre-Funding.......................................... 28
Description Of The Trust Documents........................................ 29
Certain Legal Aspects Of The Receivables.................................. 36
Certain Tax Considerations................................................ 40
ERISA Considerations...................................................... 40
Plan Of Distribution...................................................... 40
Legal Opinions............................................................ 41
Financial Information..................................................... 41
Additional Information.................................................... 41
Index Of Defined Terms.................................................... 42
</TABLE>
iv
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND BY REFERENCE TO
THE INFORMATION WITH RESPECT TO THE SECURITIES OF ANY SERIES CONTAINED IN THE
RELATED PROSPECTUS SUPPLEMENT TO BE PREPARED AND DELIVERED IN CONNECTION WITH
THE OFFERING OF SUCH SECURITIES. CERTAIN CAPITALIZED TERMS USED IN THE SUMMARY
ARE DEFINED ELSEWHERE IN THE PROSPECTUS ON THE PAGES INDICATED IN THE "INDEX OF
DEFINED TERMS."
<TABLE>
<S> <C>
Issuer........................ With respect to each Series of Securities, a
trust (each, a "Trust") will be formed by the
Seller; pursuant to either a Pooling and
Servicing Agreement among the Seller, Triad,
in its individual capacity, and the Servicer
(as defined below), and the trustee for such
trust specified in the related Prospectus
Supplement, or a Trust Agreement between the
Seller, the trustee for such trust specified
in the related Prospectus Supplement and
certain other parties as specified in the
related Prospectus Supplement (each such
agreement, a "Trust Agreement"). A Trust
issuing Securities pursuant to this
Prospectus and the related Prospectus
Supplement shall be referred to herein as the
"Issuer" with respect to the related
securities.
Sponsor....................... Triad Financial Corporation ("Triad" or the
"Sponsor"). See "Triad's Automobile Financing
Program" and "Triad and The Seller."
Seller........................ Triad Financial Special Purpose Corporation,
or another special purpose subsidiary of
Triad (each, a "Seller"). See "Triad and The
Seller."
Servicer...................... Triad or such other entity named as Servicer
in the related Prospectus Supplement (in such
capacity, the "Servicer"). See "Triad's
Automobile Financing Program." Each
Prospectus Supplement will specify whether
the Servicer will service the Receivables in
the related Trust Property directly or
indirectly through one or more subservicers
(each, a "Subservicer").
Trustee....................... The Trustee for each Series of Securities
will be specified in the related Prospectus
Supplement. In addition, a Trust may
separately enter into an Indenture and may
issue Notes pursuant to such Indenture; in
any such case, the Trust and the Indenture
will be administered by separate, independent
trustees as required by the rules and
regulations under the Trust Indenture Act of
1939 and the Investment Company Act of 1940.
The Securities................ Each Class of Securities of any Series will
either evidence beneficial interests in a
segregated pool of assets (the "Trust
Property") (such Securities, "Certificates")
or will represent indebtedness of the Trust
secured by the Trust Property (such
Securities, "Notes"), as described herein and
in the related Prospectus Supplement.
With respect to Securities that represent
debt issued by the Trust, the Trust will
enter into an indenture (each, an
"Indenture") by and between the Trust and the
trustee named in such Indenture (the
"Indenture Trustee" or "Trustee"). Each
Indenture will describe the related pool of
Receivables comprising the Trust
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Property and securing the debt issued by the
related Issuer. The Receivables comprising
the Trust Property will be serviced by the
Servicer pursuant to a servicing agreement
(each, a "Servicing Agreement") by and
between the Servicer, the related Issuer and
the other parties named thereto. In the case
of the Trust Property of any Class of
Securities, the contractual arrangements
relating to the establishment of a Trust, if
any, the servicing of the related Receivables
and the issuance of the related Securities
may be contained in a single agreement, or in
several agreements which combine certain
aspects of the Trust Agreement, the Servicing
Agreement and the Indenture described above
(for example, a servicing and collateral
management agreement). For purposes of this
Prospectus, the term "Trust Documents" as
used with respect to a Trust means,
collectively, and except as otherwise
specified, any and all agreements relating to
the establishment of the related Trust, the
transfer of Receivables to the Trust, the
servicing of the related Receivables and the
issuance of the related Securities including,
without limitation, the Indenture. The term
"Trustee" means any and all persons acting as
a trustee pursuant to the Trust Documents.
SECURITIES WILL BE NON-RECOURSE. The
Securities will not be obligations, either
recourse or non-recourse, of Triad, any
Seller, the related Servicer or any person
other than the related Issuer. The Notes of a
given Series represent obligations of the
Issuer, and the Certificates of a given
Series represent beneficial interests in the
related Issuer only and do not represent
interests in or obligations of Triad, any
Seller, the related Servicer or any of their
respective affiliates other than the related
Issuer. In the case of Securities that
represent beneficial ownership interests in
the related Issuer, such Securities will
represent the beneficial ownership interests
in such Issuer and the sole source of payment
will be the assets of such Issuer. In the
case of Securities that represent debt issued
by the related Issuer, such Securities will
be secured by assets in the related Trust
Property. Notwithstanding the foregoing, and
as to be described in the related Prospectus
Supplement, certain types of credit
enhancement, such as a letter of credit,
financial guaranty insurance policy or
reserve fund may constitute a full recourse
obligation of the issuer of such credit
enhancement.
GENERAL PAYMENT TERMS OF SECURITIES. As
provided in the related Trust Documents and
as described in the related Prospectus
Supplement, the holders of the Securities
("Securityholders") will be entitled to
receive payments on their Securities on
specified dates (each, a "Payment Date").
Payment Dates with respect to Securities will
occur monthly, quarterly or semiannually, as
described in the related Prospectus
Supplement. The related Prospectus Supplement
will describe a date (the "Record Date")
preceding such Payment Date, as of which the
Trustee or its paying agent will fix the
identity of the Securityholders for the
purpose of receiving payments on the
</TABLE>
2
<PAGE>
next succeeding Payment Date. As described in
the related Prospectus Supplement, the
Payment Date will be a specified day of each
month, (or, in the case of quarterly-pay
Securities, a specified day of every third
month; and in the case of semiannual-pay
Securities, a specified day of every sixth
month) and the Record Date will be the close
of business as of a specified day preceding
such Payment Date. Each Indenture and Trust
Agreement will describe a period (each, a
"Collection Period") preceding each Payment
Date (for example, in the case of monthly-pay
Securities, the calendar month preceding the
month in which a Payment Date occurs). As
more fully described in the related
Prospectus Supplement, collections received
on or with respect to the related Receivables
constituting Trust Property during a
Collection Period will be required to be
remitted by the Servicer to the related
Trustee prior to the related Payment Date and
will be used to fund payments to
Securityholders on such Payment Date. As may
be described in the related Prospectus
Supplement, the related Trust Documents may
provide that all or a portion of the payments
collected on or with respect to the related
Receivables may be applied by the related
Trustee to the acquisition of additional
Receivables during a specified period (rather
than be used to fund payments of principal to
Securityholders during such period), with the
result that the related Securities will
possess an interest-only period, also
commonly referred to as a revolving period,
which will be followed by an amortization
period. Any such interest only or revolving
period may, upon the occurrence of certain
events to be described in the related
Prospectus Supplement, terminate prior to the
end of the specified period and result in the
earlier than expected amortization of the
related Securities. In addition, and as may
be described in the related Prospectus
Supplement, the related Trust Documents may
provide that all or a portion of such
collected payments may be retained by the
Trustee (and held in certain eligible
investments, including Receivables) for a
specified period prior to being used to fund
payments of principal to Securityholders.
Such retention and temporary investment by
the Trustee of such collected payments may be
required by the related Trust Documents for
the purpose of (a) slowing the amortization
rate of the related Securities relative to
the installment payment schedule of the
related Receivables, or (b) attempting to
match the amortization rate of the related
Securities to an amortization schedule
established at the time such Securities are
issued. Any such feature applicable to any
Securities may terminate upon the occurrence
of events to be described in the related
Prospectus Supplement, resulting in
distributions to the specified
Securityholders and an acceleration of the
amortization of such Securities. As more
fully specified in the related Prospectus
Supplement, neither the Securities nor the
underlying Receivables will be guaranteed or
insured by any governmental agency or
instrumentality or Triad, any Seller, the
related Servicer, any Trustee, or any of
their respective affiliates.
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Each Series of Securities will be issued
pursuant to the related Indenture, in the
case of the Notes, and pursuant to the
related Trust Agreement, in the case of the
Certificates. The related Prospectus
Supplement will specify which Class or
Classes of Securities of the related Series
are being offered thereby.
Each Class of Securities will have a stated
security balance (the "Security Balance") and
will accrue interest on such Security Balance
at a specified rate (with respect to each
Class of Securities the "Interest Rate") as
set forth in the related Prospectus
Supplement. Each Class of Securities 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 applicable Interest Rate, for
each Class of Securities.
A Series of Securities may include two or
more Classes of Securities that differ as to
timing and priority of distributions,
seniority, allocations of losses, Interest
Rate or amount of distributions in respect of
principal or interest. Additionally,
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 related Receivables Pool. If specified
in the related Prospectus Supplement, one or
more Classes of Securities ("Strip
Securities") may be entitled to (i) principal
distributions with disproportionate, nominal
or no interest distributions or (ii) interest
distributions with disproportionate, nominal
or no principal distributions. If specified
in the related Prospectus Supplement, a
Series may include one or more Classes of
Securities ("Accrual Securities"), as to
which certain accrued interest will not be
distributed but rather will be added to the
principal balance (or nominal balance, in the
case of Accrual Securities which are also
Strip Securities) thereof on each Payment
Date or in the manner described in the
related Prospectus Supplement. If so provided
in the related Prospectus Supplement, a
Series may include one or more other Classes
of Securities (collectively, the "Senior
Securities") that are senior to one or more
other Classes of Securities (collectively,
the "Subordinate Securities") in respect of
certain distributions of principal and
interest and allocations of losses on
Receivables. In addition, certain Classes of
Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or
Subordinate) Securities in respect of such
distributions or losses. See "Description of
the Securities--General Payment Terms of the
Securities".
Securities will be available for purchase in
the minimum denomination specified in the
related Prospectus Supplement and will be
available in book-entry form unless the
related Prospectus Supplement provides only
for Definitive Securities. Securityholders
will only be able to receive Definitive
Securities
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in the limited circumstances described herein
or in the related Prospectus Supplement. See
"Description of the Securities-- Definitive
Securities".
If the Servicer or any Subservicer exercises
its option to purchase the Receivables of a
Trust in the manner and on the respective
terms and conditions described under
"Description of the Trust
Documents--Termination", the Securities will
be prepaid 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 that will be used to
purchase additional Receivables after the
applicable Closing Date, one or more Classes
of Securities may be subject to a partial
prepayment of principal at or immediately
following the end of the period specified in
such Prospectus Supplement for the purchase
of such additional Receivables, in the manner
and to the extent specified in the related
Prospectus Supplement.
The Residual Interest......... With respect to each Trust, the Residual
Interest at any time represents the rights to
the related Trust Property in excess of the
Securityholders' interest of all Series then
outstanding that were issued by such Trust.
The Residual Interest in any Trust Property
will fluctuate as the Aggregate Principal
Balance (as hereinafter defined) of such
Trust changes from time to time. A portion of
the Residual Interest in any Trust may be
sold separately in one or more public or
private transactions.
Cross-Collateralization....... As described in the related Trust Documents
and the related Prospectus Supplement, the
source of payment for Securities of each
Series will be the assets of the related
Trust Property only.
However, as may be described in the related
Prospectus Supplement, a Series or class of
Securities may include the right to receive
moneys from a common pool of credit
enhancement which may be available for more
than one Series of Securities, such as a
master reserve account, master insurance
policy or a master collateral pool consisting
of similar Receivables. Notwithstanding the
foregoing, and as described in the related
Prospectus Supplement, no payment received on
any Receivable held by any Trust may be
applied to the payment of Securities issued
by any other Trust (except to the limited
extent that certain collections in excess of
the amounts needed to pay the related
Securities may be deposited in a common
master reserve account or an
overcollateralization account that provides
credit enhancement for more than one Series
of Securities issued pursuant to the related
Trust Documents).
Trust Property................ As specified in the related Prospectus
Supplement, the Trust Property will include,
among other things, (i) a pool of certain
motor vehicle retail installment contracts
(the "Receivables") secured by new and used
automobiles and light-duty trucks (the
"Financed Vehicles"), (ii) certain monies
payable thereunder after the Cutoff Date (as
specified in the related Prospectus
Supplement), (iii) security interests in the
Financed Vehicles,
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(iv) any proceeds from claims under certain
related insurance policies, (v) certain
rights under the Receivables Purchase
Agreement, (vi) certain bank accounts,
including the proceeds thereof, and (vii) all
proceeds thereof and certain other rights
under the Trust Documents. If and to the
extent specified in the related Prospectus
Supplement, credit enhancement with respect
to Trust Property or any class of Securities
may include any one or more of the following:
a Policy issued by an insurer specified in
the related Prospectus Supplement, a reserve
account, letters of credit, credit or
liquidity facilities, repurchase obligations,
third party payments or other support, cash
deposits or other arrangements. In addition
to or in lieu of the foregoing, credit
enhancement may be provided by means of
subordination, cross-support among the
Receivables or overcollateralization. See
"Description of the Trust Agreement--Credit
and Cash Flow Enhancement." The Receivables
are obligations for the purchase of the
Financed Vehicles, or evidence borrowings
used to acquire the Financed Vehicles. As
specified in the related Prospectus
Supplement, the Receivables may consist of
any combination of Rule of 78s Receivables,
Actuarial or Simple Interest Receivables
(each as defined herein).
The related Prospectus Supplement will
further describe the type and characteristics
of the Receivables included in the Trust
Property relating to the Securities offered
pursuant to this Prospectus and the related
Prospectus Supplement.
On the date of issuance of a Series of
Securities specified in the related
Prospectus Supplement (the "Closing Date" for
such Series), the applicable Seller will
either convey Receivables to the related
Trust pursuant to a pooling and servicing
agreement or a sale and servicing agreement.
The obligations of Triad, the Servicer, the
related Trustee and the related Indenture
Trustee, if any, under the related Trust
Documents include those specified below and
in the related Prospectus Supplement.
In addition, if so specified in the related
Prospectus Supplement, the Trust Property
will include monies on deposit in a
segregated account (the "Pre-Funding
Account") to be established with the Trustee,
which will be used to acquire additional
Receivables (the "Subsequent Receivables")
from time to time during the Pre-Funding
Period specified in the related Prospectus
Supplement. The Pre-Funding Account, if any,
will be reduced during the related
Pre-Funding Period by the amount thereof used
to purchase Subsequent Receivables. Any
amount remaining in the Pre-Funding Account
at the end of the related Pre-Funding Period
will be distributed to the related
Securityholders, pro rata, on the Payment
Date immediately following the end of the
Pre-Funding Period.
If and to the extent provided in the related
Prospectus Supplement, the Seller will be
obligated (subject only to the availability
thereof) to sell Subsequent Receivables
having an
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aggregate principal balance approximately
equal to the amount deposited to the
Pre-Funding Account on the Closing Date (the
"Pre-Funded Amount"), and the Trust will be
obligated to purchase such Subsequent
Receivables (subject to the satisfaction of
certain conditions set forth in the related
Trust Documents) from time to time during the
period (the "Pre-Funding Period"), not to
exceed a specified number of months, set
forth in such Prospectus Supplement, for the
purchase of such Subsequent Receivables. Any
Subsequent Receivables conveyed to a Trust
will have been acquired by the Seller,
directly or indirectly, from Triad and will
meet all of the credit, underwriting and
other criteria set forth herein and in the
related Prospectus Supplement. Any funds on
deposit in the Pre-Funding Account and not
yet invested in Subsequent Receivables will
be invested in eligible investments. See "The
Receivables", and "Description of the Trust
Documents--Sale and Assignment of
Receivables" herein and "The Receivables
Pool" in the related Prospectus Supplement.
As used in this Prospectus, the term
Receivables will include the Receivables
transferred to a Trust on the related Closing
Date (such Receivables, the "Initial
Receivables") as well as any Subsequent
Receivables transferred to such Trust during
the related Pre-Funding Period, if any.
Amounts on deposit in any Pre-Funding Account
during the related Pre-Funding Period will be
invested by the Trustee (as directed by the
Servicer) in eligible investments, and any
resultant investment income, less any related
investment expenses ("Investment Income"),
will be added, on the Payment Date
immediately following the date on which such
Investment Income is paid to the Trust, to
interest collections on the Receivables for
the related Collection Period and distributed
in the manner specified in the related
Prospectus Supplement. Any funds remaining in
a Pre-Funding Account at the end of the
related Pre-Funding Period will be
distributed as a prepayment or early
distribution of principal to holders of one
or more classes of the Securities of the
related Series of Securities, in the amounts
and in accordance with the payment priorities
specified in the related Prospectus
Supplement. Such distribution may affect the
yield realized by Securityholders and
Securityholders may not be able to reinvest
those funds in investments realizing
comparable returns.
Registration of Securities.... Securities may be represented by global
securities registered in the name of Cede &
Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC"), or another nominee. In
such case, Securityholders will not be
entitled to receive definitive securities
representing such Securityholders' interests,
except in certain limited circumstances
described in the related Prospectus
Supplement. See "Description of the
Securities-- Book Entry Registration" herein.
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Credit and Cash Flow
Enhancement................. If and to the extent specified in the related
Prospectus Supplement, credit enhancement
with respect to Trust Property or any Class
of Securities may include any one or more of
the following: subordination of one or more
other classes of Securities of the same
Series, a reserve account, a Policy issued by
an insurer specified in the related
Prospectus Supplement (a "Credit Enhancer"),
letters of credit, credit or liquidity
facilities, third party payments or other
support, cash deposits or other arrangements.
Any form of credit enhancement will have
certain limitations and exclusions from
coverage thereunder, which will be described
in the related Prospectus Supplement. See
"Description of the Trust Documents--Credit
and Cash Flow Enhancement."
Repurchase Obligations and the
Receivables Purchase
Agreement................... As more fully described in the related
Prospectus Supplement, Triad will be
obligated to repurchase or replace from the
Seller any Receivable which was transferred
pursuant to a Receivables Purchase Agreement
and the Seller will be obligated to
repurchase or replace from the Trust any
Receivable which was transferred pursuant to
a Pooling and Servicing Agreement or a Sale
and Servicing Agreement, if the interest of
the Securityholders therein is materially
adversely affected by a breach of any
representation or warranty made by Triad or
the Seller with respect to such Receivable,
which breach has not been cured. In addition,
if so specified in the related Prospectus
Supplement, Triad may from time to time
repurchase certain Receivables of the Trust
Property, subject to specified conditions set
forth in the related Trust Documents.
Servicer's Compensation....... The Servicer shall be entitled to receive a
fee for servicing the Trust Property equal to
a specified percentage of the value of such
Trust Property and reimbursement for certain
other expenses, as set forth in the related
Prospectus Supplement. See "Description of
the Trust Documents--Servicing Compensation"
herein and in the related Prospectus
Supplement.
Optional Termination.......... The Servicer, Triad, or, if specified in the
related Prospectus Supplement, certain other
entities may, at their respective options,
effect early retirement of a Series of
Securities under the circumstances and in the
manner set forth herein under "Description of
The Trust Documents--Termination" and in the
related Prospectus Supplement.
Mandatory Termination......... The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a Series
of Securities by soliciting competitive bids
for the purchase of the Trust Property or
otherwise, under other circumstances and in
the manner specified in "Description of The
Trust Documents-- Termination" and in the
related Prospectus Supplement.
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Tax Considerations............ Securities of each Series offered hereby
will, for federal income tax purposes,
constitute either (i) interests ("Grantor
Trust Certificates") in a Trust treated as a
grantor trust under applicable provisions of
the Internal Revenue Code of 1986, as amended
(the "Code") or (ii) interests in a Trust
which is treated as a partnership
("Partnership Interests").
The Prospectus Supplement for each Series of
Securities will summarize, subject to the
limitations stated therein, federal income
tax considerations relevant to the purchase
ownership and disposition of such Securities.
Investors are advised to consult their tax
advisors and to review "Federal Income Tax
Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations.......... The Prospectus Supplement for each Series of
Securities will summarize, subject to the
limitations discussed therein, considerations
under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), relevant
to the purchase of such Securities by
employee benefit plans and individual
retirement accounts. See "ERISA
Considerations" in the related Prospectus
Supplement.
Ratings....................... Each Class of Securities offered pursuant to
this Prospectus and the related Prospectus
Supplement will be rated on the related
Closing Date in one of the four highest
rating categories by one or more "national
statistical rating organizations", as defined
in the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and commonly
referred to as "Rating Agencies". Such
ratings will address, in the opinion of such
Rating Agencies, the likelihood that the
Issuer will be able to make timely payment of
all amounts due on the related Securities in
accordance with the terms thereof. Such
ratings will neither address any prepayment
or yield considerations applicable to any
Securities nor constitute a recommendation to
buy, sell or hold any Securities. There is no
assurance that the rating initially assigned
to such Securities will not be subsequently
lowered or withdrawn by the Rating Agencies.
The ratings expected to be received with
respect to any Securities will be set forth
in the related Prospectus Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
LIMITED OPERATING HISTORY OF TRIAD
Generally, all of the Receivables will be acquired or originated by Triad in
its normal course of business in accordance with credit underwriting criteria
established by Triad. See "Triad's Automobile Financing Program." Triad
commenced operations in 1989 as a prime automobile lender, but changed its focus
to the non-prime market in 1993. Triad began servicing all new contract
purchases in June 1996. Triad therefore has limited historical performance data
with respect to the motor vehicle retail installment sale contracts it purchases
and services. Although Triad has calculated and presented herein its net loss
and delinquency experience with respect to its portfolio of serviced contracts
(the "Servicing Portfolio"), there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables.
NON-PRIME OBLIGORS
The Obligors on the Receivables to be conveyed to a Trust will include
"non-prime" borrowers who have limited or adverse credit histories, low income
or past credit problems and, therefore, are unable to obtain financing from
traditional sources of consumer credit. The average interest rate charged by
Triad to such "non-prime" borrowers is generally higher than that charged to
more creditworthy customers. The payment experience on receivables of Obligors
with this credit profile is likely to be different from that on receivables of
traditional auto financing sources in that default rates are likely to be
higher. In addition, the payment experience on such receivables is likely to be
more sensitive to changes in the economic climate in the areas in which such
Obligors reside. As a result of the credit profile of the Obligors and the APRs
of such receivables, the historical credit loss and delinquency rates on such
receivables are generally higher than those experienced by banks and the captive
finance companies of the automobile manufacturers.
CHANGE IN SERVICER
Triad believes that its credit loss and delinquency experience reflect in
part its trained staff and collection procedures. If Triad were to cease acting
as Servicer, delays in processing payments and collections on the Receivables
and information in respect thereof could occur and result in delays in payments
to the Securityholders.
EFFECT OF PREPAYMENTS ON YIELD AND MATURITY
All of the Receivables are prepayable at any time. 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 the consent of Triad, unless
the Receivable is repaid by the Obligor at the time of such sale or transfer.
(For this purpose the term "prepayments" includes prepayments in full, certain
partial prepayments related to refunds of extended service contract costs and
unearned insurance premiums, liquidations due to default, as well as receipts of
proceeds from physical damage, credit life and credit accident and health
insurance policies and certain other Receivables repurchased for administrative
reasons.) The rate of prepayment on the Receivables may also be influenced by
the structure of the loan, the nature of the Obligors and the Financed Vehicles
and servicing decisions as discussed above. In addition, under certain
circumstances, Triad and the Seller are obligated to repurchase or replace
Receivables as a result of breaches of representations and warranties, and under
certain circumstances the Servicer is obligated to purchase or replace
Receivables pursuant to the Servicing Agreement as a result of breaches of
certain covenants. Subject to certain conditions, the Servicer also has the
right to purchase the Receivables when the aggregate principal
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balance thereof is less than a specified percentage (set forth in the related
Prospectus Supplement) of the Aggregate Principal Balance thereof on the Cutoff
Date. Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables will be borne entirely by the Securityholders.
The rate of prepayments of Receivables cannot be predicted and is influenced
by a wide variety of economic, social, and other factors, including prevailing
interest rates, the availability of alternate financing and local and regional
economic conditions. Therefore, no assurance can be given as to the level of
prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at a
discount, the risk that a slower than anticipated rate of prepayment on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of prepayment on the Receivables could result in an
actual yield that is less than the anticipated yield.
DISTRIBUTION OF PRE-FUNDED AMOUNT
If so provided in the related Prospectus Supplement, on the Closing Date the
Seller will deposit the Pre-Funded Amount specified in such Prospectus
Supplement into the Pre-Funding Account. The Pre-Funded Amount will be used to
purchase Subsequent Receivables from the Seller (which, in turn, will acquire
such Subsequent Receivables from Triad) from time to time during the related
Pre-Funding Period. During the related Pre-Funding Period and until such amounts
are applied by the Trustee to purchase Subsequent Receivables, amounts on
deposit in the Pre-Funding Account will be invested by the Trustee (as
instructed by the Servicer) in eligible investments, and any investment income
with respect thereto (net of any related investment expenses) will be added to
amounts received on or in respect of the Receivables during the related
Collection Period and allocated to interest and will be distributed on the
Payment Date pursuant to the payment priorities specified in the related
Prospectus Supplement.
To the extent that the entire Pre-Funded Amount has not been applied to the
purchase of Subsequent Receivables by the end of the related Pre-Funding Period,
any amounts remaining in the Pre-Funding Account will be distributed as a
prepayment of principal to Securityholders on the Payment Date at or immediately
following the end of the Pre-Funding Period, in the amounts and pursuant to the
priorities set forth in the related Prospectus Supplement. Any such prepayment
of principal could have the effect of shortening the weighted average life of
the Securities of the related Series. In addition, holders of the related
Securities will bear the risk that they may be unable to reinvest any such
principal prepayment at yields at least equal to the yield on such Securities.
VARYING CHARACTERISTICS OF SUBSEQUENT RECEIVABLES
If so provided in the related Prospectus Supplement, the Seller will be
obligated pursuant to the Trust Documents to sell Subsequent Receivables to the
Trust, and the Trust will be obligated to purchase such Subsequent Receivables,
subject only to the satisfaction of certain conditions set forth in the Trust
Documents and described in the related Prospectus Supplement. If the principal
amount of the eligible Subsequent Receivables acquired by the Seller from Triad
during a Pre-Funding Period is less than the Pre-Funded Amount, the Seller may
have insufficient Subsequent Receivables to transfer to a Trust and holders of
one or more Classes of the related Series of Securities may receive a prepayment
or early distribution of principal at the end of the Pre-Funding Period.
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Receivables Purchase Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Securities; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent
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Receivables to be conveyed to the Trust as of such date, must satisfy the
parameters described under "The Receivables" herein and "The Receivables" in the
related Prospectus Supplement; and (iv) the Seller must execute and deliver to
such Trust a written assignment conveying such Subsequent Receivables to such
Trust. In addition, as and to the extent specified in the related Prospectus
Supplement, the conveyance of Subsequent Receivables to a Trust is subject to
the satisfaction of the condition precedent, among others, that the Seller
deliver certain legal opinions to the related Trustee with respect to the
validity of the conveyance of the Subsequent Receivables to the Trust. If any
such conditions precedent are not met with respect to any Subsequent
Receivables, Triad or the Seller, as specified in the related Prospectus
Supplement, will be required to repurchase such Subsequent Receivables from the
related Trust, at a purchase price equal to the related Purchase Amounts
therefor.
Except as described herein and in the related Prospectus Supplement, there
will be no other required characteristics of Subsequent Receivables. Therefore,
the characteristics of the entire Receivables Pool included in any Trust may
vary significantly as Subsequent Receivables are conveyed to such Trust from
time to time during the Pre-Funding Period. See "The Receivables" herein.
SECURITY INTERESTS
In connection with each sale of Receivables to the Trust, security interests
in the Financed Vehicles securing the Receivables will be assigned by Triad to
the Seller and by the Seller to the Trust. In most states, the notation of an
assigned party's security interest on the vehicle's certificate of title will be
sufficient to protect the rights of the assigned party against the rights of
subsequent purchasers of a Financed Vehicle or subsequent lenders who take a
security interest in a Financed Vehicle. Due to the administrative burden and
expense of retitling each of the Financed Vehicles in the appropriate state, the
certificates of title to the Financed Vehicles will not be amended or reissued
to reflect the assignment to the Trust. In the absence of such an amendment or
reissuance, the Trust may not have a perfected security interest in the Financed
Vehicles securing the Receivables in some states. By virtue of the assignment of
the applicable Receivables Purchase Agreement to the related Trust, Triad will
be obligated to repurchase or replace any Receivable sold to the Trust as to
which there did not exist on the Closing Date a perfected security interest in
favor of Triad in the Financed Vehicle or for which an application for
certificate of title noting the lien of Triad has not been filed on or before
the Closing Date, and the Servicer will be obligated to purchase any Receivable
sold to the Trust as to which it failed to use best efforts to take such steps
as are necessary to maintain a perfected security interest in favor of Triad in
the Financed Vehicle securing such Receivable if, in either case, such breach
materially and adversely affects such Receivable and if such failure or breach
is not cured by the last day of the first full month following the discovery by
or notice to Triad or the Servicer, as the case may be, of such breach. To the
extent the security interest of Triad is perfected, the 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, forgery, negligence or error, Triad, and therefore the Trust,
could lose the priority of its security interest or its security interest in a
Financed Vehicle. Neither Triad nor the Servicer will have any obligation to
purchase a Receivable as to which a lien for repairs of a Financed Vehicle or
for taxes unpaid by an Obligor under a Receivable result in losing the priority
of the security interest in such Financed Vehicle after the Closing Date of the
related Trust. See "Certain Legal Aspects of the Receivables--Security Interests
in the Financed Vehicles".
CONSUMER PROTECTION LAWS
Federal and state consumer protection laws impose requirements on creditors
in connection with extensions of credit and collections of retail installment
contracts, and certain of these laws make an assignee of such a contract liable
to the Obligor thereon for any violation by the lender. To the extent specified
herein and in the related Prospectus Supplement, Triad will be obligated to
repurchase or replace any Receivable that fails to comply with such legal
requirements from the Seller and the Seller shall be
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obligated to repurchase or replace such Receivable from the Trust which was
materially and adversely affected by the failure as of the Closing Date to
comply with such requirements. See "Certain Legal Aspects of the
Receivables--Consumer Protection Laws".
NON-CONSOLIDATION
Each Seller has taken or will take steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by Triad under the United States Bankruptcy
Code or similar state laws ("Insolvency Laws") will not result in consolidation
of the assets and liabilities of the Seller with those of Triad. These steps
include the creation of the Seller as a separate, limited-purpose subsidiary
pursuant to articles of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business, a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the prior unanimous affirmative vote of all of its directors and a
requirement that at least one director qualifies under the articles of
incorporation as an "independent director"). However, there can be no assurance
that the activities of the Seller would not result in a court concluding that
the assets and liabilities of such Seller should be consolidated with those of
Triad in a proceeding under any Insolvency Law. If a court were to reach such a
conclusion, then delays in distributions on the related Securities could occur
or reductions in the amounts of such distributions could result. See "Triad and
The Seller".
TRUE SALE
Triad will warrant to the Seller in each Receivables Purchase Agreement that
the sale of the Receivables by it to the Seller is a valid sale of such
Receivables to such Seller. In addition, Triad and each Seller will treat the
transactions described herein as a sale of the Receivables to the Seller, and
each Seller has taken and will take all actions that are required to perfect the
Seller's ownership interest in the Receivables. Notwithstanding the foregoing,
if Triad were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor itself were to take the position that the
sale of Receivables to the Seller should be recharacterized as a pledge of such
Receivables to secure a borrowing of such debtor, then delays in payments of
collections of Receivables to the Seller could occur or, should the court rule
in favor of any such trustee, debtor or creditor, reductions in the amount of
such payments could result. If the transfer of Receivables to the Seller is
recharacterized as a pledge, then a tax or government lien on the property of
Triad arising before the transfer of a Receivable to the Seller may have
priority over the Seller's interest in such Receivable. If the transactions
contemplated herein are treated as a sale, the Receivables would not be part of
the bankruptcy estate of Triad, and would not be available to creditors of
Triad.
The U.S. Court of Appeals for the Tenth Circuit issued its opinion in
OCTAGON GAS SYSTEMS, INC. V. RIMMER (IN RE MERIDIAN RESERVE, INC.) (decided May
27, 1993) in which it concluded (noting that its position is in contrast to that
taken by another court) that accounts receivable sold by the debtor prior to the
filing for bankruptcy remain property of the debtor's bankruptcy estate.
Although the Receivables are likely to be viewed as "chattel paper", as defined
under the Uniform Commercial Code, rather than as accounts, the rationale behind
the Octagon holding is equally applicable to chattel paper. The circumstances
under which the OCTAGON ruling 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 the OCTAGON case were applied in
a bankruptcy of Triad, however, even if the transfers of Receivables to the
Seller and to the Trust were treated as sales, the Receivables would be part of
the bankruptcy estate and would be subject to claims of certain creditors and
delays and reductions in payments to the Securityholders could result. Triad
will warrant in the related Receivables Purchase Agreement that the sale of the
Receivables to the Seller is a valid sale of the Receivables to the Seller, and
the Seller will warrant in the Sale and Servicing Agreement or Pooling and
Servicing Agreement that the sale of the Receivables to the Trust is a valid
sale of the Receivables to the Trust.
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LITIGATION
Due to the consumer-oriented nature of Triad's industry and the application
of certain laws and regulations, industry participants are regularly named as
defendants in litigation alleging violations of federal and state laws and
regulations and consumer law torts, including fraud. Many of these actions
involve alleged violations of consumer protection laws. A significant judgment
against Triad or others within the industry in connection with any such
litigation could have a material adverse effect on Triad's financial condition,
results of operations and/or its ability to perform its obligations under the
Receivables Purchase Agreement, the Servicing Agreement and the Trust Agreement.
INSURANCE ON FINANCED VEHICLES
Each Receivable generally requires the Obligor to maintain insurance
covering physical damage to the Financed Vehicle in an amount not less than the
unpaid principal balance of such Receivable pursuant to which Triad is named as
a loss payee. Since the Obligors select their own insurers to provide the
requisite coverage, the specific terms and conditions of their policies vary.
In addition, although each Receivable generally gives Triad the right to
force place insurance coverage in the event the required physical damage
insurance on a Financed Vehicle is not maintained by an Obligor, neither Triad
nor the Servicer is obligated to place such coverage. In the event insurance
coverage is not maintained by Obligors and coverage is not force placed, then
insurance recoveries may be limited in the event of losses or casualties to
Financed Vehicles included in the Trust Property, as a result of which
Securityholders could suffer a loss on their investment.
DELINQUENCIES AND NET LOSSES
There can be no assurance that the historical levels of delinquencies and
net losses experienced by Triad on its respective loan and vehicle portfolio
will be indicative of the performance of the Contracts included in the Trust or
that such levels will continue in the future. Delinquencies and losses could
increase significantly for various reasons, including changes in the federal
income tax laws, changes in the local, regional or national economies or due to
other events.
SUBORDINATION; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on one Class of Securities of a Series may be
subordinated in priority of payment to interest and principal due on other
Classes of Securities of a related Series. Moreover, each Trust will not have,
nor is it permitted or expected to have, any significant assets or sources of
funds other than the related Receivables and, to the extent provided in the
related Prospectus Supplement, the related reserve account and any other Credit
Enhancement (as defined herein). The Securities represent beneficial interests
in the related Trust only and will not represent a recourse obligation to other
assets of Triad or the Seller. No Securities of any Series will be insured or
guaranteed by Triad, any Seller, the Servicer, or the applicable Trustee.
Consequently, holders of the Securities of any Series must rely for repayment
primarily upon payments on the Receivables and, if and to the extent available,
the reserve account, if any, and any other credit enhancement, all as specified
in the related Prospectus Supplement.
PRIORITY OF INTEREST IN RECEIVABLES
In connection with the issuance of any Series of Securities, Triad will
originate or acquire Receivables as further described herein. See "The Trust
Property". The Seller will warrant in a Sale and Servicing Agreement or Pooling
and Servicing Agreement, as applicable, that the transfer of the Contracts to
such Trust is either a valid assignment, transfer and conveyance of the
Receivables to the Trust or the Trustee on behalf of the Securityholders has a
valid security interest in such Receivables. As will be described in the related
Prospectus Supplement, the related Trust Documents will provide that the Trustee
or Servicer will
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be required to maintain possession of such original copies of all Receivables
that constitute chattel paper; provided that if the Trustee has custody, the
Servicer may take possession of such original copies as necessary for the
enforcement of any Receivables. If the Servicer, the Trustee or other third
party, while in possession of any Receivable, sells or pledges and delivers such
Receivable to another party, in violation of the Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, there is a risk that such other
party could acquire an interest in such Receivable having a priority over the
Trust's interest. Furthermore, if the Servicer or a third party, while in
possession of any Receivable, is rendered insolvent, such an event of insolvency
may result in competing claims to ownership or security interests in such
Receivable. Such an attempt, even if unsuccessful, could result in delays in
payments on the Securities. If successful, such attempt could result in losses
to the Securityholders or an acceleration of the repayment of the Securities.
The Servicer will be obligated to repurchase any Receivable if there is a breach
of the Servicer's representations and warranties that materially and adversely
affects the interests of the Trust in such Receivable and such breach has not
been cured.
LIMITATIONS ON THE AMOUNT OF RECOVERIES
Triad will warrant that no claims or defenses have been asserted or
threatened with respect to the Receivables as of the applicable Closing Date and
that all requirements of applicable law with respect to the Receivables have
been satisfied as of the applicable Closing Date.
In the event that Triad or the Trustee must rely on repossession and
disposition of Financed Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Sale and Servicing Agreement or Pooling
and Servicing Agreement), the Issuer may not realize the full amount due on a
Receivable (or may not realize the full amount on a timely basis). Other factors
that may affect the ability of the Issuer to realize the full amount due on a
Receivable include whether amendments to certificates of title relating to the
Financed Vehicles had been filed, depreciation, obsolescence, damage or loss of
any Financed Vehicle, and the application of Federal and state bankruptcy and
insolvency laws. As a result, the Securityholders may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
BOOK-ENTRY REGISTRATION
Issuance of the Securities in book-entry form may reduce the liquidity of
such Securities in the secondary trading market since investors may be unwilling
to purchase Securities for which they cannot obtain definitive physical
securities representing such Securityholders' interests, except in certain
circumstances described in the related Prospectus Supplement.
Since transactions in Securities will, in most cases, be able to be effected
only through DTC, direct or indirect participants in DTC's book-entry system
("Direct Participants" or "Indirect Participants") or certain banks, the ability
of a Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect to such
Securities, may be limited due to lack of a physical security representing the
Securities.
Securityholders may experience some delay in their receipt of distributions
of interest on and principal of the Securities since distributions may be
required to be forwarded by the Trustee to DTC and, in such case, DTC will be
required to credit such distributions to the accounts of its Participants which
thereafter will be required to credit them to the accounts of the applicable
class of Securityholders either directly or indirectly through Indirect
Participants. See "Description of the Securities--Book Entry Registration."
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities of any
Series or Class will develop or, if it does develop, that it will provide
Securityholders with liquidity of investment or that it will continue for the
life of such Securities. The Prospectus Supplement for any Series of Securities
may
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indicate that an underwriter specified therein intends to establish and maintain
a secondary market in such Securities; however, no underwriter will be obligated
to do so. The Securities will not be listed on any securities exchange.
SECURITY RATING
The rating of Securities credit enhanced by a Policy, reserve fund, credit
or liquidity facilities, cash deposits or other forms of credit enhancement
(collectively, "Credit Enhancement") will depend primarily on the
creditworthiness of the Credit Enhancer. Any reduction in the rating assigned to
the claims-paying ability of the related Credit Enhancer to honor its
obligations pursuant to any such Credit Enhancement below the rating initially
given to the Securities would likely result in a reduction in the rating of the
Securities.
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), or similar state legislation, an Obligor
who enters military service after the origination of the related Receivable
(including an Obligor who is a member of the National Guard or is in reserve
status at the time of the origination of the Receivable and is later called to
active duty) may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such Obligor's active duty status, unless
a court orders otherwise upon application of the lender. It is possible that
such action could have an effect, for an indeterminate period of time, on the
ability of the Servicer to collect full amounts of interest on certain of the
Receivables. In addition, the Relief Act imposes limitations that would impair
the ability of the Servicer to foreclose on an affected Receivable during the
Obligor's period of active duty status. Thus, in the event that such a
Receivable goes into default, there may be delays and losses occasioned by the
inability of the Servicer to realize upon the Financed Vehicle in a timely
fashion.
THE TRUST PROPERTY
The Trust Property will include, as specified in the related Prospectus
Supplement, (i) a pool of Receivables, (ii) certain monies (including accrued
interest) payable thereunder on or after the applicable Cutoff Date (as
specified in the related Prospectus Supplement), (iii) such amounts as from time
to time may be held in one or more separate Trust Accounts established and
maintained by the Trustee pursuant to the Trust Documents, and the proceeds of
such accounts, (iv) security interests in the Financed Vehicles granted by the
Obligors pursuant to the Receivables and any accessions thereto; (v) the
interest of the Seller in any proceeds from claims on any credit life, credit
disability, and physical damage insurance policies or other insurance policies
covering the Financed Vehicles or Obligors; (vi) certain rights under the
Pooling and Servicing Agreement or Sale and Servicing Agreement and the
Receivables Purchase Agreement; (vii) amounts payable to the Seller under all
dealer recourse obligations and (viii) any and all payments on and proceeds of
the foregoing. The Trust Property will also include, if so specified in the
related Prospectus Supplement, monies on deposit in a Pre-Funding Account, which
will be used by the Trustee to acquire or receive a security interest in
Subsequent Receivables from time to time during the Pre-Funding Period specified
in the related Prospectus Supplement. See "Description of the Securities--
Forward Commitments; Pre-Funding." In addition, to the extent specified in the
related Prospectus Supplement, some combination of Credit Enhancements may be
issued to or held by the Trustee on behalf of the related Trust for the benefit
of the holders of one or more Classes of Securities.
If the protection provided to Securityholders, if any, by any such Credit
Enhancement is insufficient, such Securityholders will have to look to payments
by or on behalf of Obligors on the related Receivables and the proceeds from the
repossession and sale of Financed Vehicles that secure defaulted Receivables for
distributions of principal and interest on the Securities. In such event,
certain factors, such as the applicable Trust's not having perfected security
interests in all of the Financed Vehicles, may limit the ability of a Trust to
realize on the collateral securing the related Receivables, or may limit the
amount
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realized to less than the amount due under the related Receivables.
Securityholders may thus be subject to delays in payment on, or may incur losses
on their investment in, such Securities as a result of defaults or delinquencies
by Obligors and depreciation in the value of the related Financed Vehicles. See
"Description of the Trust Documents--Credit and Cash Flow Enhancement" and
"Certain Legal Aspects of the Receivables".
The Receivables comprising the Trust Assets will, as specifically described
in the related Prospectus Supplement, be either (i) originated by Triad, (ii)
originated by various manufacturers (or their captive finance companies) and
acquired by Triad, (iii) originated by various Dealers and acquired by Triad or
(iv) acquired by Triad from other originators or owners of Receivables. Such
Receivables will have been originated or acquired by Triad in accordance with
Triad's specified underwriting criteria. The underwriting criteria applicable to
the Receivables included in any Trust will be described in all material respects
in the related Prospectus Supplement.
The Receivables included in the Trust Property will be selected from those
Receivables held by Triad based on the criteria specified in the applicable
Receivables Purchase Agreement and described herein or in the related Prospectus
Supplement.
ACQUISITION OF RECEIVABLES BY THE SELLER
On or prior to each Closing Date, Triad will sell and assign to the Seller,
without recourse, except as provided in the related Receivables Purchase
Agreement, its entire interest in the applicable Receivables, together with its
security interests in the Financed Vehicles, pursuant to a Receivables Purchase
Agreement between Triad and the Seller (a "Receivables Purchase Agreement").
Pursuant to each Receivables Purchase Agreement, Triad will make certain
representations and warranties to the Seller with respect to the Receivables. As
of the last day of the first full month following the discovery by or notice to
the Seller and Triad of a breach of any representation or warranty that
materially and adversely affects the interests of the Securityholders or the
Trust in such Receivable, unless the breach is cured, Triad will be obligated to
repurchase or replace such Receivables from the Seller and the Seller will be
obligated to repurchase or replace such Receivable from the Trust. The
repurchase obligation will constitute the sole remedy available to the
Securityholders, the Credit Enhancer (if any) or the Trustee for any such
uncured breach.
THE ISSUERS
With respect to each Series of Securities, the Seller will establish a
separate Trust that will issue such Securities, pursuant to the related Trust
Documents. For purposes of this Prospectus and the related Prospectus
Supplement, the related Trust shall be referred to as the "Issuer" with respect
to such Securities.
Upon the issuance of the Securities of a given Series, the proceeds from
such issuance will be used by the Seller to purchase the Receivables from Triad
and by Triad to originate or acquire Receivables. The Servicer will service the
related Receivables pursuant to the applicable Servicing Agreement, and will be
compensated for acting as the Servicer. To facilitate servicing and to minimize
administrative burden and expense, the Servicer may be appointed custodian for
the related Receivables by each Trustee and Triad, as may be set forth in the
related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by the
subordination of another Class of Securities of such Series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such Series is insufficient, the Issuer must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Financed Vehicles which secure the Defaulted Contracts. In such event,
certain factors may affect such Issuer's ability to realize on the collateral
securing such Contracts, and thus may reduce the proceeds to be distributed to
the Securityholders of such Series.
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THE RECEIVABLES
RECEIVABLES POOLS
Information with respect to the Receivables in the related Trust Property
will be set forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition of such Receivables and the distribution of such
Receivables by geographic concentration, payment frequency, term and current
principal balance as of the applicable Cutoff Date.
THE RECEIVABLES
As specified in the related Prospectus Supplement, the Contracts may consist
of any combination of Rule of 78s Receivables, Actuarial Receivables or Simple
Interest Receivables. Generally, "Rule of 78s Receivables" provide for fixed
level monthly payments which will amortize the full amount of the Contract over
its term. The Rule of 78s Receivables provide for allocation of payments
according to the "sum of periodic balances" or "sum of monthly payments" method
(the "Rule of 78s"). Each Rule of 78s Receivable provides for the payment by the
Obligor of a specified total amount of payments, payable in monthly installments
on the related due date, which total represents the principal amount financed
and finance charges in an amount calculated on the basis of a stated annual
percentage rate ("APR") for the term of such Receivable. The rate at which such
amount of finance charges is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal
balance of the related Receivable are calculated in accordance with the Rule of
78s. Under the Rule of 78s, the portion of a payment allocable to interest
earned during that month is determined by multiplying the total amount of add-on
interest payable over the term of the Receivable by a fraction, the denominator
of which is equal to the sum of a series of numbers beginning with one and
ending with the number of scheduled monthly payments due under the related
Receivable, and the numerator of which is the number of payments remaining under
such Receivable before giving effect to the payment to which the fraction is
being applied. The difference between the amount of the scheduled monthly
payment made by the Obligor and the amount of earned add-on interest calculated
for the month is applied to principal reduction. Under the Rule of 78s, the
portion of each payment allocable to interest is higher during the early months
of the term of a Receivable and lower during later months than that under a
constant yield method for allocating payments between interest and principal.
Notwithstanding the foregoing, as specified in the related Prospectus
Supplement, all payments received by the Servicer on or in respect of the Rule
of 78s Receivables may be allocated on an actuarial or simple interest basis.
An Actuarial Receivable provides for amortization of the loan over a series
of fixed level monthly installments. Each scheduled monthly payment is deemed to
consist of an amount of interest equal to 1/12 of the stated APR of the
Receivable multiplied by the outstanding principal balance of the Receivable and
an amount of principal equal to the remainder of such scheduled monthly payment.
All payments received by the Servicer on or in respect of Rule of 78s
Receivable and Actuarial Receivables ("Precomputed Receivables"), including the
final scheduled payment, will be allocated pursuant to the Servicing Agreement
on an actuarial basis. No adjustment will be made in the event of early or late
payments, although in the latter case the Obligor may be subject to a late
charge.
"Simple Interest Receivables" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Receivables, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date immediately preceding the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if an
Obligor pays a fixed monthly installment before its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
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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.
If an Obligor prepays a Precomputed Receivable in full (voluntarily or by
acceleration), it is entitled to a rebate of the portion of the outstanding
balance then due and payable attributable to unearned finance charges. If a
Simple Interest Receivable is prepaid, rather than receive a rebate, the Obligor
is required to pay interest only to the date immediately preceding the date of
prepayment. The amount of a rebate under a Precomputed Receivable generally will
be less than the remaining scheduled payments of interest that would be due
under a Simple Interest Receivable for which all payments were made on schedule.
Distributions to Securityholders may not be affected by Rule of 78s rebates
under the Rule of 78s Receivable because pursuant to the related Prospectus
Supplement such distributions may be determined using the actuarial or simple
interest method.
DELINQUENCIES AND NET LOSSES
Certain information relating to the Triad's delinquency and net loss
experience with respect to Receivables it has originated or acquired will be set
forth in each Prospectus Supplement. This information may include, among other
things, the experience with respect to all Triad's Receivables portfolio during
certain specified periods. There can be no assurance that the delinquency and
net loss experience on any Trust Property will be comparable to the Receivables
prior experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
As more fully described in the related Prospectus Supplement, if a
Receivable permits prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of Prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
Triad and the Seller will be obligated to repurchase Receivables from the
related Trust Property pursuant to the applicable Pooling and Servicing
Agreement or Sale and Servicing Agreement or Receivables Purchase Agreement as a
result of breaches of representations and warranties. Any reinvestment risks
resulting from a faster or slower amortization of the related Securities which
results from Prepayments will be borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related Series of
Securities, together with a description of any applicable prepayment penalties.
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TRIAD'S AUTOMOBILE FINANCING PROGRAM
GENERAL
Triad was incorporated in the State of California in 1989. Triad engages
primarily in the business of purchasing, selling and servicing retail automobile
installment sales contracts ("Contracts") originated by Dealers. Triad
specializes in Contracts with borrowers ("Non-prime Borrowers") who generally
would not be expected to qualify for traditional financing such as that provided
by commercial banks or automobile manufacturers' captive finance companies.
Non-prime Borrowers generally have limited credit history, lower than average
income or past credit problems. Triad offers five distinct automobile financing
programs to its Dealers. The offerings vary based upon the Obligor's overall
credit quality and the pricing established by Triad. These variations affect the
coupon charged on the contract. For all such programs, the maximum loan to
wholesale value ratio, including approved additional items such as taxes,
license fees and warranties, is equal to 150%.
UNDERWRITING
Loan underwriting is centralized at Triad's headquarters. Dealers typically
remit applications to the operations center via facsimile. Credit analysts
underwrite each application using Triad's written underwriting guidelines. After
completion of the credit analysis, the underwriter makes a final decision
regarding the application; such decision may include an approval, a conditional
approval or a turndown. A conditional approval is an agreement by Triad to fund
the application under certain specific conditions as determined by Triad. Once a
Dealer chooses Triad as its funding source, it assembles the financing package
in accordance with Triad's requirements. The primary elements of the standard
package include the contract, credit application, proof of residence, proof of
income, an agreement to provide insurance, and titling paperwork. Packages are
generally delivered via overnight mail. To minimize dealer misrepresentations,
Triad conducts five independent verifications for each package: (1) application
information, generally verified directly with the Obligor; (2) mortgage or
rental information, generally verified directly with the Obligor's mortgage
holder or landlord, as appropriate; (3) insurance, verified directly with the
insurance agent; (4) employment and income levels, verified directly with the
Obligor's employer; and (5) reference information. Triad also reviews each
contract for completeness and accuracy. Triad attempts to maintain a two-day
turn-around time from when it receives a complete funding package until it
purchases the contract from the Dealer. Funding packages with deficiencies are
not funded and are returned to the submitting Dealer. Triad's quality control
department performs an additional review of the financing package which Triad's
management believes enhances its origination procedures.
SERVICING AND COLLECTIONS
Triad's servicing responsibilities consist of collecting, accounting for and
posting of all payments received with respect to its Servicing Portfolio,
responding to borrower inquiries, taking steps to maintain the security interest
granted in Financed Vehicles or other collateral, investigating delinquencies,
communicating with the Obligors, repossessing and liquidating collateral when
necessary, and generally monitoring each loan and the related collateral. Triad
began servicing all new contract purchases in June 1996.
Triad currently performs all servicing and collection functions from its
centralized operations center in Huntington Beach, California. Triad sends
payment invoices to Obligors each month for amounts due under the Contracts,
including any amounts past due and late charges thereon, if any. Each Obligor
has been instructed to make payments with respect to the Contracts to a Lockbox
maintained by the Lockbox Bank. See "Description of the Trust
Documents--Payments On Receivables." Subject to applicable law, Triad's current
collection policies establish the following procedures. Triad initiates
collection activities once a payment is five days contractually past due. The
initial contacts are made through phone calls, with continued attempts to
contact the Obligor for payment at least every two days thereafter. In cases
where an Obligor has broken a promise to make a payment by a certain date, such
Obligor is called within a day. If
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Triad's collection department is unsuccessful in contacting an Obligor by phone,
alternative methods of contact, such as the use of outside agent field calls or
location gathering via references, employers, landlords, or other credit
references are pursued, generally within 15 to 20 days of the account becoming
delinquent.
The decision to repossess a vehicle is influenced by many factors, such as
previous account history, reasons for delinquency and cooperation of the
Obligor. As part of the collection process, all practical means of contacting
the Obligor are attempted. If, at any point, a collector feels that there is
little or no chance that Triad will be able to establish contact with the
Obligor or that the Obligor will not make the required payments, the collector
will submit such contract for repossession. All contracts submitted are
evaluated by collection supervisors to determine if more follow-up work is
needed prior to repossession. If so determined, the supervisor provides
suggestions to assist the collector in further efforts to locate the Obligor. If
the supervisor feels all leads have been exhausted, the contract will be
forwarded to the collection manager for review. If the collection manager agrees
with the supervisor, it will be returned to the collector "approved" for
repossession.
Once the decision to repossess a vehicle is made, the account is referred to
an outside agency which handles the actual repossession. Most state laws require
that the Obligor be sent a Notice of Intent to Sell, which informs the borrower
of the lender's intent to sell the vehicle. The various states provide for a
period of time, generally 15 to 20 days, during which the Obligor may have the
right, depending on the applicable statute, either to reinstate the contract by
making all past due payments and paying the repossession and storage expenses,
or to redeem the vehicle by paying the contract in full, plus expenses
associated with repossession and storage of the vehicle. If the Obligor does not
exercise his right to reinstate the contract or redeem the vehicle, as provided
by the applicable statute, Triad immediately begins the process to sell the
vehicle at public auction. The vehicle is usually sold within 31 to 45 days
after being repossessed. After a repossessed vehicle is sold, Triad's collection
staff applies for rebates on any extended warranty or life, accident and health
insurance policies that may have been financed as part of the vehicle purchase.
Triad's collection policies generally do not allow for loan extensions;
provided, however, in those circumstances where extensions are granted, Triad
typically does not (a) grant more than three extensions with respect to a
Receivable, (b) grant more than one extension per calendar year with respect to
a Receivable or (c) grant an extension for more than one calendar month with
respect to a Receivable.
INFORMATION TECHNOLOGY AND SYSTEMS
Triad's information technology needs are met with a system consisting of
client servers, a personal computer local area network and a mainframe computer
provided by a vendor. Triad's loan accounting and collections systems, Shaw IL
2000 and CS 2000, are housed on a mainframe computer provided by Affiliated
Computer Services, Inc. ("ACS"). ACS's mainframe is located in Dallas, Texas and
communicates with Triad's operation center through a dedicated, leased telephone
line. Triad's credit application processing system, APPRO, is maintained on a
client server at Triad's operations center in Huntington Beach.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Record Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
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As more specifically described in the related Prospectus Supplement with
respect to each Series of Securities, the related Securityholders of record will
receive reports on or about each Record Date concerning the payments received on
the Receivables, the Aggregate Principal Balance (as such term is defined in the
related Prospectus Supplement, the "Aggregate Principal Balance"), each Pool
Factor and various other items of information. In addition, Securityholders of
record during any calendar year will be furnished information for tax reporting
purposes not later than the latest date permitted by law.
USE OF PROCEEDS
Except as provided in the related Prospectus Supplement, the proceeds from
the sale of the Securities of a given Series will be applied by the applicable
Trust to the purchase of Receivables from the applicable Seller, to make the
deposit of the Pre-Funded Amount, if any, to the Pre-Funding Account, to make
the required deposit, if any, into a reserve account, and to pay certain
expenses. Net amounts remaining after such payments, if any, will be distributed
by the Seller to its sole shareholder, Triad.
TRIAD AND THE SELLER
Each Seller will be a wholly-owned subsidiary of Triad. Triad Financial
Special Purpose Corporation was incorporated in the State of Delaware on
September 26, 1996 and is a wholly-owned subsidiary of Triad. Triad Financial
Special Purpose Corporation was, and each other Seller will be, organized for
the limited purpose of purchasing automobile installment sale contracts from
Triad and transferring such receivables to third parties and any activities
incidental to and necessary or convenient for the accomplishment of such
purposes. The principal executive offices of Triad Financial Special Purpose
Corporation are located at 7711 Center Avenue, Suite 390, Huntington Beach,
California 92647. The telephone number of such office is (714) 373-8300.
The Seller has taken steps in structuring the transaction contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
petition for relief by Triad under any Insolvency Law will result in
consolidation of the assets and liabilities of the Seller or the Trust with
those of Triad. These steps include the creation of the Seller as a separate,
limited-purpose subsidiary pursuant to articles of incorporation containing
certain limitations (including restrictions on the nature of the Seller's
business and a restriction on the Seller's ability to commence a voluntary case
or proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors and a requirement that at least one director
qualifies under the articles of incorporation as an "independent director").
However, there can be no assurance that the activities of the Seller would not
result in a court concluding that the assets and liabilities of the Seller
should be consolidated with those of Triad in a proceeding under any Insolvency
Law.
The Seller has received the advice of Dechert Price & Rhoads to the effect
that, subject to certain facts, assumptions and qualifications, in a properly
presented case under current law, in the event that Triad becomes a debtor in a
case under the Bankruptcy Code, a United States Bankruptcy Court would not order
the substantive consolidation of the assets and liabilities of the Seller with
those of Triad. Among other things, it is assumed by Dechert Price & Rhoads that
the Seller will follow certain procedures in the conduct of its affairs,
including maintaining records and books of account separate from those of Triad,
refraining from commingling its assets with those of Triad and refraining from
holding itself out as having agreed to pay, or being liable for, the debts of
Triad. The Seller intends to follow and has represented to such counsel that it
will follow these and other procedures related to maintaining its separate
corporate identity. However, in the event that the Seller did not follow these
procedures, and in certain other circumstances, there can be no assurance that a
court would not conclude that the assets and liabilities of the Seller should be
consolidated with those of Triad. If a court were to reach such a conclusion, or
a filing were made to litigate any of the foregoing issues, delays in
distributions on the Securities (and possible reductions in the amount of such
distributions) could occur. See "Risk Factors--Non-Consolidation".
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Triad was founded in 1989 by James M. Landy and Helen R. Kraus, who now
serve Triad as Chief Executive Officer and Executive Vice President,
respectively. ContiFinancial Corporation ("CFN"), acquired 53.5% of the common
stock of Triad in November 1996, acquired an additional 2.5% in January 1997 and
acquired the remaining common stock in March 1998. The chief executive office of
Triad is located at 7711 Center Avenue, Suite 100, Huntington Beach, California
92647. The telephone number of such office is (714) 373-8300. Funding sources
available to Triad include warehouse and working capital lending facilities
provided by ContiTrade Services L.L.C., an affiliate of CFN.
THE TRUSTEE
The Trustee or Trustees, as applicable, for each Series of Securities will
be specified in the related Prospectus Supplement. The liability of each Trustee
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
Pooling and Servicing Agreement, Trust Agreement or Indenture, as applicable.
With respect to each Series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor Trustee
shall be specified in the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in Series. Each Series of Securities (or, in
certain instances, two or more Series of Securities) will be issued pursuant to
a Pooling and Servicing Agreement, Indenture or Trust Agreement, as applicable.
The following summaries (together with additional summaries under "The
Description of the Trust Documents" below) describe all material terms and
provisions relating to the Securities common to each Indenture and Trust
Agreement or Pooling and Servicing Agreement. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Trust Documents for the related Securities and
the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies.
The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Receivables held by the
related Trust or debt secured by certain assets of the related Trust.
Each Series or Class of Securities offered pursuant to this Prospectus may
have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
Series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A Series may include one or more Classes of Strip Securities entitled (i) to
principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a Series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such Series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
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If so provided in the related Prospectus Supplement, a Series may include
one or more other Classes of Senior Securities that are senior to one or more
other Classes of Subordinate Securities in respect of certain distributions of
principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate) Securities in respect of such
distributions or losses.
GENERAL PAYMENT TERMS OF SECURITIES
As provided in the related Trust Documents and as described in the related
Prospectus Supplement, Securityholders will be entitled to receive payments on
their Securities on the specified Payment Dates. Payment Dates with respect to
the Securities will occur monthly, quarterly or semiannually, as described in
the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date preceding
such Payment Date, as of which the Trustee or its paying agent will fix the
identity of the Securityholders for the purpose of receiving payments on the
next succeeding Payment Date. As more fully described in the related Prospectus
Supplement, the Payment Date will be a specified day of each month (or, in the
case of quarterly-pay Securities, a specified day of every third month; and in
the case of semiannual-pay Securities, a specified day of every sixth month) and
the Record Date will be the close of business as of a specified day proceeding
such Payment Date.
Each Trust Agreement and Indenture will describe a Collection Period
preceding each Payment Date (for example, in the case of monthly-pay Securities,
the calendar month preceding the month in which a Payment Date occurs). As more
fully provided in the related Prospectus Supplement, collections received on or
with respect to the related Receivables held by a Trust during a Collection
Period will be required to be remitted by the Servicer to the related Trustee
prior to the related Payment Date and will be used to fund payments to
Securityholders on such Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Documents may provide that all or a
portion of the payments collected on or with respect to the related Receivables
may be applied by the related Trustee to the acquisition of additional
Receivables during a specified period (rather than be used to fund payments of
principal to Securityholders during such period) with the result that the
related Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Trust Documents may provide that all or a portion of such collected
payments may be retained by the Trustee (and held in certain temporary
investments, including Receivables) for a specified period prior to being used
to fund payments of principal to Securityholders.
Such retention and temporary investment by the Trustee of such collected
payments may be required by the related Trust Documents for the purposes of (a)
slowing the amortization rate of the related Securities relative to the
installment payment schedule of the related Receivables, or (b) attempting to
match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of the amortization of such
Securities.
Neither the Securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or Triad, any Seller, the
Servicer, any Trustee or any of their respective affiliates unless specifically
set forth in the related Prospectus Supplement.
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As may be described in the related Prospectus Supplement, Securities of each
Series covered by a particular Trust Agreement will either evidence specified
beneficial ownership interests in the Trust Property or represent debt secured
by the related Trust Property. To the extent that any Trust Property includes
certificates of interest or participations in Receivables, the related
Prospectus Supplement will describe the material terms and conditions of such
certificates or participations.
BOOK-ENTRY REGISTRATION
As may be described in the related Prospectus Supplement, Securityholders of
a given Series may hold their Securities through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of a
given Series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
Indirect Participants 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 DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
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The Securityholders of a given Series that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Securities of such Series may do so only through
Participants and Indirect Participants. In addition, Securityholders of a given
Series will receive all distributions of principal and interest through the
Participants who in turn will receive them from DTC. Under a book-entry format,
Securityholders of a given Series may experience some delay in their receipt of
payments, since such payments will be forwarded by the applicable Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or such
Securityholders. It is anticipated that the only "Securityholder" in respect of
any Series will be Cede, as nominee of DTC. Securityholders of a given Series
will not be recognized as Securityholders of such Series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such Series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities of a given Series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given Series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such Series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given Series to pledge Securities of such Series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will take any
action permitted to be taken by a Securityholder of the related Series only at
the direction of one or more Participants to whose accounts with DTC the
Securities of such Series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 28 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above.
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Euroclear is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office, under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
"Euroclear Operator" (as defined below), and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear System
on behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the Underwriters. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a Series will not have
any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE SECURITIES
As may be described in the related Prospectus Supplement, the Securities
will be issued in fully registered, certificated form ("Definitive Securities")
to the Securityholders of a given Series or their nominees, rather than to DTC
or its nominee, only if (i) the Trustee in respect of the related Series advises
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such Trustee
is unable to locate a qualified successor, (ii) such Trustee, at its option,
elects to terminate the book-entry-system through DTC or (iii) after the
occurrence of an "Event of Default" under the related Indenture or a default by
the Servicer under the related Trust Documents, Securityholders representing at
least a majority of the outstanding principal amount of such Securities advise
the applicable Trustee through DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement, 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
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the address of such holder as it appears on the register maintained by the
applicable Trustee. The final payment on any such Security, however, will be
made only upon presentation and surrender of such Security at the office or
agency specified in the notice of final distribution to the applicable
Securityholders.
Definitive Securities in respect of a given Series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to holders of such Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities, on or prior to each Payment Date
for such Series, the Servicer or the related Trustee will forward or cause to be
forwarded to each securityholder and the Rating Agency a statement or statements
with respect to the related Trust Property setting forth the information
specifically described in the related Trust Document which generally will
include the following information and may include such other information as
specified in the related Prospectus Supplement:
(i) the amount of the distribution with respect to each class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Aggregate Principal Balance, if applicable, as of the close of
business on the last day of the related Collection Period;
(v) the aggregate outstanding principal balance and the Pool Factor for
each Class of Securities after giving effect to all payments reported under
(ii) above on such Record Date;
(vi) the amount paid to the Servicer, if any, with respect to the
related Collection Period;
(vii) the amount of the aggregate purchase amounts (the "Purchase
Amounts") for Receivables that have been reacquired, if any, for such
Collection Period; and
(viii)the amount of coverage under a Policy, reserve account or other
form of Credit Enhancement covering default risk as of the close of business
on the applicable Payment Date and a description of any Credit Enhancement
substituted therefor.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) with
respect to the Securities of any Series will be expressed as a dollar amount per
$1,000 of the initial principal balance of such Securities, as applicable. The
actual information to be set forth in statements to Securityholders of a Series
will be described in the related Prospectus Supplement.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
FORWARD COMMITMENTS; PRE-FUNDING
A Trust may enter into an agreement (each, a "Forward Purchase Agreement")
with the Seller whereby the Seller will agree to transfer additional Receivables
to such Trust following the date on which such Trust is established and the
related Securities are issued. The Trust may enter into Forward Purchase
Agreements to permit the acquisition of additional Receivables that could not be
delivered by the Seller or have not formally completed the origination process,
in each case prior to the related Closing Date. Any
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Forward Purchase Agreement will require that any Receivables so transferred to
the Trust conform to the requirements specified in such Forward Purchase
Agreement.
If a Forward Purchase Agreement is to be utilized, and unless otherwise
specified in the related Prospectus Supplement, the related Trustee will be
required to deposit in the Pre-Funding Account up to 100% of the net proceeds
received by the Trustee in connection with the sale of one or more classes of
Securities of the related Series and the additional Receivables will be
transferred to the related Trust in exchange for money released to the Seller
from the related Pre-Funding Account. Each Forward Purchase Agreement will set a
Pre-Funding Period during which any such transfers must occur; for a Trust which
elects federal income treatment as a grantor trust, the related Pre-Funding
Period will be limited to three months from the date such Trust is established;
for a Trust which is treated as a mere security device for federal income tax
purposes, the related Pre-Funding Period will be limited to nine months from the
date such Trust is established. The Forward Purchase Agreement or the related
Pooling and Servicing Agreement or Sale and Servicing Agreement will require
that, if all moneys originally deposited to such Pre-Funding Account are not so
used by the end of the related Pre-Funding Period, then any remaining moneys
will be applied as a mandatory prepayment of the related class or classes of
Securities as specified in the related Prospectus Supplement.
During the Pre-Funding Period the monies deposited to the Pre-Funding
Account will either (i) be held uninvested or (ii) will be invested in
cash-equivalent investments rated in one of the four highest rating categories
by at least one Rating Agency and which will either mature prior to the end of
the Pre-Funding Period, or will be drawable on demand and in any event, will not
constitute the type of investment which would require registration of the
related Trust as an "investment company" under the Investment Company Act of
1940, as amended.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of each Trust Documents
pursuant to which a Trust will be created and the related Securities in respect
of such Trust will be issued. For purposes of this Prospectus, the term "Trust
Documents" as used with respect to a Trust means, collectively, and except as
otherwise specified, any and all agreements relating to the establishment of the
related Trust, the transfer of Receivables to the Trust, the servicing of the
related Receivables and the issuance of the related Securities, including
without limitation the Indenture (i.e. pursuant to which any Notes shall be
issued). Forms of certain of the Trust Documents have been filed as exhibits to
the Registration Statement of which the Prospectus forms a part. The summary
does not purport to be complete. It is qualified in its entirety by reference to
the provisions of the Trust Documents.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date specified with respect to any given Series,
Triad will sell and assign to a Seller, without recourse, except as otherwise
provided in the applicable Receivables Purchase Agreement, its entire interest
in the Receivables to be included in such Trust, together with its security
interests in the Financed Vehicles. At the time of issuance of the Securities,
such Seller will transfer and assign to a Trust the Seller's entire interest in
such Receivables, including its security interests in the Financed Vehicles,
pursuant to a Sale and Servicing Agreement or Pooling and Servicing Agreement.
Each Receivable transferred by the Seller will be identified in a schedule
appearing as an exhibit to the related Trust Documents. The obligations of the
Seller and the Servicer under the related Pooling and Servicing Agreement or
Sale and Servicing Agreement include those specified below and in the related
Prospectus Supplement.
As more fully described in the related Prospectus Supplement, Triad will be
obligated to acquire from the related Trust its interest in any Receivable
transferred to a Trust or pledged to a Trustee on behalf of Securityholders if
the interest of the Securityholders therein is materially adversely affected by
a breach of
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any representation or warranty made by Triad with respect to such Receivable,
which breach has not been cured following the discovery by or notice to Triad of
the breach. In addition, if so specified in the related Prospectus Supplement,
Triad may from time to time reacquire certain Receivables or substitute other
Receivables for such Receivable subject to specified conditions set forth in the
related Receivables Purchase Agreement.
PAYMENTS ON RECEIVABLES
With respect to each Series of Securities, unless the related Prospectus
Supplement does not so provide, the Servicer will notify each Obligor that
payments made by such Obligor after the Cutoff Date with respect to a Receivable
must be mailed directly to a Lockbox established and maintained with a bank (the
"Lockbox Bank"), as set forth in the Servicing Agreement relating to such
Receivable. Upon receipt of payments in the Lockbox, the Lockbox Bank will
deposit funds into an account maintained by the Lockbox Bank at a depository
institution (the "Lockbox Account"). All payments made on or with respect to the
Receivables previously deposited in the Lockbox Account will be transferred to
the Collection Account (as defined below) within two Business Days of the
receipt of available funds therein. All payments with respect to the Securities
will be made by the Trustee from the Collection Account. Upon receipt, but in no
event later than two Business Days after the receipt thereof, each of the
Servicer, Triad and the Seller will remit all amounts received by it in respect
of the Receivables in the form of checks with payment coupons directly to the
Lockbox. Other payments received by each of the Servicer, Triad and the Seller
will be deposited into a local servicing account for processing, and then
transferred to the Collection Account. The Collection Account will be maintained
with the Trustee as long as the Trustee's deposits have a rating acceptable to
the Rating Agency. If the deposits of the Trustee no longer have such acceptable
rating, the Trustee shall cause such accounts to be moved to a bank or trust
company having such acceptable ratings.
The Servicer or the Seller, as the case may be, will remit or cause to be
remitted the aggregate Purchase Amounts of any Receivables required to be
purchased by it from the Trust to the Collection Account. Under the Servicing
Agreement, the amounts of any recoveries in respect of any Receivables
repurchased by Dealers pursuant to any Dealer recourse constitute collections on
the Receivables.
For purposes of the Servicing Agreement, collections on a Receivable (other
than a Receivable purchased by the Servicer or the Seller) which are not late
fees or other administrative fees and expenses collected during a Collection
Period are required to be applied first to the scheduled payment on such
Receivable. To the extent that such collections on a Receivable during a
Collection Period exceed the scheduled payment on such Receivable, the
collections are required to be applied to prepay the Receivable in full. If the
collections are insufficient to prepay the Receivable in full, any partial
prepayment of principal during a Collection Period will be immediately applied
to reduce the principal balance of the Receivable during such Collection Period.
ACCOUNTS
With respect to each Series of Securities issued by a Trust unless otherwise
specified in the related Prospectus Supplement, the Trustee will establish and
maintain one or more accounts (the "Collection Account"), in the name of such
Trustee on behalf of the related Securityholders, into which all payments made
on or with respect to the related Receivables and deposited in the Lockbox
Account will be transferred.
If the related Prospectus Supplement so provides, the Pre-Funding Account
will be maintained with the Trustee and is intended solely to hold funds to be
applied by the Trustee during the Pre-Funding Period (i) to pay to the Seller
the purchase price for Subsequent Receivables and (ii) to make any eligible
investments with funds not yet invested in Subsequent Receivables. Monies on
deposit in the Pre-Funding Account will not be available to cover losses on or
in respect of the Receivables and any eligible
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investments purchased with funds not yet invested in Subsequent Receivables. On
the Closing Date, the Pre-Funding Account will be funded with the initial
Pre-Funded Amount from the sale proceeds of the Securities.
Any other accounts to be established with respect to a Trust, including any
reserve account, will be described in the related Prospectus Supplement.
For any Series of Securities, funds in the Collection Account, any reserve
account and other accounts identified as such in the related Prospectus
Supplement (collectively, the "Trust Accounts") shall be maintained as "eligible
accounts" and invested in "eligible investments" as specified in the related
Trust Documents.
THE SERVICER
The Servicer under each Servicing Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be Triad or an
affiliate of Triad and may have other business relationships with Triad or
Triad's affiliates. The Servicer with respect to each Series will service the
Receivables contained in the Trust for such Series. Any Servicer may delegate
its servicing responsibilities to one or more subservicers, but will not be
relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Servicing Agreement. An uncured breach of such a representation or
warranty that in any respect materially and adversely affects the interests of
the Securityholders will constitute a Servicer Termination Event (as hereinafter
defined) by the Servicer under the related Servicing Agreement.
A Servicing Agreement may contain provisions providing for a backup servicer
(a "Backup Servicer") to serve as successor servicer in the event the Servicer
is terminated or resigns as Servicer pursuant to the terms of such Servicing
Agreement. A Backup Servicer will receive a fee on each Payment Date for
agreeing to stand by as successor Servicer and for performing certain other
functions. If the Backup Servicer becomes the Servicer under a Servicing
Agreement, it will receive compensation as a Servicer in an amount set forth in
such Servicing Agreement.
SERVICING PROCEDURES
Each Servicing Agreement will provide that the Servicer will make reasonable
efforts to collect all payments due with respect to the Receivables which are
part of the Trust and will continue such collection procedures as it follows
with respect to all comparable motor vehicle receivables that it services for
itself and others, in a manner consistent with the related Servicing Agreement.
If the Servicer determines that eventual payment in full of a Receivable is
unlikely, the Servicer will follow its normal collection practices and
procedures, including the repossession and disposition of the Financed Vehicle
securing the Receivable at a public or private auction, or the taking of any
other action permitted by applicable law.
The material aspects of any particular Servicer's collections and other
relevant procedures will be set forth in the related Prospectus Supplement.
SERVICING COMPENSATION
As may be described in the related Prospectus Supplement with respect to any
Series of securities issued by a Trust, the Servicer will be entitled to receive
a servicing fee for each Collection Period (the "Servicing Fee") in an amount
equal to a specified percentage per annum (as set forth in the related
Prospectus Supplement, the "Servicing Fee Rate") of the value of the assets of
the Trust Property, generally as of the first day of such Collection Period.
Each Prospectus Supplement and Servicing Agreement will specify the priority of
distributions with respect to the Servicing Fee (together with any
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portion of the Servicing Fee that remains unpaid from prior Payment Dates).
Generally, the Servicing Fee will be paid prior to any distribution to the
related Securityholders.
The Servicer will also collect and retain any late fees, prepayment charges,
and other administrative fees or similar charges allowed by applicable law with
respect to the Receivables. Payments by or on behalf of Obligors will be
allocated to scheduled payments, late fees and other charges and principal and
interest in accordance with the Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the functions
of a third-party servicer of similar types of receivables as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Obligors on the related Receivables, investigating delinquencies,
sending billing statements to Obligors, reporting tax information to Obligors,
paying costs of collection and disposition of defaults, and policing the
collateral. In addition, the Servicing Fee also will compensate the Servicer for
administering the related Receivables, including accounting for collections,
furnishing statements to the applicable Trustee and the applicable Indenture
Trustee, if any, with respect to distributions. The Servicer will also be
reimbursed for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Receivables.
DISTRIBUTIONS
With respect to each Series of Securities, beginning on the Payment Date
specified in the related Prospectus Supplement, distributions of principal and
interest (or, where applicable, of principal or interest only) on each Class of
such Securities entitled thereto will be made by the applicable Trustee to the
holders of Notes (the "Noteholders") and by the applicable Trustee to the
holders of Certificates (the "Certificateholders") of such Series. The timing,
calculation, allocation, order, source, priorities of and requirements for all
distributions to each class of Securityholders of such Series will be set forth
in the related Prospectus Supplement.
With respect to each Series of Securities, Credit Enhancement, such as a
reserve account, may be available to cover any shortfalls in the amount
available for distribution on a Payment 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 the Certificates of such Series may be subordinate to payments in respect of
the Notes of such Series.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each Class of Securities of a
given Series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, Credit Enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same Series, and Credit Enhancement for a Series of Securities may cover one or
more other Series of Securities.
The presence of Credit Enhancement for the benefit of any Class or Series of
Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or Series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the Credit Enhancement for a Class or Series of Securities will not
provide protection against all risks of loss and will not guarantee
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repayment of the entire principal balance and interest thereon. If losses occur
which exceed the amount covered by any Credit Enhancement or which are not
covered by any Credit Enhancement, Securityholders of any Class or Series will
bear their allocable share of deficiencies, as described in the related
Prospectus Supplement. In addition, if a form of Credit Enhancement covers more
than one Series of Securities, Securityholders of any such Series will be
subject to the risk that such Credit Enhancement will be exhausted by the claims
of Securityholders of other Series.
STATEMENTS TO TRUSTEES
Prior to each Payment Date with respect to each Series of Securities, the
Servicer will provide to the applicable Trustee and Credit Enhancer as of the
close of business on the last day of the preceding related Collection Period a
statement setting forth substantially the same information as is required to be
provided in the periodic reports provided to Securityholders of such Series
described under "Description of the Securities--Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each Servicing Agreement will provide that a firm of nationally recognized
independent certified public accountants will furnish to the related Trust
and/or the applicable Trustee and Credit Enhancer (if any), annually, a
statement to the effect that such firm has audited the books and records of the
Servicer and issued its report thereon for the fiscal year.
Each Servicing Agreement will also provide for the annual delivery to the
related Trust and/or the applicable Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under such, to such officer's knowledge, Servicing Agreement in all
material respects throughout the preceding 12 months (or, in the case of the
first such certificate, the period from the applicable Closing Date) or, if
there has been a default in the fulfillment of any such obligation in any
material respect, describing each such default. The Servicer also will agree to
give each Trustee notice of certain Servicer Termination Events under the
related Servicing Agreement.
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 SERVICERS
The Servicing Agreement will provide that the Servicer may not resign from
its obligations and duties as Servicer thereunder, except upon determination
that, by reason of a change in legal requirements, the Servicer's performance of
such duties would be in violation of such legal requirements and the requisite
majority of Securityholders do not elect to waive the obligations of the
Servicer to perform the duties that render it legally unable to act or to
delegate those duties to another Person. No such resignation will become
effective until the Backup Servicer or a successor servicer has assumed the
Servicer's servicing obligations and duties under the Servicing Agreement. In
the event Triad resigns as Servicer or is terminated as Servicer, the Backup
Servicer, if any, will agree to assume the servicing obligations and duties
under the Servicing Agreement.
Except as otherwise provided in the related Prospectus Supplement, each
Servicing Agreement will further provide that neither the Servicer nor any of
its respective directors, officers, employees, or agents shall be under any
liability to the related Issuer, Trustee or the related Securityholders for
taking any action or for refraining from taking any action pursuant to such
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 the Servicer's material breach of the Servicing Agreement, willful
misfeasance, bad faith or negligence (other than errors in judgment) in the
performance of duties.
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Under the circumstances specified in any such Servicing Agreement any entity
into which the Servicer may be merged or consolidated, resulting from any
merger, conversion or consolidation to which the Servicer is a party, which
acquires all or substantially all of the assets of the Servicer, or succeeding
to the business of the Servicer, which in any case assumes the obligations of
the Servicer, will be the successor of the Servicer, under the Servicing
Agreement. The Servicer may at any time perform certain specific duties as
Servicer through other subcontractors.
SERVICER TERMINATION EVENT
Except as otherwise provided in the related Prospectus Supplement, "Servicer
Termination Event" under the related Trust Documents will include: (i) any
failure by the Servicer to deliver to the applicable Trustee for deposit in any
of the related Trust Accounts any required payment or to direct such Trustee to
make any required distributions therefrom, which failure continues unremedied
for more than two (2) Business Days (one Business Day with respect to payment of
Purchase Amounts) after the earlier of (x) notice of such failure is given by
such Trustee to the Servicer or (y) after discovery by the Servicer; (ii) the
Servicer's failure or failures to satisfy any other covenant or agreement set
forth in the Servicing Agreement, which failure or failures, individually or in
the aggregate, materially and adversely affect the rights of the related
Securityholders and remains uncured for a period of 30 days after the earlier of
the date on which (a) it obtains actual knowledge of such failure and (b)
written notice of such failure to the Servicer by the applicable Trustee or a
specified percentage of Securityholders; (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings with respect to the Servicer indicating its insolvency; and (iv) the
failure by the Receivables pool to meet certain tests, including those relating
to delinquencies, defaults and repossession and such results have not been
deemed cured, as further specified in the related Prospectus Supplement.
RIGHTS UPON SERVICER TERMINATION EVENT
As more fully described in the related Prospectus Supplement, as long as a
Servicer Termination Event under the related Trust Documents remains unremedied,
the applicable Trustee, Credit Enhancer or holders of Securities of the related
Series evidencing not less than 50% of the voting rights of such then
outstanding Securities may terminate all the rights and obligations of the
Servicer, if any, under such Servicing Agreement, whereupon the Backup Servicer,
if any, or another successor servicer appointed by such Trustee or such Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under such Trust Agreement and will be entitled to similar compensation
arrangements.
WAIVER OF PAST DEFAULTS
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Securities evidencing at least a majority of the voting rights of
such then outstanding Securities may, on behalf of all Securityholders of the
related Securities, waive any default by the Servicer in the performance of its
obligations under the related Trust Documents and its consequences, except a
default in making any required deposits to or payments from any of the Trust
Accounts in accordance with the applicable Trust Documents. No such waiver shall
impair the Securityholders' rights with respect to subsequent defaults.
AMENDMENT
As more fully described in the related Prospectus Supplement, each of the
Trust Documents may be amended by the parties thereto, without the consent of
the related Securityholders, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Documents or of modifying in any manner the rights of such Securityholders;
provided that such action will not, in the opinion of counsel satisfactory to
the applicable Trustee, materially and adversely affect the interests of any
such Securityholder and subject to the approval of any Credit Enhancer. As may
be
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described in the related Prospectus Supplement, the Trust Documents may also be
amended by the Seller, the Servicer, and the applicable Trustee with the consent
of the holders of Securities evidencing at least a majority of the voting rights
of such then outstanding Securities for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of such Trust
Documents or of modifying in any manner the rights of such Securityholders;
provided, however, that no such amendment may (i) increase or reduce in any
manner the amount or priority of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made for the benefit of such Securityholders or (ii) reduce the
aforesaid percentage of the Securities of such Series which are required to
consent to any such amendment, without the consent of the Securityholders of
such Series.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Seller and
the applicable Trustee pursuant to the related Trust Document will terminate
upon the earlier to occur of (i) the maturity or other liquidation of the last
related Receivable and the payment to Securityholders of amounts required to be
paid under the Securities or Trust Documents and (ii) the payment to
Securityholders of the related Series of all amounts required to be paid to them
pursuant to such Trust Document and the expiration of any preference period
related thereto. As more fully described in the related Prospectus Supplement,
in order to avoid excessive administrative expense, the Servicer will be
permitted in respect of the applicable Trust Property, unless otherwise
specified in the related Prospectus Supplement, at its option to purchase from
such Trust Property, as of the end of any Collection Period immediately
preceding a Payment Date, if the Aggregate Principal Balance of the related
Receivables is less than a specified percentage (set forth in the related
Prospectus Supplement) of the initial Aggregate Principal Balance in respect of
such Trust Property, all such remaining Receivables at a price equal to the
aggregate of the Purchase Amounts thereof as of the end of such Collection
Period. The related Securities will be redeemed following such purchase.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related Series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may effect the prepayment of the
Certificates of such Series.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of Receivables by the Seller to the Trust pursuant to the
related Pooling and Servicing Agreement or Sale and Servicing Agreement, the
perfection of the security interests in the Receivables and the enforcement of
rights to realize on the Financed Vehicles as collateral for the Receivables are
subject to a number of federal and state laws, including the Uniform Commercial
Code (the "UCC") as in effect in various states. As specified in each Prospectus
Supplement, the Servicer will take such action as is required to perfect the
rights of the Trustee in the Receivables. If, through inadvertence or otherwise,
a third party were to purchase (including the taking of a security interest in)
a Receivable for new value in the ordinary course of its business, without
actual knowledge of the Trust's interest, and take possession of a Receivable,
the purchaser would acquire an interest in such Receivable superior to the
interest of the Trust. As further specified in each Prospectus Supplement, no
action will be taken to perfect the rights of the Trustee in proceeds of any
insurance policies covering individual Financed Vehicles or Obligors. Therefore,
the rights of a third party with an interest in such proceeds could prevail
against the rights of the Trust prior to the time such proceeds are deposited by
the Servicer into a Trust Account.
SECURITY INTERESTS IN VEHICLES
Generally, retail installment sale contracts such as the Receivables
evidence the credit sale of automobiles and light-duty trucks by dealers to
Obligors. The contracts also constitute personal property security agreements
and include grants of security interests in the financed vehicles under the
applicable UCC.
In most states, perfection of a security interest in a motor vehicle is
generally governed by the motor vehicle titling or registration laws of the
state in which the vehicle is located. In most states in which the Receivables
have been originated, a security interest in motor vehicles is perfected by
notation of the secured party's lien on the vehicle's certificate of title and
the filing of the certificate with the state motor vehicle department.
Pursuant to each Receivables Purchase Agreement and Pooling and Servicing
Agreement or Sale and Servicing Agreement, each of Triad and the Seller will
sell and assign to the Seller and the Trust, respectively, its security
interests in the Financed Vehicles securing the Receivables. Pursuant to an
Indenture, the Issuer will assign those security interests to the Trustee, for
the benefit of the Securityholders. However because of the administrative burden
and expense, no steps will be taken to cause certificates of title for the
Financed Vehicles to be issued or amended to show the Trustee as the new secured
party on the certificates of title for the Financed Vehicles. See "The
Transaction Documents--Sale and Assignment of Receivables."
In most states, assignments such as those under the Receivables Purchase
Agreement, the Pooling and Servicing Agreement and the Sale and Servicing
Agreement are effective assignments of a security interest without amendment of
any lien noted on a vehicle's certificate of title, and the assignee succeeds
thereby to the assignor's rights as secured party. By not identifying the
Trustee as the secured party on the certificate of title, the security interest
of the Issuer in the Financed Vehicles that is assigned to the Trustee could be
defeated through fraud or negligence. If there are any Financed Vehicles as to
which a perfected security interest was not obtained or is not maintained, the
security interest of the Issuer that is assigned to the Trustee would be
subordinate to, among others, the interests of subsequent purchasers of the
Financed Vehicles, subsequent lenders who take security interests in such
Financed Vehicles and creditors who attach or obtain judgment liens against the
Financed Vehicles, and could be avoided by bankruptcy trustees and debtors in
possession. In the absence of fraud or forgery by the vehicle owner or the
Servicer or administrative error by governmental authorities charged with
responsibility for issuing vehicle titles, the notation of Triad's security
interest on the certificates of title and, if applicable, the Trustee's or
Servicer's possession of the certificates of title will be sufficient to protect
the Seller, the Issuer and the Trustee
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against the rights of subsequent purchasers of a Financed Vehicle or subsequent
lenders who take a security interest in a Financed Vehicle. But the security
interest of the Issuer, as assigned to the Trustee, would be subordinate to the
lien of a judgment creditor and would be subject to avoidance by a bankruptcy
trustee or debtor in possession. However, Triad's failure to obtain or the
Servicer's failure to maintain a perfected security interest in a Financed
Vehicle would constitute a breach of the warranties of Triad or the Servicer (as
applicable) under the Receivables Purchase Agreement or the Pooling and
Servicing Agreement or Sale and Servicing Agreement (as applicable), and would
create an obligation of Triad or the Servicer under the Receivables Purchase
Agreement or the Pooling and Servicing Agreement or Sale and Servicing Agreement
to purchase or replace the related Receivable unless the breach is cured. See
"The Transaction Documents--Sale and Assignment of Receivables."
Under the laws of most states, a security interest in a vehicle that is
perfected by notation on the certificate of title remains perfected for four
months after a vehicle is moved from the state that issued the certificate of
title to a new state, and thereafter until the vehicle is re-registered in the
new state, but not beyond surrender of the certificate of title. A majority of
states generally require, as part of the registration process, that an existing
certificate of title for a vehicle be deposited with the application for
registration. Accordingly, a secured party that is in possession of a
certificate of title must surrender possession in order for the vehicle to be
re-registered. In cases where the secured party is not in possession of the
certificate of title, a secured party whose security interest is noted on the
certificate of title may receive notice when the certificate of title is
surrendered for purposes of re-registration of the vehicle. In either case, the
secured party would have the opportunity to re-perfect its security interest in
the vehicle in the new state. If a vehicle is relocated to and re-registered in
a state that does not require surrender of a certificate of title for
registration of the motor vehicle or that does not notify secured parties of
surrender of certificates of title, or in case of fraud on the part of the
Obligor, re-registration could result in a loss of perfection of a security
interest in the vehicle. In the ordinary course of servicing 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 may receive notice as a result of its security interest
being noted thereon and accordingly will have an opportunity to require
satisfaction of the related Receivable before release of the security interest.
Under either of the Pooling and Servicing Agreement or Sale and Servicing
Agreement, the Servicer is obligated to take appropriate steps, at the
Servicer's expense, to maintain perfection of security interests in the Financed
Vehicles.
Under the laws of most states, liens for repairs performed on, and for
storage of, a motor vehicle and liens for certain 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 motor
vehicles 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 motor vehicle. Triad will represent in the Receivables Purchase
Agreement and the Seller will represent in the Pooling and Servicing or Sale and
Servicing Agreement, as applicable, that each security interest in a Financed
Vehicle is or will be prior to all other present liens (other than liens for
repairs, storage or taxes) upon and security interests in such Financed Vehicle.
However, liens for repairs, storage or taxes, or the confiscation of a Financed
Vehicle, could arise or occur at any time during the term of a Receivable. No
notice will be given to the Indenture Trustee or Securityholders if such a lien
arises or confiscation occurs.
REPOSSESSION
In the event of a default by Obligors, the holder of the retail installment
sale contract has all the remedies of a secured party under the UCC of the state
in which enforcement is to take place, except where specifically limited by
other laws. In almost all states: (i) the UCC remedies of a secured party
include the right to repossession by self-help means, unless such means would
constitute a breach of the
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peace; (ii) unless a vehicle is voluntary surrendered, self-help repossession is
the method employed by the Servicer in the majority of instances in which a
default occurs and is accomplished by retaking possession of the Financed
Vehicle; and (iii) 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 Financed Vehicle must
then be repossessed in accordance with that order. In certain states under
certain circumstances after the Financed Vehicle has been repossessed, the
Obligor may reinstate the contract by paying the delinquent installments on the
Receivable and other amounts due.
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. In
some states, 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 sale, plus, in some jurisdictions, reasonable
attorneys' fees, (such expenses, the "Repossession Costs") or, in some other
states, by payment of the unpaid balance. In other states, the Obligor has the
right to reinstate the obligation by payment of delinquent installments and
Repossession Costs. Repossessed Financed Vehicles are generally resold by the
Servicer through automobile auctions which are attended principally by
automotive dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed Financed Vehicles generally will
be applied first to the expenses of resale and repossession and then to the
satisfaction of the indebtedness of the Obligor. 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.
Additionally, under the laws of most states, in order for a creditor in a
secured transaction to sue for a deficiency, he or she must first comply with
those provisions of the UCC which govern disposition of collateral and then
dispose of the collateral in a commercially reasonable manner. Any 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
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any other holder of any subordinate lien with
respect to the vehicle who has notified the lender within the specified time
period or, if no such lienholder exists or there are remaining funds, the UCC
requires the lender 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 credit sellers, lenders and servicers
involved in consumer finance. These laws include the Truth in Lending Act, the
Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B and Z, the Soldiers' and
Sailors' Civil Relief Act of 1940, state adaptations 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 laws impose specific statutory liabilities
upon creditors who fail to comply with their provisions. In some cases, this
liability could affect an
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assignee's (such as the Seller's, the Trust's or the Trustee'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, state statute or the common law in certain states,
has the effect of subjecting a seller (and certain related lenders and their
assignees) in a consumer credit transaction and any assignee of the seller (such
as Triad, the Seller, the Trust or the Trustee) to all claims and defenses which
the Obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the Obligor under
the contract, and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the Obligor. The Receivables will be
subject to the requirements of the FTC Rule. Accordingly, the Seller, the Trust
and the Trustee will be subject to any claims or defenses that the purchaser of
the Financed Vehicle may assert against the seller of the Financed Vehicle.
Under most state motor vehicle dealer licensing laws, sellers of motor vehicles
are required to be licensed to sell motor vehicles at retail sale. Furthermore,
Federal odometer regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of new and used vehicles furnish a
written statement signed by the seller certifying the accuracy of the odometer
reading. If a seller is not properly licensed or if an odometer disclosure
statement was not provided to the purchaser of the related Financed Vehicle, the
Obligor may be able to assert a claim or defense against the seller of the
vehicle, and against Triad, the Seller, the Trust or the Trustee pursuant to the
FTC Rule.
Courts have imposed general equitable principles on secured parties pursuing
repossession of collateral or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default. In most states, failure to comply
with the UCC's provisions regarding repossession, notice and sale of collateral,
such as the Financed Vehicles, may result in the secured party being liable in
damages to the debtor. The Servicer's failure to comply with these UCC
provisions also could affect the enforceability of the Receivables or of the
security interests in the Financed Vehicles that secure the Receivables.
In several cases, Obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the Fourteenth 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 consumers.
Triad will represent and warrant under the Receivables Purchase Agreement
and the Seller will represent and warrant under either the Pooling and Servicing
Agreement or the Sale and Servicing Agreement, as applicable, that each
Receivable complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim against the Trust for violation of any
law and such claim materially and adversely affects the Trust's interest in a
Receivable, such violation would constitute a breach of the warranties of Triad
under the Receivables Purchase Agreement and/or of the warranties of the Seller
under the Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable, and would create an obligation of Triad to repurchase or replace the
Receivable unless the breach is cured. See "The Transaction Documents--Sale and
Assignment of the Receivables".
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, some courts have held
that a court may prevent a lender from repossessing a motor vehicle, and, as a
part of the rehabilitation plan, reduce the amount of the secured indebtedness
to the market value of the motor vehicle at the time of bankruptcy (as
determined by
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the court), leaving the party providing financing as a general unsecured
creditor for the remainder of the indebtedness. A bankruptcy court may also
reduce the monthly payments due under a contract or change the rate of interest
and time of repayment of the indebtedness.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the purchase, ownership and disposition of the Notes and the Certificates.
Dechert Price & Rhoads, special federal tax counsel for Triad ("Federal Tax
Counsel"), is of the opinion that the discussion hereunder fully and fairly
discloses all material federal tax risks associated with the purchase, ownership
and disposition of the Notes and Certificates. The summary does not purport to
deal with federal income tax consequences or special rules that are applicable
to certain categories of holders. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on all of the issues discussed below. As a
result, the IRS may disagree with all or a part of the discussion below.
Prospective investors are urged to consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes and the Certificates.
Federal Tax Counsel will deliver separate opinions in connection with each
issuance of Securities. Such opinions will be delivered at pricing.
The following summary is based upon current provisions of the Code, the
Treasury regulations promulgated thereunder and judicial or ruling authority,
all of which are subject to change, which change may be retroactive. The opinion
of Federal Tax Counsel, however, is not binding on the IRS or the courts. No
ruling on any of the issues discussed below will be sought from the IRS. For
purposes of the following summary, references to the Trust, the Notes, the
Certificates and related terms, parties and documents shall be deemed to refer,
unless otherwise specified herein, to each Trust and the Notes, Certificates and
related terms, parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust will be treated as a partnership under the Code,
whether the Trust will be treated as a grantor trust, or whether it is intended
that the Trust serve as a security device for the issuance of Certificates that
are to be treated as indebtedness for federal income tax purposes. The
Prospectus Supplement for each series of Certificates will specify whether the
Trust will be treated as a partnership, a grantor trust, or is intended to serve
as a security device as just described.
TRUSTS TREATED AS PARTNERSHIPS
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion that a Trust which is intended
to be a partnership, as specified in the related Prospectus Supplement, will not
be an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Agreement and related documents will be complied with,
and on counsel's conclusions that (1) the Trust will not have certain
characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Receivables, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
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TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that in its
opinion the Notes will be classified as debt for federal income tax purposes.
The discussion below assumes this characterization of the Notes is correct.
TREATMENT OF ORIGINAL ISSUE DISCOUNT. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not "indexed securities" or "strip notes." Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (I.E., any excess
of the principal amount of the Notes over their issue price) does not exceed a
DE MINIMIS amount (I.E., generally 1/4% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of the
OID regulations. If these conditions are not satisfied with respect to any given
series of Notes, additional tax considerations with respect to such Notes will
be disclosed in the applicable Prospectus Supplement.
OID AS INTEREST INCOME. Based on the above assumptions the Notes generally
will not be considered issued with OID. The stated interest thereon will be
taxable to a Noteholder as ordinary interest income when received or accrued in
accordance with such Noteholder's method of tax accounting. Under the OID
regulations, a holder of a Note issued with a DE MINIMIS amount of OID generally
must include such OID in income, on a pro rata basis, as principal payments are
made on the Note. However, a holder may elect to accrue DE MINIMIS OID under a
constant yield method in connection with an election to accrue all interest,
discount, and premium on the Note using the constant yield method. See "Trusts
Treated as Grantor Trusts--Taxation of Holders if Stripped Bond Rules Do Not
Apply--Election to Treat All Interest as OID" for a discussion of such election.
A purchaser who buys a Note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
OID TREATMENT UPON SALE OR OTHER DISPOSITION. If a Noteholder sells a Note,
the holder will recognize gain or loss in an amount equal to the difference
between the amount realized on the sale and the holder's adjusted tax basis in
the Note. The adjusted tax basis of a Note to a particular Noteholder will equal
the holder's cost for the Note, increased by any market discount, acquisition
discount, OID, if any, and gain previously included by such Noteholder in income
with respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Noteholder with respect to such Note. Any such gain or loss generally
will be capital gain or loss if the Note was held as a capital asset, except for
gain representing accrued interest and accrued
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market discount not previously included in income. Capital losses generally may
be used only to offset capital gains.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder who is
a Foreign Investor, as defined below, generally will be considered "portfolio
interest," and generally will not be subject to United States federal income tax
and withholding tax, if the interest is not effectively connected with the
conduct of a trade or business within the United States by the Foreign Investor
and the Foreign Investor (i) is not actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of the
outstanding Certificates) or a "controlled foreign corporation" with respect to
which the Trust or the Seller is a "related person" within the meaning of the
Code and (ii) provides the Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a Foreign Investor and providing the Foreign
Investor's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the Foreign Investor that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any gain realized on the sale, redemption, retirement or other taxable
disposition of a Note by a foreign person will be exempt from United States
federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor, (ii) in the case of an individual Foreign
Person, the Foreign Person is not present in the United States for 183 days or
more in the taxable year, and (iii) in the case of gain representing accrued
interest or OID, the conditions described in the immediately preceding paragraph
are satisfied.
If the interest, gain or income on a Note held by a Foreign Investor is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor (although exempt from the withholding tax
previously discussed if the holder provides an appropriate and timely statement
on Form 4224), the holder generally will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax rates.
In addition, if the Foreign Investor is a foreign corporation, it may be subject
to a branch profits tax equal to 30% of its "effectively connected earnings and
profits" within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty (as modified by the branch profits tax rules).
Proposed Treasury regulations which would be effective for payments made
after December 31, 1998 if adopted in their current form would provide
alternative certification requirements and means by which a Foreign Investor
could claim the exemptions from federal income and withholding taxes.
For purposes of this tax discussion, a "Foreign Person" or "Foreign
Investor" is any person other than (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof,
(iii) an estate whose income is includible in gross income for United States
federal income taxation regardless of source, or (iv) a trust other than a
"Foreign Trust," as such term is defined in Section 7701(a)(31) of the Code.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing, among other things, the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31 percent of the amount otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
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POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation if it met certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
Foreign Investors generally would be subject to U.S. tax and U.S. tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Seller and Triad will agree,
and the Certificateholders will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificateholders, and the Notes being debt of the
partnership. However, the proper characterization of the arrangement involving
the Trust, the Certificates, the Notes, the Seller and Triad is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
For example, because the Certificates may have certain features
characteristic of debt, the Certificates might be considered debt of the Seller
or the Trust. Generally, provided such Certificates are issued at or close to
face value, any characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. If
Certificates are issued at a substantial discount, a discussion of the relevant
tax consequences will be set forth in the related Prospectus Supplement. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
INDEXED SECURITIES, ETC. The following discussion assumes that all payments
on the Certificates are denominated in U.S. dollars, none of the Certificates
are "indexed securities" or "strip notes," and that a series of Securities
includes a single class of Certificates. If these conditions are not satisfied
with respect to any given series of Certificates, additional tax considerations
with respect to such Certificates will be disclosed in the applicable Prospectus
Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" and "Tax Consequences to Foreign
Certificateholders" below. The Trust's income will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
for market discount, OID and bond premium) and any gain upon collection or
disposition of Receivables. The Trust's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over
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their initial issue price; (iii) prepayment premium payable to the
Certificateholders for such month; and (iv) any other amounts of income payable
to the Certificateholders for such month. Such allocation will be reduced by any
amortization by the Trust of premium on Receivables that corresponds to any
excess of the issue price of Certificates over their principal amount. Based on
the economic arrangement of the parties, this approach for allocating Trust
income should be permissible under applicable Treasury regulations, although
Federal Tax Counsel is unable to opine that the IRS would not require a greater
amount of income to be allocated to Certificateholders. Moreover, even under the
foregoing method of allocation, Certificateholders may be allocated income equal
to the entire Pass-Through Rate plus the other items described above even though
the Trust might not have sufficient cash to make current cash distributions of
such amount. Thus, cash basis holders will in effect be required to report
income from the Certificates on the accrual basis and Certificateholders may
become liable for taxes on Trust income even if they have not received cash from
the Trust to pay such taxes. In addition, because tax allocations and tax
reporting will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
All of some of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt
entity(including an individual retirement account) may constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust. Such deductions may also be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeds certain limits.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
DISCOUNT AND PREMIUM. It is believed that the Receivables will not be
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction will be allocated to Certificateholders if the
related Trust Agreement so provides. Any such allocation will be disclosed in
the related Prospectus Supplement.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. Proposed
regulations would provide that if a termination occurs the partnership will be
considered to transfer its assets and liabilities to a new partnership in
exchange for interests in that new partnership which it would then be treated as
transferring to its partners. The Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result,
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the Trust may be subject to certain tax penalties and may incur additional
expenses if it is required to comply with those requirements. Furthermore, the
Trust might not be able to comply due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of 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 SELLERS AND TRANSFEREES. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The [Affiliated]
[Initial] Purchaser is authorized to revise the Trust's method of allocation
between Sellers and transferees to conform to a method permitted by future
regulations.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
ADMINISTRATIVE MATTERS. The 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-l. The Trust will
provide the Schedule K-l information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the
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information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS with respect to partnership
items. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. As discussed below, an
investment in a Certificate is not suitable for any Foreign Person, as defined
above, which is not eligible for a complete exemption from U.S. withholding tax
on interest under a tax treaty with the United States. Accordingly, no interest
in a Certificate should be acquired by or on behalf of any such Foreign Person.
No regulations, published rulings or judicial decisions exist that would
discuss the characterization for Federal withholding tax purposes with respect
to a Foreign Person of a partnership with activities substantially the same as
the Trust. Depending upon the particular terms of the related Trust Agreement
and Sale and Servicing Agreement, a trust may be considered to be engaged in a
trade or business in the United States for purposes of Federal withholding taxes
with respect to non-U.S. persons. If the Trust is considered to be engaged in a
trade or business in the United States for such purposes, the income of the
Trust distributable to a non-U.S. person would be subject to Federal withholding
tax at a rate of 35% for persons taxable as a corporation and 39.6% for all
other Foreign Persons. Also, in such cases, a Foreign Person that is a
corporation may be subject to the branch profits tax. If the Trust is notified
that a Certificateholder is a Foreign Person, the Trust may withhold as if it
were engaged in a trade or business in the United States in order to protect the
Trust from possible adverse consequences of a failure to withhold. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures.
If a Trust is engaged in a trade or business, each foreign Certificateholder
will be required to file a United States federal individual or corporate income
tax return (including in the case of a corporation, the branch profits tax) on
its share of the Trust's income. A foreign holder generally would be entitled to
file with the IRS a claim for refund with respect to withheld taxes, taking the
position that no taxes were due because the Trust was not engaged in a United
States trade or business. However, interest payments made
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to (or accrued by) a Certificateholder who is a Foreign Person may be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust and for that reason or because of the nature of the
Receivables, the interest will likely not be considered "portfolio interest."
See "--Tax Consequences to Holders of the Notes Issued by a Partnership--Foreign
Holders" for a discussion of portfolio interests. As a result, even if the Trust
is not considered to be engaged in a U.S. trade or business, Certificateholders
would be subject to United States Federal income tax which must be withheld at a
rate of 30% on their share of the Trust's income(without reduction for interest
expense), unless reduced or eliminated pursuant to an applicable income tax
treaty. If the Trust is notified that a Certificateholder is a Foreign Person,
the Trust may be required to withhold and pay over such tax, which can exceed
the amounts otherwise available for distribution to such a Certificateholder. A
Foreign Person would generally be entitled to file with the IRS a refund claim
for such withheld taxes, taking the position that the interest was portfolio
interest and therefore not subject to U.S. tax. However, the IRS may disagree
and no assurance can be given as to the appropriate amount of tax liability. As
a result, each potential foreign Certificateholder should consult its tax
advisor as to whether the tax consequences of holding an interest in a
Certificate make it an unsuitable investment.
BACKUP WITHHOLDING. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
As specified in the related Prospectus Supplement, if a partnership election
is not made and the Certificates are not treated as debt for federal income tax
purposes as discussed below, Federal Tax Counsel will deliver its opinion that
the Trust will not be classified as an association taxable as a corporation and
that such Trust will be classified as a grantor trust under subpart E, Part I of
subchapter J of the Code. In this case, Grantor Trust Certificateholders will be
treated for federal income tax purposes as owners of a portion of the Trust's
assets as described below. The Certificates issued by a Trust that is treated as
a grantor trust are referred to herein as "Grantor Trust Certificates."
CHARACTERIZATION. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus such holder's other miscellaneous
itemized deductions exceed two percent of such holder's adjusted gross income.
Such deductions may also be limited by Code Section 68 for an individual whose
adjusted gross income exceeds certain limits. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share of
income and deductions as and when
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collected by or paid to the Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Servicer, whichever is
earlier. If the servicing fees or other amounts paid to the Servicer exceed
reasonable servicing compensation, the amount of such excess would be considered
as an ownership interest retained by the Servicer (or any person to whom the
Servicer assigned all or a portion of the servicing fees) in a portion of the
interest payments on the Receivables. The Receivables would then be subject to
the stripped bond rules of the Code discussed below.
TAXATION OF HOLDERS IF STRIPPED BOND RULES APPLY
In the absence of comprehensive regulations, Federal Tax Counsel is unable
to opine as to the tax treatment of stripped bonds. The preamble to certain
stripped bond regulations suggests that each purchaser of a Grantor Trust
Certificate will be treated with respect to each Receivable as the purchaser of
a single stripped bond consisting of all of the stripped portions of the
applicable Receivable (such portions with respect to a Receivable are referred
to herein as a "Stripped Bond") which generally should be treated as a single
debt instrument issued on the day it is purchased for purposes of calculating
any original issue discount. Generally, under Treasury regulations relating to
Stripped Bonds (the "Section 1286 Treasury Regulations"), if the discount on a
Stripped Bond is larger than a de minimis amount (as calculated for purposes of
the OID rules of the Code) such Stripped Bond will be considered to have been
issued with OID. See "--Original Issue Discount" herein. Based on the preamble
to the Section 1286 Treasury regulations, although the matter is not entirely
clear, the interest income on the Certificates at the sum of the Pass-Through
Rate and the portion of the Servicing Fee Rate that does not constitute excess
servicing should be treated as "qualified stated interest" within the meaning of
the Section 1286 Treasury regulations, assuming all other requirements for
treatment as qualified stated interest are satisfied, and such income will be so
treated in the Trustee's tax information reporting.
ORIGINAL ISSUE DISCOUNT. When Stripped Bonds have more than a DE MINIMIS
amount of OID, the special rules of the Code relating to "original issue
discount" (currently Sections 1271 through 1275) will be applicable to a Grantor
Trust Certificateholder's interest in those Stripped Bonds. Generally, a Grantor
Trust Certificateholder that acquires an interest in a Stripped Bond issued or
acquired with OID must include in gross income the sum of the "daily portions",
as defined below, of the OID on such Stripped Bond for each day on which it owns
a Certificate, including the date of purchase but excluding the date of
disposition. Although the proper method is not entirely clear, the Trust intends
to calculate the daily portions of OID with respect to a Stripped Bond generally
as follows. A calculation will be made of the portion of OID that accrues on the
Stripped Bond during each successive monthly accrual period (or shorter period
in respect of the date of original issue or the final Distribution Date). This
will be done, in the case of each full monthly accrual period, by adding (i) the
present value of all remaining payments to be received on the Stripped Bond
under the prepayment assumption, if any, used in respect of the Stripped Bonds
and (ii) any payments received during such accrual period, and subtracting from
that total the "adjusted issue price" of the Stripped Bond at the beginning of
such accrual period. No representation is made that the Stripped Bonds will
prepay at any prepayment assumption. The "adjusted issue price" of a Stripped
Bond at the beginning of the first accrual period is its issue price (as
determined for purposes of the OID rules of the Code) and the "adjusted issue
price" of a Stripped Bond at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment (other than "qualified stated interest") made at the
end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under either an
exact or approximate method set forth in the OID Regulations, or some other
reasonable method, provided that such method is consistent with the method used
to determine the yield to maturity of the Receivables.
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With respect to the Stripped Bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Stripped Bonds.
TAXATION OF HOLDERS IF STRIPPED BOND RULES DO NOT APPLY
PREMIUM. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Receivable based on each
Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is unclear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for Receivables that are construed to
be acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption or it prepays faster than the prepayment assumption, the holder of a
Grantor Trust Certificate acquired at a premium should recognize a loss if a
Receivable prepays in full, equal to the difference between the portion of the
prepaid principal amount of such Receivable that is allocable to the Grantor
Trust Certificate and the portion of the adjusted basis of the Grantor Trust
Certificate that is allocable to such Receivable.
MARKET DISCOUNT. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of such Receivable allocable to such holder's undivided interest over
such holder's tax basis in such interest. Market discount with respect to a
Receivable will be considered to be zero if the amount allocable to the
Receivable is less than 0.25% of the Receivable's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment or
a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Because the
regulations described above have not been issued, Federal Tax Counsel is unable
to opine as to what effect those regulations might have on the tax treatment of
a Grantor Trust Certificate purchased at a discount.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not
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exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including DE
MINIMIS market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
TAXATION OF HOLDERS REGARDLESS OF WHETHER STRIPPED BOND RULES APPLY
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Subject to the discussion
of market discount above, such gain or loss generally will be capital gain or
loss to an owner for which a Grantor Trust Certificate is a "capital asset"
within the meaning of Section 1221, and will be long-term or short-term
depending on whether the Grantor Trust Certificate has been owned for the
long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of a
Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
NON-U.S. PERSONS. To the extent that a Grantor Trust Certificate evidences
ownership in underlying Receivables that were issued on or before July 18, 1984,
interest or OID paid by the person required to withhold tax under Section 1441
or 1442 to (i) an owner that is a Foreign Person or (ii) a Grantor Trust
Certificateholder holding on behalf of an owner that is a Foreign Person will be
subject to federal income tax, collected by withholding, at a rate of 30% or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued OID recognized by the owner on the sale or exchange of such a Grantor
Trust Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would be considered portfolio interest and would not be
subject to withholding to the extent that a Grantor Trust Certificate evidences
ownership in Receivables issued after July 18, 1984, if such Grantor Trust
Certificateholder complies with certain identification requirements(including
delivery of a statement, signed by the Grantor Trust Certificateholder under
penalties of perjury, certifying that such Grantor Trust Certificateholder is
the beneficial owner, is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to
Receivables where the Obligor is not a natural person in order to qualify for
the exemption from withholding. See "--Tax Consequences to Holders of the Notes
Issued by a Partnership--Foreign Holders" for a discussion of when interest will
constitute portfolio interest.
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INFORMATION REPORTING AND BACKUP WITHHOLDING. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates that are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine
that based upon its analysis of the factors discussed below and certain
assumptions and qualifications the Certificates will be treated as indebtedness
for federal income tax purposes. However, opinions of counsel are not binding on
the IRS and there can be no assurance that the IRS could not successfully
challenge this conclusion. Such Certificates that are intended to be treated as
indebtedness are herein referred to as "Debt Certificates" and holders of such
Certificates are herein referred to as "Debt Certificateholders."
The Seller will express in the Trust Documents its intent that for federal,
state and local income and franchise tax purposes, the Debt Certificates will be
indebtedness secured by the Receivables. The Seller agrees and each Debt
Certificateholder, by acquiring an interest in a Debt Certificate, agrees or
will be deemed to agree to treat the Debt Certificates as indebtedness for
federal state and local income or franchise tax purposes. However, because
different criteria are used to determine the non-tax accounting characterization
of the transactions contemplated by the Trust Documents, the Seller expects to
treat such transactions, for regulatory and financial accounting purposes, as a
sale of ownership interests in the Receivables and not as debt obligations.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction. The form of a transaction, while a
relevant factor, is not conclusive evidence of its economic substance.
Inappropriate circumstances, the courts have allowed taxpayers, as well as the
IRS to treat a transaction in accordance with its economic substance, as
determined under federal income tax laws, notwithstanding that the participants
characterize the transaction differently for non-tax purposes. In some
instances, however, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Federal Tax Counsel will
advise that the rationale of those cases will not apply to the transactions
evidenced by a series of Debt Certificates.
While the IRS and the courts have set forth several factors to be taken into
account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the economic benefits of ownership thereof. Federal Tax Counsel will analyze and
rely on several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Receivables has not been transferred to the Debt
Certificateholders and that the Debt Certificates are properly characterized as
indebtedness for federal income tax purposes. Contrary characterizations that
could be asserted by the IRS are described below under "--Possible
Characterization of the Transaction as a Partnership or as an Association
Taxable as a Corporation."
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TAXATION OF INCOME OF DEBT CERTIFICATEHOLDER
As set forth above, it is expected that Federal Tax Counsel will advise the
Seller that the Debt Certificates will constitute indebtedness for Federal
income tax purposes, and accordingly, holders of Debt Certificates generally
will be taxed in the manner described above in "Trusts Treated as
Partnerships--Tax Consequences to Holders of Notes Issued by a Partnership."
If the Debt Certificates are issued with OID that is more than a de minimis
amount as defined in the Code and Treasury regulations (see "Trusts Treated as
Partnerships--Tax Consequences to Holders of Notes Issued by a Partnership") a
United States holder of a Debt Certificate (including a cash basis holder)
generally would be required to accrue the OID on its interest in a Certificate
in income for federal income tax purposes on a constant yield basis, resulting
in the inclusion of OID in income in advance of the receipt of cash attributable
to that income. Under section 1272(a)(6) of the Code, special provisions apply
to debt instruments on which payments may be accelerated due to prepayments of
other obligations securing those debt instruments. However, no regulations have
been issued interpreting those provisions, and the manner in which those
provisions would apply to the Debt Certificates is unclear. Additionally, the
IRS could take the position based on Treasury regulations that none of the
interest payable on a Debt Certificate is "unconditionally payable" and hence
that all of such interest should be included in the Debt Certificate's stated
redemption price at maturity. Accordingly, Federal Tax Counsel is unable to
opine as to whether interest payable on a Debt Certificate constitutes
"qualified stated interest" that is not included in a Certificate's stated
redemption price at maturity. Consequently, prospective investors in Debt
Certificates should consult their own tax advisors concerning the impact to them
in their particular circumstances. The Prospectus Supplement will indicate
whether the Trust intends to treat the interest on the Certificates as
"qualified stated interest".
TAX CHARACTERIZATION OF TRUST
Consistent with the treatment of the Debt Certificates as indebtedness, the
Trust will be treated as a security device to hold Receivables securing the
repayment of the Debt Certificates. In connection with the issuance of Debt
Certificates of any series, Federal Tax Counsel will render an opinion that,
based on the assumptions and qualifications set forth therein, under then
current law, the issuance of the Debt Certificates of such series will not cause
the applicable Trust to be characterized for Federal income tax purposes as an
association (or publicly traded partnership) taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Federal Tax Counsel with respect to Debt Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for federal income tax purposes, the transactions contemplated
constitute a sale of the Receivables (or an interest therein) to the Debt
Certificateholders and that the proper classification of the legal relationship
between the Seller and some or all of the Debt Certificateholders resulting from
the transactions is that of a partnership (including a publicly traded
partnership), a publicly traded partnership taxable as a corporation, or an
association taxable as a corporation. The Seller currently does not intend to
comply with the federal income tax reporting requirements that would apply if
any Classes of Debt Certificates were treated as interests in a partnership or
corporation.
If a transaction were treated as creating a partnership between the Seller
and the Debt Certificateholders, the partnership itself would not be subject to
federal income tax (unless it were characterized as a publicly traded
partnership taxable as a corporation); rather, the partners of such partnership,
including the Debt Certificateholders, would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deductions
of a Debt Certificate could differ if the Debt Certificates were held to
constitute partnership
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interests, rather than indebtedness. Moreover, unless the partnership were
treated as engaged in a trade or business, an individual's share of expenses of
the partnership would be miscellaneous itemized deductions that, in the
aggregate, are allowed as deductions only to the extent they exceed two percent
of the individual's adjusted gross income, and would be subject to reduction
under Section 68 of the Code if the individual's adjusted gross income exceeded
certain limits. As a result, the individual might be taxed on a greater amount
of income than the stated rate on the Debt Certificates. Finally, all or a
portion of any taxable income allocated to a Debt Certificateholder that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may, under certain circumstances,
constitute "unrelated business taxable income" which generally would be taxable
to the holder under the Code.
If it were determined that a transaction created an entity classified as an
association or as a publicly traded partnership taxable as a corporation, the
Trust would be subject to federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Debt Certificateholders. Such classification
may also have adverse state and local tax consequences that would reduce amounts
available for distribution to Debt Certificateholders. Moreover, distributions
on Debt Certificates that are recharacterized as equity in an entity taxable as
a corporation would not be deductible in computing the entity's taxable income,
and cash distributions on such Debt Certificates generally would be treated as
dividends for tax purposes to the extent of such deemed corporation's earnings
and profits.
FOREIGN INVESTORS
If the IRS were to contend successfully that the Debt Certificates are
interests in a partnership and if such partnership were considered to be engaged
in a trade or business in the United States, the partnership would be subject to
a withholding tax on income of the Trust that is allocable to a Foreign Investor
and such Foreign Investor would be credited for his or her share of the
withholding tax paid by the partnership. In such case, the holder generally
would be subject to United States federal income tax at regular income tax
rates, and possibly a branch profits tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if such
partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Debt Certificates is not
otherwise effectively connected with the conduct of a trade or business in the
United States by the Foreign Investor, the Foreign Investor would be subject to
United States income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty) on the holder's distributive share of the partnership's
interest income. See "Trusts Treated as Partnerships--Tax Consequences to
Holders of the Certificates Issued by the Partnership--Tax Consequences to
Foreign Certificateholders" for a more detailed discussion of the consequences
of an equity investment by a Foreign Investor in an entity characterized as a
partnership.
If the Trust were taxable as a corporation, distribution to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30% unless such rate were reduced or eliminated by an
applicable income tax treaty.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of a Trust, the
Certificates, the Notes or the holders of Certificates or Notes of any series
under state and local tax laws. Prospective investors are urged to consult their
own tax advisors regarding state and local tax treatment of the Trust, the
Certificates, the Notes and the consequences of purchase, ownership or
disposition of the Certificates and Notes under any state or local tax law.
53
<PAGE>
ERISA CONSIDERATIONS
The Prospectus Supplement for each Series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
PLAN OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement will
be offered in Series through one or more of the methods described below. The
Prospectus Supplement prepared for each Series will describe the method of
offering being utilized for that Series and will state the public offering or
purchase price of such Series and the net proceeds to the Seller from such sale.
Triad intends that Securities will be offered through the following methods
from time to time and that offerings may be made concurrently through more than
one of these methods or that an offering of a particular Series of Securities
may be made through a combination of two or more of these methods. Such methods
are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by Triad with institutional investors through dealers;
3. By direct placements by Triad with institutional investors; and
4. By competitive bid.
In addition, if specified in the related Prospectus Supplement, a Series of
Securities may be offered in whole or in part in exchange for the Receivables
(and other assets, if applicable) that would comprise the Trust Property in
respect of such Securities.
If one or more underwriters or groups of underwriters (the "Underwriters")
are used in a sale of any Securities (other than in connection with an
underwriting on a best efforts basis), such Securities will be acquired by the
Underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at fixed public offering
prices or at varying prices to be determined at the time of sale or at the time
of commitment therefor. The Securities will be set forth on the cover of the
Prospectus Supplement relating to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement.
In connection with the sale of the Securities, Underwriters may receive
compensation from Triad or from purchasers of the Securities in the form of
discounts, concessions or commissions. Underwriters and dealers participating in
the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from Triad and any profit on the resale of Securities by them may be deemed
to be underwriting discounts and commissions under the Securities Act. The
Prospectus Supplement will describe any such compensation paid by Triad.
It is anticipated that the underwriting agreement pertaining to the sale of
any Series of Securities will provide that the obligations of the Underwriters
will be subject to certain conditions precedent, that the Underwriters will be
obligated to purchase all such Securities if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, Triad will indemnify the several Underwriters and the
Underwriters will indemnify Triad against certain civil liabilities, including
liabilities under the Securities Act or will contribute to payments required to
be made in respect thereof.
The Prospectus Supplement with respect to any Series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between Triad and purchasers of Securities
of such Series.
54
<PAGE>
Purchasers of Securities, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Securities of any
Series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Dechert Price & Rhoads, New York, New York, or
other counsel specified in the related Prospectus Supplement.
FINANCIAL INFORMATION
Certain specified Trust Property will secure each Series of Securities. No
Trust will engage in any business activities or have any assets or obligations
prior to the issuance of the related Series of Securities. Accordingly, no
financial statements with respect to any Trust Property will be included in this
Prospectus or in the related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the related
Credit Enhancer, if any.
55
<PAGE>
INDEX OF DEFINED TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
Accrual Securities............................................................... 4
Aggregate Principal Balance...................................................... 22
APR.............................................................................. 18
Backup Servicer.................................................................. 31
Cede............................................................................. 7
Cedel Participants............................................................... 26
Certificateholders............................................................... 32
Certificates..................................................................... 1
Class............................................................................ 1
Closing Date..................................................................... 6
Collection Account............................................................... 30
Collection Period................................................................ 3
Commission....................................................................... 11
Contracts........................................................................ 20
Cooperative...................................................................... 27
Credit Enhancement............................................................... 16
Credit Enhancer.................................................................. 16
Debt Certificateholders.......................................................... 51
Debt Certificates................................................................ 51
Definitive Securities............................................................ 27
Depositories..................................................................... 25
Direct Participants.............................................................. 15
DTC.............................................................................. 7
ERISA............................................................................ 9
Euroclear Participants........................................................... 26
Euroclear Operator............................................................... 27
Exchange Act..................................................................... 9
Federal Tax Counsel.............................................................. 40
Financed Vehicles................................................................ 5
Foreign Investor................................................................. 42
Foreign Person................................................................... 42
Forward Purchase Agreement....................................................... 28
FTC Rule......................................................................... 39
Grantor Trust Certificateholders................................................. 47
Grantor Trust Certificates....................................................... 47
Indenture........................................................................ 1
Indenture Trustee................................................................ 1
Indirect Participants............................................................ 15
Initial Receivables.............................................................. 7
Insolvency Laws.................................................................. 13
Interest Rate.................................................................... 4
Investment Company Act........................................................... 10
Investment Income................................................................ 7
IRS.............................................................................. 40
Lockbox Account.................................................................. 30
Non-Prime Borrowers.............................................................. 20
Lockbox Bank..................................................................... 30
Noteholders...................................................................... 32
Notes............................................................................ 1
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
OID.............................................................................. 41
OID Regulations.................................................................. 41
Pass-Through Rate................................................................ 11
Participants..................................................................... 25
Partnership Interests............................................................ 9
Payment Date..................................................................... 2
Policy...........................................................................
Precomputed Receivables.......................................................... 18
Pre-Funded Amount................................................................ 7
Pre-Funding Account.............................................................. 6, 29
Pre-Funding Period............................................................... 7
Prospectus Supplement............................................................ 1
Purchase Amounts................................................................. 28
Rating Agencies.................................................................. 9
Receivables...................................................................... 5
Receivables Purchase Agreement................................................... 17
Record Date...................................................................... 2
Registration Statement........................................................... 11
Relief Act....................................................................... 16
Repossession Costs............................................................... 38
Rule of 78s...................................................................... 18
Rules............................................................................ 26
Section 1226 Treasury Regulations................................................ 48
Securities....................................................................... 1
Securities Act................................................................... 11
Security Balance................................................................. 4
Securityholders.................................................................. 2
Seller........................................................................... 1
Senior Securities................................................................ 4
Series........................................................................... 10
Servicer......................................................................... 1
Servicer Termination Event....................................................... 34
Servicing Agreement.............................................................. 2
Servicing Fee.................................................................... 31
Servicing Fee Rate............................................................... 31
Servicing Portfolio.............................................................. 10
Short-Term Note.................................................................. 41
Sponsor.......................................................................... 1
Stripped Bond.................................................................... 48
Strip Securities................................................................. 4
Subsequent Receivables........................................................... 6
Subsequent Transfer Date......................................................... 11
Subservicer...................................................................... 1
Terms and Conditions............................................................. 27
Triad............................................................................ 2
Trust............................................................................ 1
Trust Accounts................................................................... 31
Trust Agreement.................................................................. 1
Trust Documents.................................................................. 29
Trustee.......................................................................... 1
Trust Property................................................................... 1, 5
UCC.............................................................................. 36
Underwriters..................................................................... 54
</TABLE>
57
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER
OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE TRUST OR THE RECEIVABLES SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
$[ ]
TRIAD AUTO
RECEIVABLES TRUST
199[ ]-[ ]
TRIAD FINANCIAL SPECIAL PURPOSE CORPORATION
SELLER
TRIAD FINANCIAL CORPORATION
SERVICER
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
[UNDERWRITER]
[DATE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the offering of the Securities being registered under this Registration
Statement.
<TABLE>
<S> <C>
SEC Filing Fee........................................................ $
Trustee's Fees and Expenses*..........................................
Legal Fees and Expenses*..............................................
Accounting Fees and Expenses*.........................................
Printing and Engraving Expenses*......................................
Blue Sky Qualification and Legal
Investment Fees and Expenses*.......................................
Rating Agency Fees*...................................................
Certificate Insurer's Fee*............................................
Miscellaneous*........................................................
---
TOTAL........................................................... $
---
---
</TABLE>
- ------------------------
* Estimated in accordance with Item 511 of Regulation S-K.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts under
certain circumstances.
Article IV of the Second Amended and Restated Articles of Incorporation and
Section 7 of Article V of the Amended and Restated By-Laws of Triad Financial
Corporation (the "Company") provide that all officers and directors of the
Company shall be indemnified by the Company to the fullest extent permissible
under the California Corporations Code from and against all expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such person's status as an agent of the Company.
The form of the Underwriting Agreement, filed as Exhibits 1.1 to this
Registration Statement, provide that Triad will indemnify and reimburse the
underwriter(s) and each controlling person of the underwriter(s) with respect to
certain expenses and liabilities, including liabilities under the 1933 Act or
other federal or state regulations or under the common law, which arise out of
or are based on certain material misstatements or omissions in the Registration
Statement. In addition, the Underwriting Agreement provides that the
underwriter(s) will similarly indemnify and reimburse Triad with respect to
certain material misstatements or omissions in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Second Amended and Restated Articles of Incorporation of the Sponsor.
*3.2 Amended and Restated By-Laws of the Sponsor.
*4.1 Form of Indenture between the Trust and the Indenture Trustee.
*4.2 Form of Pooling and Servicing Agreement.
*4.3 Form of Sale and Servicing Agreement.
*4.4 Form of Trust Agreement.
*5.1 Opinion of Dechert Price & Rhoads with respect to legality.
*8.1 Opinion of Dechert Price & Rhoads with respect to tax matters.
*10.1 Form of Receivables Purchase Agreement.
*23.1 Consents of Dechert Price & Rhoads are included in its opinions filed as Exhibits 5.1
and 8.1 hereto.
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described above in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by them is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective amendment is
contained in periodic
II-2
<PAGE>
reports filed by the Issuer pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
C. Undertaking in respect of incorporation by reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
D. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in Reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Huntington Beach, state of California, on the 30th
day of September, 1998.
<TABLE>
<S> <C> <C>
TRIAD FINANCIAL CORPORATION
By: /s/ JAMES M. LANDY
-----------------------------------------
James M. Landy
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PETER ABELES
- ------------------------------ Director September 30, 1998
Peter Abeles
/s/ GLENN GOLDMAN
- ------------------------------ Director September 30, 1998
Glenn Goldman
/s/ HELEN R. KRAUS
- ------------------------------ Executive Vice President, September 30, 1998
Helen R. Kraus Secretary and Director
/s/ JAMES M. LANDY Chief Executive Officer,
- ------------------------------ Chief Financial Officer September 30, 1998
James M. Landy and Director
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Second Amended and Restated Articles of Incorporation of the Sponsor.
*3.2 Amended and Restated Bylaws of the Sponsor.
*4.1 Form of Indenture between the Trust and the Indenture Trustee.
*4.2 Form of Pooling and Servicing Agreement.
*4.3 Form of Sale and Servicing Agreement.
*4.4 Form of Trust Agreement.
*5.1 Opinion of Dechert Price & Rhoads with respect to legality.
*8.1 Opinion of Dechert Price & Rhoads with respect to tax matters.
*10.1 Form of Receivables Purchase Agreement.
*23.1 Consent of Dechert Price & Rhoads (included in Exhibits 5.1 and 8.1).
</TABLE>
- ------------------------
* To be filed by amendment.
II-5
