As filed with the Securities and Exchange Commission on October 2, 1998
REGISTRATION STATEMENT NO. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
MELLON AUTO RECEIVABLES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE APPLICATION PENDING
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
ONE MELLON BANK CENTER
FOURTH FLOOR
PITTSBURGH, PENNSYLVANIA 15758
(412) 234 -7142
(Address, including zip code, and telephone
number, including area code, of Registrant's principal
executive office)
----------------------------
STEPHEN COBAIN
MELLON AUTO RECEIVABLES CORPORATION
ONE MELLON BANK CENTER
FOURTH FLOOR
PITTSBURGH, PENNSYLVANIA 15758
(412) 234 -7142
(Address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------
Copies to:
ROBERT T. MORRIS, ESQ. ROBERT C. WIPPERMAN, ESQ.
REED SMITH SHAW & MCCLAY STROOCK & STROOCK & LAVAN LLP
435 SIXTH AVENUE 180 MAIDEN LANE
PITTSBURGH, PENNSYLVANIA 15219 NEW YORK, NEW YORK 10038
----------------------------
Approximate date of commencement of proposed sale to public:
From time to time after this Registration Statement becomes effective.
---------------------------
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 statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE(1)
================================================================================================================================
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(2) PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes................. $500,000 100% $500,000 $147.50
Asset Backed Certificates.......... $500,000 100% $500,000 $147.50
Total.............................. $1,000,000 $1,000,000 $295.00
- --------------------------------------------------------------------------------------------------------------------------------
(1) This Registration Statement also registers an undeterminable amount of
securities to be sold by Mellon Financial Markets, Inc. in
market-making transactions where required.
(2) Estimated solely for the purpose of calculating the registration fee.
</TABLE>
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.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains: (i) a form of prospectus supplement
relating to a hypothetical Series of Asset Backed Notes and Asset Backed
Certificates, (ii) a form of prospectus supplement relating to a hypothetical
Series of Asset Backed Certificates, (iii) a prospectus relating to the public
offering of up to $500,000 aggregate original principal balance of Asset Backed
Notes and $500,000 aggregate original principal balance of Asset Backed
Certificates, issuable from time to time in Series, and (iv) immediately
following such prospectus, alternate pages to a form of supplement to the
prospectus supplement and prospectus to be used in connection with offers and
sales relating to market-making transactions in the Notes and/or Certificates of
one or more Series by an affiliate of the Registrant. All other pages of the
prospectus and applicable prospectus supplement are also to be used in the
market-making prospectus supplement.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. MELLON AUTO RECEIVABLES CORPORATION (THE "DEPOSITOR") MAY NOT SELL THE
SECURITIES THAT ARE DESCRIBED IN THIS PROSPECTUS SUPPLEMENT UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES
AND IS NOT A REQUEST FOR ANY OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE
THE LAWS IN THAT STATE DO NOT PERMIT THE DEPOSITOR TO OFFER OR SELL THESE
SECURITIES.
Prospectus Supplement [Form 1]
(To Prospectus dated ___________)
$------------
MELLON AUTO TRUST 199_-_
ISSUER
$___ ____% ASSET BACKED NOTES
$__ ___% ASSET BACKED CERTIFICATES
MELLON AUTO RECEIVABLES CORPORATION
DEPOSITOR
MELLON BANK, N.A.
SERVICER
The Depositor will form Mellon Auto Trust 199_-_ (the "Trust"), and the
Trust will issue $ aggregate principal amount of % Asset Backed Notes (the
"Notes") and $__________ aggregate principal amount of ___% Asset Backed
Certificates (the "Certificates"). The Notes and the Certificates are sometimes
called the "Securities."
The assets of the Trust consist of a pool of motor vehicle retail
installment sale contracts and other motor vehicle installment chattel paper
(the "Receivables") secured by new and used automobiles, including passenger
cars, minivans, sport utility vehicles and light trucks.
The Securities are obligations only of the Trust. Neither the Securities
nor the Receivables are insured or guaranteed by any person. The Securities are
not bank deposits and are NOT insured by the Federal Deposit Insurance
Corporation.
The Certificates will involve more risks than the Notes because
distributions on the Certificates will be made only after payments are made on
the Notes. THE NOTES AND THE CERTIFICATES INVOLVE SIGNIFICANT RISKS. PROSPECTIVE
INVESTORS SHOULD REVIEW THE INFORMATION UNDER THE CAPTION "RISK FACTORS"
BEGINNING ON PAGE S-__ IN THIS PROSPECTUS SUPPLEMENT AND ON PAGE __ OF THE
ATTACHED PROSPECTUS BEFORE MAKING A DECISION TO INVEST IN THE SECURITIES.
---------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus Supplement or the attached Prospectus is accurate or complete. Making
any contrary representation is a criminal offense.
Subject to the satisfaction of certain conditions, the underwriter named
below (the "Underwriter") is offering the Notes and Certificates at the price to
public shown. The Securities will be delivered in book entry form only on or
about ____________, 199_.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
PUBLIC COMMISSIONS THE DEPOSITOR(1)
<S> <C> <C> <C>
Per Note............................................. _____% _____% _____%
Per Certificate......................................
Total................................................ $_____________ $____________ $___________
- ------------------------
(1) Before deducting expenses, estimated to be $__________.
</TABLE>
[Underwriter]
The date of this Prospectus Supplement is ____ __, 199_.
<PAGE>
ADDITIONAL INFORMATION
In connection with this offering, the Underwriter may over-allot or effect
transactions which stabilize or maintain the market prices of the Notes and the
Certificates at levels above those which might otherwise prevail in the open
market, such stabilizing, if commenced, may be discontinued at any time.
This Prospectus Supplement does not contain complete information about the
offering of the Notes and the Certificates. Additional information is contained
in the attached Prospectus, and prospective investors are encouraged to read
both this Prospectus Supplement and the Prospectus in full. The Underwriter may
not sell the Notes or the Certificates unless the Purchaser has received both
this Prospectus Supplement and the attached Prospectus.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
CAPTION PAGE
Prospectus
<PAGE>
SUMMARY OF TERMS
THIS SECTION GIVES A BRIEF SUMMARY OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT. THE SUMMARY DOES NOT INCLUDE ALL OF THE IMPORTANT
INFORMATION ABOUT THE SECURITIES. THE DEPOSITOR ENCOURAGES PROSPECTIVE INVESTORS
TO REVIEW CAREFULLY THE MORE DETAILED INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND IN THE ATTACHED PROSPECTUS.
ISSUER................................. Mellon Auto Trust 199_-_ (the "Trust" or
the "Issuer") is a Delaware business
trust. The Trust will be established
pursuant to a Trust Agreement to be
dated as of _________, 199_ (the "Trust
Agreement") between the Depositor and
the Owner Trustee.
DEPOSITOR.............................. Mellon Auto Receivables Corporation (the
"Depositor") is a wholly-owned
subsidiary of Mellon Bank, N.A. See "The
Depositor" in the attached Prospectus
(the "Prospectus").
SERVICER............................... Mellon Bank, N.A. (in such capacity, the
"Servicer"). See "The Servicer" herein
and in the Prospectus.
SELLER................................. Mellon Bank, N.A. (in such capacity, the
"Seller").
OWNER TRUSTEE.......................... __________________, as trustee under the
Trust Agreement (the "Owner Trustee").
INDENTURE TRUSTEE...................... ___________________, as trustee under
the Indenture (the "Indenture Trustee").
CLOSING DATE........................... On or about ________, 199_.
CUTOFF DATE............................ The [close] [opening] of business on
_____, 199__.
THE NOTES
GENERAL....................... The Trust will issue $________ original
principal amount of its __% Asset Backed
Notes. The Notes will be issued pursuant
to an Indenture, to be dated as of
_______, 199_ (the "Indenture"), between
the Trust and the Indenture Trustee.
DISTRIBUTION DATES............ _______ day of each month or, if the ___
day is not a business day, the first
business day after the ___, beginning in
_________, 199_ (each, a "Distribution
Date").
RECORD DATE................... The "Record Date" for each Distribution
Date will be the last day of the
calendar month prior to the calendar
month that includes the applicable
Distribution Date.
MINIMUM DENOMINATIONS......... $25,000 and integral multiples of $1,000
in excess thereof.
REGISTRATION.................. The Notes will be issued in book entry
form. Investors in the Notes will hold
beneficial interests in the Notes
through the Depository Trust Company
("DTC") in the United States or Cedel
Bank, societe anonyme ("Cedel") or the
Euroclear System ("Euroclear") in
Europe. See "Certain Information
Regarding the Securities" in the
Prospectus.
INTEREST RATE................. ____% per annum.
INTEREST PERIOD............... The "Interest Period" for each
Distribution Date will be the period
beginning on (and including) the prior
Distribution Date (or in the case of the
first Distribution Date, beginning on
(and including) the Closing Date) and
ending on (and including) the day before
the applicable Distribution Date.
INTEREST CALCULATIONS......... Interest due on a Distribution Date will
consist of (1) 30 days' interest at the
Interest Rate on the amount of the Notes
on the day before the applicable
Distribution Date, (2) any interest
remaining unpaid from prior Distribution
Dates and (3) 30 days' interest at the
Interest Rate on any interest not paid
on the prior Distribution Date if
permitted by law.
PRINCIPAL..................... Principal payments on the Notes will be
made on each Distribution Date in an
amount equal to the lesser of (1) the
principal amount of the Notes on the day
before the applicable Distribution Date
and (2) the amount in the Collection
Account after payment of the Total
Servicing Fee to the Servicer, interest
on the Notes and interest on the
Certificates.
FINAL SCHEDULED
MATURITY DATE.............. The Distribution Date in _______,
_______. Any portion of the Notes that
has not been paid on or prior to that
Distribution Date will be due and
payable at that time.
THE CERTIFICATES
GENERAL....................... The Trust will issue $________ original
principal amount of its __% Asset Backed
Certificates. The Certificates will be
issued pursuant to a Trust Agreement, to
be dated as of __________, 199_ (the
"Trust Agreement"), between the
Depositor and the Owner Trustee.
DISTRIBUTION DATES............ _____ day of each month or, if the ____
day is not a business day, the first
business day after the ________,
beginning in __________, 199_ (each, a
"Distribution Date").
RECORD DATE................... The "Record Date" for each Distribution
Date will be the last day of the
calendar month prior to the calendar
month that includes the applicable
Distribution Date.
MINIMUM DENOMINATIONS......... $25,000 and integral multiples of $1,000
in excess thereof.
REGISTRATION.................. The Certificates will be issued in book
entry form. Investors in the
Certificates will hold beneficial
interests in the Certificates through
DTC. The Certificates may not be held by
non-US Persons.
PASS-THROUGH RATE............. _____% per annum.
INTEREST PERIOD............... The "Interest Period" for each
Distribution Date will be the period
beginning on (and including) the prior
Distribution Date (or in the case of the
first Distribution Date, beginning on
(and including) the Closing Date) and
ending on (and including) the day before
the applicable Distribution Date.
INTEREST CALCULATIONS......... Interest due on a Distribution Date will
consist of (1) 30 days' interest at the
Pass-Through Rate on the amount of the
Certificates on the day before the
applicable Distribution Date, (2) any
interest remaining unpaid from prior
Distribution Dates and (3) 30 days'
interest at the Pass-Through Rate on any
interest not paid on the prior
Distribution Date if permitted by law.
PRINCIPAL..................... No distributions of principal of the
Certificates will be made until the
Notes have been paid in full.
Principal payments on the Certificates
will be made on each Distribution Date
after the Notes have been paid in full
in an amount equal to the lesser of (1)
the principal amount of the Certificates
(the "Certificate Balance") on the day
before the applicable Distribution Date
and (2) the amount in the Collection
Account after payment of the Total
Servicing Fee to the Servicer, interest
on the Notes, interest on the
Certificates and any payment of
principal of the Notes.
FINAL SCHEDULED
DISTRIBUTION DATE.......... The Distribution Date in _______, _____.
Any portion of the Certificates that has
not been paid on or prior to that
Distribution Date will be due and
payable at that time.
THE TRUST.............................. The Trust is a business trust to be
established under the laws of Delaware
pursuant to the Trust Agreement. The
activities of the Trust are limited by
the terms of the Trust Agreement to
purchasing, owning and managing the
Receivables and other activities related
thereto.
The property of the Trust includes
o the Receivables
o all amounts received under the
Receivables after the Cutoff Date
o the Collection Account, the Note
Distribution Account, the
Certificate Distribution Account
and the Payahead Account
o security interests in the motor
vehicles that secure the
Receivables (the "Financed
Vehicles")
o the rights of the Seller to receive
proceeds from claims under certain
insurance policies and refunds of
premiums from other insurance
policies
o the rights of the Seller under
agreements with the Dealers that
sold the Financed Vehicles
o rights with respect to any
repossessed Financed Vehicles
o any and all proceeds of the
foregoing
THE RECEIVABLES........................ The Receivables are amounts owed by
individuals under retail installment
sale contracts with motor vehicle
dealers (the "Dealers").
The Depositor expects that the
Receivables will have the following
characteristics as of the Cutoff Date:
Number of contracts __________
Principal Amount $__________
Annual Percentage
Rates (APR) _____% to _____%
Weighted Average APR _____%
Original term (months) _____ to _____
Weighted Average
original term _____
Remaining term (months) _____ to _____
Weighted Average
remaining term _____
New ( %) _____
Used (%) _____
States (%)
PA _____
NJ _____
Balloon Loans (%) _____
OPTIONAL TERMINATION
SERVICER PURCHASE............ The Servicer may purchase the
Receivables when the principal amount of
the Receivables is 5% or less than it
was on the Cutoff Date.
AUCTION SALE................. If the Servicer does not exercise its
option, the Indenture Trustee will
auction off (subject to a required
minimum bid) the remaining Receivables
when the principal amount is 5% or less
than it was on the Cutoff Date.
DISTRIBUTIONS................. In either case, Securityholders will
receive the unpaid principal amount of
their Securities plus all accrued but
unpaid interest.
RESERVE ACCOUNT........................ The Indenture Trustee will create a
reserve account (the "Reserve Account").
On the Closing Date, the Depositor will
deposit in the Reserve Account cash or
Eligible Investments having a value of
$____ (the "Reserve Account Initial
Deposit"). On each Distribution Date
amounts remaining after distribution of
the Total Servicing Fee and amounts to
be paid to the Noteholders and
Certificateholders will be deposited in
the Reserve Account until the amount
equals the Specified Reserve Account
Balance. The "Specified Reserve Account
Balance" with respect to any
Distribution Date generally will be
equal to the greater of (i) % of the sum
of the aggregate outstanding principal
balance of the Notes plus the
outstanding Certificate Balance on such
Distribution Date (after giving effect
to all payments on the Notes and
distributions with respect to the
Certificates on such Distribution Date)
or (ii) % of the aggregate initial
principal balance of the Notes plus the
initial Certificate Balance. See
"Description of the Transfer and
Servicing Agreements--Credit
Enhancement--Reserve Account" herein. On
each Distribution Date, the Indenture
Trustee will withdraw funds from the
Reserve Account and deposit them in the
Collection Account if the amounts in the
Collection Account are not sufficient to
pay the Total Servicing Fee and to make
required payments on the Notes and
distributions on the Certificates.
TAX STATUS............................. Stroock & Stroock & Lavan LLP, special
Federal tax counsel to the Trust, is of
the opinion that, for federal income tax
purposes: (1) the Notes will constitute
indebtedness; and (2) the Certificates
will constitute interests in a trust
fund that will not be treated as an
association taxable as a corporation or
publicly traded partnership taxable as a
corporation. Each Noteholder, by
acceptance of a Note, will agree to
treat the Notes as indebtedness, and
each Certificateholder, by the
acceptance of a Certificate, will agree
to treat the Trust as a partnership in
which the Certificateholders are
partners for federal income tax
purposes. See "Federal Income Tax
Consequences" herein and in the
Prospectus.
ERISA CONSIDERATIONS................... Subject to the conditions and
considerations discussed under "ERISA
Considerations--The Notes" herein and in
the Prospectus, the Notes are eligible
for purchase by pension, profit-sharing
or other employee benefit plans as well
as individual retirement accounts and
certain types of Keogh Plans (each, a
"Benefit Plan"). The Certificates may
not be acquired (directly or indirectly)
by or on behalf of any Benefit Plan or
any entity (including an insurance
company general account) whose
underlying assets include plan assets of
a Benefit Plan by reason of a plan's
investment in the entity. See "ERISA
Considerations--The Certificates"
herein and in the Prospectus.
RATINGS................................ It is a condition to the issuance of the
Securities that the Notes be rated
_______________ and that the
Certificates be rated _____ by at least
two nationally recognized rating
agencies. See "Risk Factors--Withdrawal
or Downgrading of Initial Ratings
Affects Prices" herein.
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES INVOLVES SIGNIFICANT RISKS. BEFORE
PROSPECTIVE INVESTORS DECIDE TO INVEST, THEY SHOULD CONSIDER THE FOLLOWING RISK
FACTORS AND THE RISK FACTORS SPECIFIED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE __ OF THE PROSPECTUS.
THERE IS NO ESTABLISHED SECONDARY MARKET
The Securities will not be listed on any securities exchange. As a result,
an investor in the Securities that wished to sell those Securities must locate a
purchaser that is willing to purchase those Securities. The Underwriter intends
to make a secondary market for the Securities. The Underwriter will do so by
offering to buy the Securities from investors that wish to sell. However, the
Underwriter will not be obligated to make offers to buy the Securities and may
stop making offers at any time. In addition, the prices offered, if any, may not
reflect prices that other potential purchasers, were they to be given the
opportunity, would be willing to pay. There have been times in the past where
there have been very few buyers of asset backed securities (i.e., there has been
a lack of liquidity), and there may be such times in the future. As a result, an
investor in the Securities may not be able to sell the investor's Securities
when the investor wishes to do so or may not be able to obtain the price the
investor wishes to receive.
[GEOGRAPHIC CONCENTRATION CREATES ADDITIONAL RISKS
Economic conditions in the states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables. As of the Cutoff Date, the billing addresses of the Obligors
with respect to approximately %, _____%, and _____% by principal balance of the
Receivables were located in __________, __________ and ________, respectively.
Economic conditions in any state or region may decline over time and from time
to time. Because of the concentration of the Obligors in certain states, any
adverse economic conditions in those states may have a greater effect on the
performance of the Securities than if the concentration did not exist. See "The
Receivables Pool" herein.]
CERTIFICATES INVOLVE MORE RISKS THAN NOTES
The Certificateholders will not receive any distribution of interest until
the full amount of interest on the Notes has been deposited in the Note
Distribution Account on each Distribution Date. The Certificateholders will not
receive any distributions of principal until the Notes have been repaid in full.
In addition, the Trust does not have, nor is it permitted or expected to have,
any significant assets or sources of funds other than the Receivables and the
Reserve Account. Consequently, holders of the Certificates must rely for
repayment upon payments on the Receivables, and, if and to the extent available,
amounts on deposit in the Reserve Account. If funds in the Reserve Account are
exhausted, the Trust will depend solely on current distributions on the
Receivables to make payments on the Securities. In addition, in such event,
delinquent payments on the Receivables may result in a shortfall in the
distributions on the Certificates on any Distribution Date due to the priority
of payments on the Notes. Although on each Distribution Date distributions of
interest on the Certificates ranks senior to payments of principal of the Notes,
following the occurrence and during the continuation of certain Events of
Default or an acceleration of the Notes, the principal amount of the Notes must
be paid in full prior to the distribution of any amounts on the Certificates.
BALLOON LOANS CREATE ADDITIONAL RISKS
As of the Cutoff Date, approximately _____% of the aggregate principal
balance of the Receivables, constituting _____% of the number of Receivables,
are Balloon Loans. "Balloon Loans" have a stated maturity of less than the
period of time of the corresponding amortization schedule. As a result, upon the
maturity of a Balloon Loan, the Obligor will be required to make a balloon
payment (a "Balloon Payment") which will be larger than such Obligor's other
scheduled monthly payments. The ability of such an Obligor to repay a Balloon
Loan at maturity frequently will depend on such Obligor's ability to refinance
the Receivable. See "Risk Factors--Balloon Loans" and "Maturity and Prepayment
Considerations--Balloon Loans" in the Prospectus.
WITHDRAWAL OR DOWNGRADING OF INITIAL RATINGS AFFECTS PRICES
It is a condition to the issuance of the Notes that they be rated _________
by at least two nationally recognized rating agencies (the "Rating Agencies").
It is a condition to the issuance of the Certificates that they be rated at
least "___" or its equivalent by the Rating Agencies. A security rating is not a
recommendation to buy, sell or hold securities. Similar ratings on different
types of securities do not necessarily mean the same thing. Prospective
investors are encourages to analyze the significance of each rating
independently of any other rating. Any Rating Agency may change its rating of
the Securities after those Securities are issued if that Rating Agency believes
that circumstances have changes. Any subsequent change in a rating will likely
affect the price that a subsequent purchaser will be willing to pay for the
Securities.
FORMATION OF THE TRUST
THE TRUST
Mellon Auto Trust 199_-_ is a business trust to be formed by the Depositor
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus. After its formation, the Trust will
not engage in any activity other than (i) acquiring, holding and managing the
Receivables and the other assets of the Trust and proceeds therefrom, (ii)
issuing the Certificates and the Notes, (iii) making payments on the
Certificates and the Notes and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Trust will initially be capitalized with equity of $ , excluding
amounts deposited in the Reserve Account, representing the initial principal
balance of the Certificates. The Notes and Certificates will be transferred by
the Trust to the Depositor in exchange for the Receivables. The Certificates and
the Notes will be sold to the Underwriter for cash. The Servicer will initially
service the Receivables pursuant to a sale and servicing agreement, to be dated
as of _______, 199__ (the "Sale and Servicing Agreement"), among the Seller, the
Depositor, the Trust and the Servicer, and will be compensated for acting as the
Servicer. See "Description of the Transfer and Servicing Agreements--Servicing
Compensation" herein and "--Servicing Compensation and Payment of Expenses" in
the Prospectus. To facilitate servicing and to minimize administrative burden
and expense, the Servicer will be appointed custodian for the Receivables by the
Trust, but will not stamp the Receivables to reflect the sale and assignment of
the Receivables to the Trust, nor amend the certificates of title of the
Financed Vehicles.
If the protection provided to the investment of the Securityholders in the
Trust by the Reserve Account is insufficient, the Trust will look to the
Obligors on the Receivables, and the proceeds from the repossession and sale of
Financed Vehicles which secure defaulted Receivables. In such event, there may
not be sufficient funds to make distributions with respect to the Securities.
The Trust's principal offices are in __________, in care of _____________,
as Owner Trustee, at the address listed below under "--The Owner Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Notes and the Certificates had
taken place on such date:
Notes ..............................$______
Certificates........................$______
Total........................ $______
The Owner Trustee
_________________ is 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, including making
distributions from the Certificate Distribution Account. The Owner Trustee's
liability in connection with the issuance and sale of the Certificates and the
Notes is limited solely to the express obligations of the Owner Trustee set
forth in the Trust Agreement.
THE TRUST PROPERTY
The Notes will be collateralized by the Trust Property (other than the
Certificate Distribution Account). Each Certificate represents a fractional
undivided interest in the Trust. The "Trust Property" will include the
Receivables, which were originated indirectly by Dealers and purchased
indirectly by the Seller pursuant to agreements with Dealers ("Dealer
Agreements"). On the Closing Date, the Depositor will buy the Receivables from
the Seller and the Depositor will sell the Receivables to the Trust. The
Servicer will, directly or through subservicers, service the Receivables. The
Trust Property also includes (i) all monies received under the Receivables on
and after the Cutoff Date and, with respect to Receivables which are Actuarial
Receivables, monies received thereunder prior to the Cutoff Date that are due on
or after the Cutoff Date, (ii) such amounts as from time to time may be held in
the Collection Account, the Reserve Account, the Payahead Account, the Note
Distribution Account and the Certificate Distribution Account, established and
maintained by the Servicer pursuant to the Sale and Servicing Agreement as
described below, (iii) security interests in the Financed Vehicles, (iv) the
rights of the Seller to receive proceeds from claims under certain insurance
policies, (v) the rights of the Trust under the Sale and Servicing Agreement;
(vi) the rights of the Seller to refunds for the costs of extended service
contracts and to refunds of unearned premiums with respect to credit life and
credit accident and health insurance policies covering the Financed Vehicles or
the retail purchasers of, or other persons owing payments on, the Financed
Vehicles (the "Obligors"), (vii) all right, title and interest of the Seller
(other than with respect to any Dealer commission) with respect to the
Receivables under the related Dealer Agreements, (viii) rights with respect to
any repossessed Financed Vehicles, and (ix) all proceeds (within the meaning of
the UCC) of the foregoing. The Reserve Account will be maintained in the name of
the Indenture Trustee for the benefit of the Noteholders and the
Certificateholders.
THE RECEIVABLES POOL
POOL COMPOSITION
The Receivables were selected from the Seller's portfolio by several
criteria, including, as of the Cutoff Date, the following: each Receivable has a
scheduled maturity of not later than the Final Scheduled Maturity Date; each
Receivable was originated in the United States of America; each Receivable has
an original term to maturity of not more than ___ months and a remaining term to
maturity of __ months or less as of the Cutoff Date; approximately __% of the
Initial Pool Balance was secured by new Financed Vehicles, and approximately __%
of the Initial Pool Balance was secured by used Financed Vehicles; each
Receivable provides for level monthly payments which fully amortize the amount
financed (except, in the case of Simple Interest Receivables, for the last
payment, which may be different from the level payment); each Receivable is not
more than ___ days contractually past due as of the Cutoff Date and is not more
than _______ months paid ahead; each Receivable has an outstanding principal
balance between $_____ and $____; and each Receivable has an APR of no less than
_____%. As of the Cutoff Date, no Obligor on any Receivable was noted in the
related records of the Servicer as being the subject of any pending bankruptcy
or insolvency proceeding. The latest scheduled maturity of any Receivable is not
later than _____. No selection procedures believed by the Depositor to be
adverse to Certificateholders or the Noteholders were used in selecting the
Receivables.
The composition, distribution by remaining term, distribution by APR,
geographic distribution and distribution by remaining principal of the
Receivables, in each case, as of the Cutoff Date are set forth in the tables
below. The percentages in the following tables may not add to 100% due to
rounding.
<TABLE>
<CAPTION>
COMPOSITION OF THE RECEIVABLES AS OF THE CUTOFF DATE
NEW FINANCED USED FINANCED TOTAL
VEHICLES VEHICLES
<S> <C> <C> <C>
Aggregate Principal Balance............ $ $ $
Number of Receivables..................
Average Principal Balance.............. $ $ $
Average Original Balance............... $ $ $
Weighted Average Contract Rate......... ___% ___% ___%
Contract Rate (Range).................. ___%-___% ____%-___% ____%-___%
Weighted Average Original Term......... months months months
Original Term (Range).................. to months to months to months
Weighted Average Remaining Term........ months months months
Remaining Term (Range)................. to months to months to months
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING TERM OF THE RECEIVABLES AS OF THE CUTOFF DATE
Remaining Term Number of Aggregate Principal Percentage of Original
(RANGE) RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
Less than 30 months........................... $ %
30 to 35 months...............................
36 to 41 months...............................
42 to 47 months...............................
48 to 53 months...............................
54 to 59 months...............................
60 to 65 months...............................
66 to 71 months...............................
72 to 77 months...............................
78 t o 89 months..............................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE RECEIVABLES AS OF
THE CUTOFF DATE
Annual Percentage Number of Aggregate Principal Percentage of Original
RATE RAMGE RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
8.00% to below.......................... $ %
8.00% to 8.99%..........................
9.00% to 9.99%..........................
10.00% to 10.99%........................
11.00% to 11.99%........................
12.00% to 12.99%........................
13.00% to 13.99%........................
14.00% to 14.99%........................
15.00% to 15.99%........................
16.00% to 16.99%........................
17.00% to 17.99%........................
18.00% to 18.99%........................
19.00% to 19.99%........................
20.00% to 20.99%........................
21.00% to 21.99%........................
22.00% and above........................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE
Number of Aggregate Principal Percentage of Original
STATE(1) RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
- ------------.............................. $ %
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
Others (2)...............................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
(1) Based on billing addresses of the Obligors as of the Cutoff Date, which
may differ from the state of origination of the Receivable.
(2) Includes __ other states and ____________. (none of which have a
concentration of Receivables in excess of ____% of the aggregate
principal balance).
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE RECEIVABLES
AS OF THE CUTOFF DATE
Remaining Principal Number of Aggregate Principal Percentage of Original
BALANCE (RANGE) RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
$ 2,500 to $ 4,999............................ $ %
$ 5,000 to $ 7,499.....................
$ 7,500 to $ 9,999.....................
$10,000 to $12,499.....................
$12,500 to $14,999.....................
$15,000 to $17,499.....................
$17,500 to $19,999.....................
$20,000 to $22,499.....................
$22,500 to $24,999.....................
$25,000 to $27,499.....................
$27,500 to $29,999.....................
$30,000 to $32,499.....................
$32,500 to $34,999.....................
$35,000 to $37,499.....................
$37,500 to $39,999.....................
$40,000 to $41,499.....................
$42,500 to $44,999.....................
$45,000 to $47,499.....................
$47,500 to $49,999.....................
$50,000 to $52,499.....................
$52,500 to $54,999.....................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
</TABLE>
<PAGE>
As of the Cutoff Date, approximately __% of the aggregate principal balance
of the Receivables, constituting __% of the number of Receivables, were between
1 payment and __ payments paid-ahead.
As of the Cutoff Date, approximately ___% of the aggregate principal
balance of the Receivables, constituting __% of the number of Receivables, are
Actuarial Receivables. "Actuarial Receivables" are receivables that provide for
amortization of the amount financed over a series of fixed, level-payment
monthly installments. Each monthly installment, including the monthly
installment representing the final payment on the Receivable, consists of an
amount of interest equal to 1/12 of the Annual Percentage Rate ("APR") of the
amount financed multiplied by the unpaid principal balance of the amount
financed, and an amount of principal equal to the remainder of the monthly
payment.
As of the Cutoff Date, approximately ___% of the aggregate principal
balance of the Receivables, constituting ___% of the number of Receivables, are
Simple Interest Receivables. "Simple Interest Receivables" are receivables that
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 an Actuarial Receivable, each monthly payment includes 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 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.
If an Actuarial Receivable is prepaid in full, with minor variations based
upon state law, under the terms of the motor vehicle retail installment sale
contract or loan agreement, as the case may be, a "refund" or "rebate" will be
made to the borrower of the portion of the total amount of payments then due and
payable under such contract or agreement allocable to "unearned" interest,
calculated on the basis of a constant interest rate. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the borrower is required to
pay interest only to the date of prepayment. The amount of a rebate under an
Actuarial Receivable generally will be less than the remaining scheduled
payments of interest that would have been due under a Simple Interest Receivable
for which all payments were made on schedule.
The Servicer may accede to an Obligor's request to pay scheduled payments
in advance, in which event the Obligor will not be required to make another
regularly scheduled payment until the time a scheduled payment not paid in
advance is due. The amount of any payment (which are not amounts representing
Payaheads) made in advance will be treated as a principal prepayment and will be
distributed as part of the Principal Distribution Amount in the month following
the Collection Period in which the prepayment was made. See "Maturity and
Prepayment Considerations" in the Prospectus.
THE SERVICER
[GENERAL
As of _________________, the Servicer serviced approximately [_____] retail
installments sale contracts, consisting primarily of new and used automobile
(including passenger car, minivan, sport/utility vehicles and light truck)
receivables, representing an outstanding balance of approximately [____]
million. As of ________________, the Servicer serviced approximately [_____]
automobile leases equaling approximately $_____ billion of automobile lease
receivables. See "The Servicer" in the Prospectus.
DELINQUENCIES AND LOSS
Set forth below is certain information concerning the historical
delinquency and loss experience of Mellon Bank, N.A. and its subsidiaries
pertaining to new and used automobile (including passenger car, minivan,
sport/utility vehicle and light truck) receivables originated directly or
indirectly by Mellon Bank, N.A. and its subsidiaries. There can be no assurance
that the delinquency and loss experience on the Receivables will be comparable
to that set forth below.
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
At
____________________________ ____________________________ ____________________________
199_
____________________________ ____________________________ ____________________________
Number Number Number
of of of
DOLLARS LOANS Percent DOLLARS LOANS Percent DOLLARS LOANS Percent
------- ----- ------- ------- ------- ------- ------- ----- -------
Principal Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding(1)....... $ $ $
Delinuencies(2)......
30-59 Days % % %
60-89 Days % % %
90 Days or more.... % % %
Total Delinquencies
as a Percentage
of the Total
Amount Outstanding... $ % $ % $ %
======== ==== ===== ======== ====== ===== ========= ======== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
____________________________ ____________________________
199_ 199_
____________________________ ____________________________
Number Number
of of
DOLLARS LOANS Percent DOLLARS LOANS Percent
------- ----- ------- ------- ------- -------
Principal Amount
<S> <C> <C> <C> <C> <C> <C>
Outstanding(1)....... $ $
Delinuencies(2)......
30-59 Days % %
60-89 Days % %
90 Days or more.... % %
Total Delinquencies
as a Percentage
of the Total
Amount Outstanding... $ % $ %
======== ==== ===== ======== ====== =====
(1) Principal Amount Outstanding is the aggregate remaining principal balance
of all Receivables serviced, net of unearned interest.
(2) The period of delinquency is based on the number of days scheduled payments
are contractually past due. Includes repossessions on hand which have not
been charged-off. A receivable is 30 days contractually past due if a
scheduled payment has not been received by the subsequent calendar month's
scheduled payment date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
For _____ Months Ended , For Year Ended December 31,
_______________ _______________ 199_ 199_ 199_
Period End Principal
<S> <C> <C> <C> <C> <C>
Amount Outstanding(1)...... $ $ $ $ $
Average Principal Amount
Outstanding(2).............. $ $ $ $ $
Number of Loans Outstanding
(as of period end).........
Average Number of Loans
Outstanding(2)..............
Number of Repossessions.....
Gross Losses(3)............. $ $ $ $ $
Recoveries (4)..............
Net Losses(5)...............
Net Losses as a Percent of
Principal Amount
Outstanding................. % % % % %
Net Losses as a Percentage of
Average Principal Amount
Outstanding................. % % % % %
- ------------------------------
(1) Principal Amount Outstanding is the aggregate remaining principal balance
of all Receivables serviced, net of unearned interest.
(2) Average of the month-end balances for each of the twelve months in the
applicable calendar year.
(3) Gross Losses is the aggregate remaining principal balance.
(4) Recoveries is any proceeds from the liquidation of the related vehicle and
post-disposition monies received on previously charged-off contracts
including proceeds of liquidation of the related vehicle after the related
charge-off.
(5) Net Losses is equal to Gross Losses less Recoveries.
</TABLE>
Delinquencies and Net Losses are affected by a number of social and
economic factors, including changes in interest rates and unemployment levels,
and there can be no assurance as to the level of future total delinquencies or
the severity of future net charge-offs. As a result, the delinquency and net
charge-off experience of the Receivables may differ from those shown in the
tables.
YEAR 2000 COMPLIANCE
The Servicer has made and will continue to make investments to identify,
modify or replace any computer systems which are not year 2000 compliant and to
address other related issues associated with the change of the millennium. In
the event that computer problems arise out of a failure of such efforts to be
completed on time, or in the event that the computer systems of the Servicer or
the Indenture Trustee are not fully year 2000 compliant, the resulting
disruptions in the collection or distribution of receipts on the Receivables
could materially and adversely affect the Noteholders and the
Certificateholders.
[WEIGHTED AVERAGE LIFE OF THE SECURITIES]
[Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus, the Absolute
Prepayment Model ("ABS"), represents an assumed rate of prepayment each month
relative to the original number of receivables in a pool of receivables. ABS
further assumes that all the receivables are the same size and amortize at the
same rate and that each receivable in each month of its life will either be paid
as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
As the rate of payment of principal of the Notes and in respect of the
Certificate Balance will depend on the rate of payment (including prepayments)
of the principal balance of the Receivables, final payment of the Notes could
occur significantly earlier than the Final Scheduled Maturity Date for the
Notes. The final distribution in respect of the Certificates also could occur
prior to the Final Scheduled Distribution Date for the Certificates.
Reinvestment risk associated with early payment of the Notes and the
Certificates will be borne exclusively by the Noteholders and the
Certificateholders, respectively.
The table captioned "Percent of Initial Note Principal Balance or Initial
Certificate Balance at Various ABS Percentages" (the "ABS Table") has been
prepared on the basis of the characteristics of the Receivables. The ABS Table
assumes that (i) the Receivables prepay in full at the specified constant
percentage of ABS monthly, with no defaults, losses or repurchases, (ii) each
scheduled monthly payment on the Receivables is made on the last day of each
month and each month has 30 days, (iii) payments on the Notes and distributions
on the Certificates are made on each Distribution Date (and each such date is
assumed to be the ____ day of each applicable month), (iv) the balance in the
Reserve Account on each Distribution Date is equal to the Specified Reserve
Account Balance, and (v) the Servicer does not exercise its option to purchase
the Receivables. The first two pools have an assumed cutoff date of and the
remaining pools have an assumed cutoff date of . The ABS Table sets forth the
percent of the initial principal amount of the Notes and the percent of the
initial Certificate Balance that would be outstanding after each of the
Distribution Dates shown and the corresponding weighted average lives thereof at
various constant ABS percentages.
The ABS Table also assumes that the Receivables have been aggregated into
four hypothetical pools with all of the Receivables within each such pool having
the following characteristics and that the level scheduled monthly payment for
each of the four pools (which is based on its aggregate principal balance, APR,
original term to maturity as of the Cutoff Date) will be such that each pool
will fully amortize by the end of its remaining term to maturity.
POOL
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
Remaining Term WEIGHTED ORIGINAL TERM REMAINING TERM TO
to Maturity Aggregate AVERAGE TO MATURITY MATURITY
RANGE (IN MONTHS) PRINCIPAL BALANCE CONTRACT RATE (IN MONTHS) (IN MONTHS)
<S> <C> <C> <C> <C> <C>
1................................ $ %
2................................ $ %
3................................ $ %
4................................ $ %
</TABLE>
<PAGE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Table. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
four hypothetical pools could produce slower or faster principal distributions
than indicated in the ABS Table at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of the Notes and the Certificates.]
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE AT VARIOUS ABS
PERCENTAGES
Notes
Assumed ABS Percentage(2)
DISTRIBUTION DATES ____% ____% ____% ____%
Closing Date....................... 100 100 100 100
_________________..................
- -----------------..................
- -----------------..................
- -----------------..................
Weighted Average Life (years)(1)
- ----------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment of such Note by the number of years from
the date of the issuance of such Note to the Distribution Date on which
such principal payment is made, (ii) adding the results and (iii) dividing
the sum by the initial principal balance of such Note.
(2) An astersk "*" means a percent of initial Note principal balance of more
than zero and less than 0.5%.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
Certificates
Assumed ABS Percentage
DISTRIBUTION DATES ____% ____% ____% ____%
Closing Date....................... 100 100 100 100
_________________..................
- -----------------..................
- -----------------..................
- -----------------..................
- ----------------------
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED
ABOVE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE
OF THE RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND
PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by the
Depositor to the purchase of the Receivables and the other Trust Property from
the Seller and to make the Reserve Account Initial Deposit.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture,
substantially in the form filed as an exhibit to the Registration Statement. The
following information summarizes all material provisions of the Notes and the
Indenture. The summary is qualified by reference to the provisions of the Notes
and the Indenture. The following summary supplements the description of the
general terms and provisions of the Notes of any given Series and the related
Indenture set forth in the Prospectus, to which description reference is hereby
made.
THE NOTES
PAYMENTS OF INTEREST. The Notes will constitute [Fixed Rate] Securities, as
such term is defined under "Certain Information Regarding the Securities--Fixed
Rate Securities" in the Prospectus. Interest on the outstanding principal amount
of the Notes will accrue at the Interest Rate and will be payable to the
Noteholders monthly on each Distribution Date, commencing ___________. Interest
will accrue from and including the Closing Date (in the case of the first
Distribution Date), or from and including the most recent Distribution Date on
which interest has been paid to but excluding the following Distribution Date
(each representing an "Interest Period"). Interest on the Notes will be
calculated on the basis of a 360 day year consisting of twelve 30 day months.
Interest payments on the Notes will generally be derived from the Total
Distribution Amount remaining after the payment of the Servicing Fee for the
related Collection Period and all accrued and unpaid Servicing Fees for prior
Collection Periods (the "Total Servicing Fee"). See "Description of the Transfer
and Servicing Agreements--Distributions" and "--Credit Enhancement--Reserve
Account" herein. Interest payments to the Noteholders will have the same
priority. Under certain circumstances, the amount available for interest
payments could be less than the amount of interest payable on the Notes on any
Distribution Date. Interest accrued as of any Distribution Date but not paid on
such Distribution Date will be due on the next Distribution Date, together with
interest on such amount at the Interest Rate.
PAYMENTS OF PRINCIPAL. Principal payments will be made to the Noteholders
on each Distribution Date in an amount equal to the Noteholders' Percentage of
the Principal Distribution Amount in respect of such Collection Period, subject
to certain limitations. Principal payments on the Notes will be generally
derived from the Total Distribution Amount remaining after the payment of the
Total Servicing Fee, the Noteholders' Interest Distributable Amount and the
Certificateholders' Interest Distributable Amount; provided, however, that
following the occurrence and during the continuation of certain Events of
Default or an acceleration of the Notes, the Noteholders will be entitled to be
paid in full before the distributions may be made on the Certificates. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Credit Enhancement--Reserve Account" herein.
The principal balance of the Notes, to the extent not previously paid, will
be due on the Note Final Scheduled Distribution Date. The actual date on which
the aggregate outstanding principal amount of the Notes is paid may be earlier
than the Note Final Scheduled Distribution Date based on a variety of factors.
OPTIONAL REDEMPTION. The Notes will be redeemed in whole, but not in part,
on any Distribution Date on which the Servicer exercises its option to purchase
the Receivables. The Servicer may purchase the Receivables when the Pool Balance
has declined to 5% or less of the Initial Pool Balance. The redemption price
will be equal to the unpaid principal amount of the Notes and the Certificates
plus accrued and unpaid interest thereon. See "Description of the Transfer and
Servicing Agreements--Termination" in the Prospectus.
AUCTION SALE. In the event of an Auction Sale, the Notes will be redeemed
in an amount equal to the unpaid principal amount of the then outstanding Notes
plus accrued and unpaid interest thereon at the Interest Rate. See "Description
of the Transfer and Servicing Agreements--Termination" in the Prospectus.
THE INDENTURE TRUSTEE. ___________________ will be the Indenture Trustee
under the Indenture. The Depositor maintains normal commercial banking relations
with the Indenture Trustee.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, substantially in the form filed as an exhibit to the Registration
Statement. The following information summarizes all material provisions of the
Certificates and the Trust Agreement. The summary is qualified in its entirety
by reference to the provisions of the Certificates and the Trust Agreement. The
following summary supplements the description of the general terms and
provisions of the Certificates of any given Series and the related Trust
Agreement set forth in the Prospectus, to which description reference is hereby
made.
THE CERTIFICATES
DISTRIBUTIONS OF INTEREST. Certificateholders will be entitled to
distributions of interest in an amount equal to accrued interest on the
Certificate Balance at the Pass-Through Rate. Such amounts will be distributable
monthly on each Distribution Date commencing ___________. [The Certificates will
constitute Fixed Rate Securities, as such term is defined under "Certain
Information Regarding the Securities--Fixed Rate Securities"] in the Prospectus.
That interest entitlement will accrue from and including the Closing Date (in
the case of the first such Distribution Date) or from the most recent
Distribution Date on which interest distributions have been made to but
excluding such Distribution Date and will be calculated on the basis of a
360-day year of twelve 30-day months. Interest distributions with respect to the
Certificates will be funded from the portion of the Total Distribution Amount
remaining after the distribution of the Total Servicing Fee and the Noteholders'
Interest Distributable Amount. On any Distribution Date, the Certificateholders'
Interest Distributable Amount will equal 30 days' interest at the Pass-Through
Rate on the Certificate Balance (or, in the case of the first Distribution Date,
interest accrued from and including the Closing Date to but excluding the first
Distribution Date) plus any amounts due but not paid on previous Distribution
Dates with interest thereon at the Pass-Through Rate. See "Description of the
Transfer and Servicing Agreements--Distributions" and "--Credit
Enhancement--Reserve Account" herein.
DISTRIBUTIONS OF PRINCIPAL PAYMENTS. Certificateholders will be entitled to
distributions of principal on each Distribution Date commencing on the
Distribution Date on which the Notes have been paid in full, in an amount equal
to the Certificateholders' Percentage of the Principal Distribution Amount in
respect of the related Collection Period, subject to certain limitations.
Distributions with respect to principal payments will generally be funded from
the portion of the Total Distribution Amount remaining after the distribution of
the Total Servicing Fee, the Noteholders' Distributable Amount, if any, and the
Certificateholders' Interest Distributable Amount. See "Description of the
Transfer and Servicing Agreement--Distributions" and "--Credit Enhancement--
Reserve Account" herein.
On and after any Distribution Date on which the Notes have been paid in
full, funds in the Reserve Account will be applied to reduce the Certificate
Balance to zero if, after giving effect to all distributions to the Servicer,
the Noteholders and the Certificateholders on such Distribution Date, the amount
on deposit in the Reserve Account is equal to or greater than the Certificate
Balance.
SUBORDINATION OF CERTIFICATES. The rights of Certificateholders to receive
distributions of interest are subordinated to the rights of Noteholders to
receive payments of interest. In addition, the Certificateholders have no right
to receive distributions of principal until the principal amount of the Notes
has been paid in full. Consequently, funds on deposit in the Collection Account
(including amounts deposited therein from the Reserve Account) will be applied
to the payment of interest on the Notes before distributions of interest on the
Certificates and will be applied to the payment of principal on the Notes before
distributions of principal on the Certificates. In addition, following the
occurrence of certain Events of Default or an acceleration of the Notes, the
Noteholders will be entitled to be paid in full before the Certificateholders
are entitled to any distributions.
OPTIONAL PREPAYMENT. If the Servicer exercises its option to purchase the
Receivables when the Pool Balance declines to 5% or less of the Initial Pool
Balance, Certificateholders will receive an amount in respect of the
Certificates equal to the Certificate Balance together with accrued and unpaid
interest thereon, which distribution will effect early retirement of the
Certificates. See "Description of the Transfer and Servicing
Agreements--Termination" in the Prospectus.
AUCTION SALE. In the event of an Auction Sale, the Certificates will be
prepaid at a price equal to the Certificate Balance plus accrued and unpaid
interest thereon at the Pass-Through Rate. See "Description of the Transfer and
Servicing Agreements--Termination" in the Prospectus.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following information summarizes all material provisions of the Sale
and Servicing Agreement, substantially in the form filed as an exhibit to the
Registration Statement, pursuant to which the Trust is purchasing and the
Servicer is undertaking to service the Receivables and the Trust Agreement
pursuant to which the Trust will be created and the Certificates will be issued
(collectively the "Transfer and Servicing Agreements"). This summary is
qualified by reference to the provisions of the Transfer and Servicing
Agreements. The following summary supplements the description of the general
terms and provisions of the Transfer and Servicing Agreements set forth in the
Prospectus, to which description reference is hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information regarding the conveyance of the Receivables by the
Seller to the Depositor and by the Depositor to the Trust on the Closing Date
pursuant to the Sale and Servicing Agreement is set forth in the Prospectus
under "Description of the Transfer and Servicing Agreements--Sale and Assignment
of Receivables."
ACCOUNTS
[The assets of the Trust will not include a Pre-Funding Account.] All other
Accounts referred to under "Description of the Transfer and Servicing
Agreements--Accounts" in the Prospectus, as well as a Reserve Account, will be
established by the Servicer and maintained with the Indenture Trustee in the
name of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders.
SERVICING COMPENSATION
The Servicer will be entitled to receive a fee (the "Servicing Fee") for
each Collection Period in an amount equal to the product of one-twelfth of ___%
per annum for so long as Mellon Bank, N.A. or an affiliate thereof is the
Servicer, and ___% per annum if Mellon Bank, N.A. or an affiliate thereof is no
longer the Servicer (the "Servicing Fee Rate") and the Pool Balance as of the
first day of the Collection Period. The "Servicing Fee" will also include such
other amounts to be paid to the Servicer as described in the Prospectus. The
Servicing Fee, together with any portion of the Servicing Fee that remains
unpaid from prior Distribution Dates (the "Total Servicing Fee"), will be paid
from the Total Distribution Amount. The Total Servicing Fee will be paid prior
to the distribution of any portion of the Interest Distribution Amount to the
Noteholders or the Certificateholders. See "Description of the Transfer and
Servicing Agreement--Servicing Compensation and Payment of Expenses" in the
Prospectus.
DISTRIBUTIONS
DEPOSITS TO THE COLLECTION ACCOUNT. On or before the earlier of the eighth
Business Day of the month in which a Distribution Date occurs and the fourth
Business Day preceding such Distribution Date (the "Determination Date"), the
Servicer will calculate the Total Distribution Amount, the Interest Distribution
Amount, the Available Principal, the Principal Distribution Amount, the Total
Servicing Fee, the Noteholders' Interest Distributable Amount, the Noteholders'
Principal Distributable Amount, the Certificateholders' Interest Distributable
Amount, the Certificateholders' Principal Distributable Amount, the Advances, if
any, to be made by the Servicer of interest and principal due on the Actuarial
Receivables, the amount, if any, to be withdrawn from the Payahead Account and
deposited in the Collection Account, the amount, if any, to be withdrawn from
the Reserve Account and deposited in the Collection Account and the amount, if
any, to be withdrawn from the Reserve Account and paid to the Depositor, in each
case, with respect to such Distribution Date.
On or before each Distribution Date, the Servicer will cause the Indenture
Trustee to withdraw from the Payahead Account and (i) deposit into the
Collection Account in immediately available funds, the portion of Payaheads
constituting scheduled payments on Actuarial Receivables or that are to be
applied to prepay Actuarial Receivable in full and (ii) distribute to the
Depositor, in immediately available funds, all investment earnings on funds in
the Payahead Account with respect to the preceding Collection Period. On or
before each Distribution Date the Servicer will deposit any Advances for such
Distribution Date into the Collection Account. On or before the Business Day
preceding each Distribution Date, the Servicer will cause the Interest
Distribution Amount and the Available Principal for such Distribution Date to be
deposited into the Collection Account. On or before each Distribution Date, the
Servicer shall cause the Indenture Trustee to withdraw from the Reserve Account
and deposit in the Collection Account an amount (the "Reserve Account Transfer
Amount") equal to the lesser of (i) the amount of cash or other immediately
available funds in the Reserve Account on such Distribution Date (before giving
effect to any withdrawals therefrom relating to such Distribution Date) or (ii)
the amount, if any, by which (x) the sum of the Total Servicing Fee, the
Noteholders' Interest Distributable Amount, the Certificateholders' Interest
Distributable Amount, the Noteholders' Principal Distributable Amount and the
Certificateholders' Principal Distributable Amount for such Distribution Date
exceeds (y) the sum of the Interest Distribution Amount and the Available
Principal for such Distribution Date.
The "Interest Distribution Amount" for a Distribution Date will be the sum
of the following amounts with respect to any Distribution Date, computed, with
respect to Simple Interest Receivables, in accordance with the simple interest
method, and with respect to Actuarial Receivables, in accordance with the
actuarial method: (i) that portion of all collections on the Receivables
allocable to interest in respect of the preceding Collection Period (including,
with respect to Actuarial Receivables, amounts withdrawn from the Payahead
Account and allocable to interest and excluding amounts deposited into the
Payahead Account and allocable to interest, in each case, in respect of the
preceding Collection Period); (ii) all proceeds (other than any proceeds from
any Dealer commission) ("Liquidation Proceeds") of the liquidation of Liquidated
Receivables, net of expenses incurred by the Servicer in connection with such
liquidation and any amounts required by law to be remitted to the Obligor on
such Liquidated Receivables, to the extent attributable to interest due thereon,
which became Liquidated Receivables during such Collection Period in accordance
with the Servicer's customary servicing procedures; (iii) all Advances made by
the Servicer of interest due on the Actuarial Receivables in respect of the
preceding Collection Period; (iv) the Purchase Amount of each Receivable that
was repurchased by the Seller or purchased by the Servicer during the preceding
Collection Period to the extent attributable to accrued interest thereon; (v)
all monies collected, from whatever source (other than any proceeds from any
Dealer commission), in respect to Liquidated Receivables during any Collection
Period following the Collection Period in which such Receivable was written off,
net of the sum of any amounts expended by the Servicer for the account of the
Obligor and any amounts required by law to be remitted to the Obligor
("Recoveries"); and (vi) Investment Earnings for such Distribution Date;
provided, however, that in calculating the Interest Distribution Amount, all
payments and proceeds (including Liquidation Proceeds) of any Receivables (i)
repurchased by the Seller or purchased by the Servicer, the Purchase Amount of
which has been included in the Interest Distribution Amount on a prior
Distribution Date and (ii) received on Actuarial Receivables and distributed to
the Servicer, with respect to such Distribution Date, as reimbursement for any
unreimbursed Advances in accordance with the Sale and Servicing Agreement, will
all be excluded.
The "Available Principal" for a Distribution Date will be the sum of the
following amounts with respect to any Distribution Date, computed, with respect
to Simple Interest Receivables, in accordance with the simple interest method,
and, with respect to Actuarial Receivables, in accordance with the actuarial
method: (i) that portion of all collections on the Receivables allocable to
principal in respect of the preceding Collection Period (including, with respect
to Actuarial Receivables, amounts withdrawn from the Payahead Account and
allocable to principal and excluding amounts deposited into the Payahead Account
and allocable to principal, in each case, in respect of the preceding Collection
Period); (ii) Liquidation Proceeds attributable to the principal amount of
Receivables which became Liquidated Receivables during the preceding Collection
Period in accordance with the Servicer's customary servicing procedures with
respect to such Liquidated Receivables; (iii) all Advances made by the Servicer
of principal due on the Actuarial Receivables in respect of the preceding
Collection Period; (iv) to the extent attributable to principal, the Purchase
Amount of each Receivable repurchased by the Seller or purchased by the Servicer
during the preceding Collection Period; and (v) partial prepayments on
Receivables in respect of the preceding Collection Period relating to refunds of
extended service contracts, or of physical damage, credit life, credit accident
or health insurance premium, disability insurance policy premiums, but only if
such costs or premiums were financed by the respective Obligor and only to the
extent not included in clause (i) above; provided, however, that in calculating
the Available Principal, all payments and proceeds (including Liquidation
Proceeds) of any Receivables (i) repurchased by the Seller or purchased by the
Servicer the Purchase Amount of which has been included in the Available
Principal on a prior Distribution Date, and (ii) received on Actuarial
Receivables and distributed to the Servicer, with respect to such Distribution
Date, as reimbursement for any unreimbursed Advances in accordance with the Sale
and Servicing Agreement, shall all be excluded.
The "Principal Distribution Amount" for a Distribution Date will be the sum
of the following amounts with respect to the preceding Collection Period: (i)
(a) with respect to Simple Interest Receivables, that portion of all collections
on the Receivable allocable to principal in respect of the preceding Collection
Period and (b) with respect to Actuarial Receivables the sum of (x) the amount
of all scheduled payments allocable to principal due during the preceding
Collection Period and (y) the portion of all prepayments in full allocable to
principal received during the preceding Collection Period, in the case of both
(a) and (b) without regard to any extensions or modifications thereof effected
after the Cutoff Date, other than with respect to any extensions or
modifications in connection with Cram Down Losses during such Collection Period;
(ii) the principal balance of each Receivable that was repurchased by the Seller
or purchased by the Servicer in each case during the preceding Collection Period
(except to the extent included in (i) above); (iii) the principal balance of
each Liquidated Receivable which became such during the preceding Collection
Period (except to the extent included in (i) above); (iv) partial prepayments on
Receivables in respect of the preceding Collection Period relating to refunds of
extended service contracts, or of physical damage, credit life, credit accident
or health insurance premium, disability insurance policy premiums, but only if
such costs or premiums were financed by the respective Obligor and only to the
extent not included in clause (i) above; and (v) the aggregate amount of Cram
Down Losses during such Collection Period.
MONTHLY WITHDRAWALS FROM COLLECTION ACCOUNT. On each Distribution Date, the
Servicer shall instruct the Indenture Trustee to withdraw from the Collection
Account and deposit in the Payahead Account in immediately available funds, the
aggregate Payaheads collected during the preceding Collection Period. On each
Distribution Date, the Servicer shall instruct the Indenture Trustee to make the
following withdrawals, based upon the calculations set forth in "Deposits to the
Collection Account" above, deposits and distributions, in the amounts and in the
order of priority specified below, to the extent of the sum of the Interest
Distribution Amount and the Available Principal in respect of such Distribution
Date and the Reserve Account Transfer Amount in respect of such Distribution
Date (the "Total Distribution Amount"):
(i) from the Collection Account to the Servicer, from the Total
Distribution Amount, the Total Servicing Fee;
(ii) from the Collection Account to the Note Distribution Account,
from the Total Distribution Amount remaining after the application of
clause (i), the Noteholders' Interest Distributable Amount;
(iii) from the Collection Account to the Certificate Distribution
Account, from the Total Distribution Amount remaining after the application
of clauses (i) and (ii), the Certificateholders' Interest Distributable
Amount;
(iv) from the Collection Account to the Note Distribution Account,
from the Total Distribution Amount remaining after the application of
clauses (i) through (iii), the Noteholders' Principal Distributable Amount;
(v) from the Collection Account to the Certificate Distribution
Account, from the Total Distribution Amount remaining after the application
of clauses (i) through (iv), the Certificateholders' Principal
Distributable Amount; and
(vi) from the Collection Account to the Reserve Account, any amounts
remaining after the application of clauses (i) through (v).
Notwithstanding the foregoing, following the occurrence and during the
continuation of certain Events of Default or an acceleration of the Notes, the
Total Distribution Amount remaining after the application of clauses (i) and
(ii) above will be deposited in the Note Distribution Account to the extent
necessary to reduce the principal balance of the Notes to zero.
On each Distribution Date, all amounts on deposit in the Note Distribution
Account will be paid in the following order of priority:
(i) to the Noteholders, accrued and unpaid interest on the outstanding
principal balance of the Notes at the Interest Rate; and
(ii) to the Noteholders in reduction of principal until the principal
balance of the Notes has been reduced to zero;
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders in the
following order of priority:
(i) to the Certificateholders, accrued and unpaid interest on the
Certificate Balance at the Pass-Through Rate; and
(ii) to the Certificateholders in reduction of principal until the
principal balance of the Certificates has been reduced to zero.
RELATED DEFINITIONS
For purposes hereof, the following terms have the following meanings:
"Collection Period" means, with respect to a Distribution Date, (i) in the
case of the initial Distribution Date, the period from and including the Cutoff
Date through and including _______ ___, ________ and (ii) thereafter, the
calendar month preceding the related Distribution Date.
"Cram Down Loss" means, with respect to a Receivable if a court of
appropriate jurisdiction in a bankruptcy or insolvency proceeding shall have
issued an order reducing the amount owed on such Receivable or otherwise
modifying or restructuring the scheduled payments to be made on such Receivable,
an amount equal to (i) the excess of the principal balance of such Receivable
immediately prior to such order over the principal balance of such Receivable as
so reduced and/or (ii) if such court shall have issued an order reducing the
effective rate of interest on such Receivable, the net present value (using as
the discount rate the higher 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.
The "Pool Balance" at any time will represent the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments (other than Payaheads) received from Obligors,
Purchase Amounts and Advances to be remitted by the Depositor, the Servicer and
the Seller, as the case may be, all for such Collection Period, all losses
realized on Receivables that became Liquidated Receivables during such
Collection Period and all Cram Down Losses for such Collection Period.
"Realized Losses" means the excess of the principal balance of a Liquidated
Receivable over Liquidation Proceeds to the extent allocable to principal.
"Liquidated Receivables" means, Receivables (i) which have been liquidated
by the Servicer through the sale of the related Financed Vehicle, (ii) as to
which all or a portion representing 10% or more of a scheduled payment due is
[150] or more days delinquent or (iii) with respect to which proceeds have been
received which, in the Servicer's judgment, constitute the final amounts
recoverable in respect of such Receivable.
"Noteholders' Distributable Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carryover
Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect to
any Distribution Date, the product of (i) one-twelfth of the Interest Rate (or,
in the case of the first Distribution Date, the Interest Rate multiplied by a
fraction, the numerator of which is the number of days elapsed from and
including the Closing Date to but excluding such Distribution Date and the
denominator of which is 360) and (ii) the outstanding principal balance of the
Notes on the immediately preceding Distribution Date, after giving effect to all
distributions of principal to the Noteholders on such Distribution Date (or, in
the case of the first Distribution Date, on the Closing Date).
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Distribution Date and any outstanding Noteholders'
Interest Carryover Shortfall on such preceding Distribution Date over the amount
in respect of interest that is actually deposited in the Note Distribution
Account on such preceding Distribution Date, plus interest on the amount of
interest due but not paid to Noteholders on the preceding Distribution Date, to
the extent permitted by law, at the Interest Rate borne by the Notes from such
preceding Distribution Date through the current Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date; provided, however,
that the Noteholders' Principal Distributable Amount shall not exceed the
outstanding principal balance of the Notes. In addition, on the Note Final
Scheduled Distribution Date, the principal required to be deposited in the Note
Distribution Account will include the amount necessary (after giving effect to
the other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Notes to zero.
"Noteholders' Monthly Principal Distributable Amount" means, with respect
to any Distribution Date, the Noteholders' Percentage of the Principal
Distribution Amount.
"Noteholders' Percentage" means (i) for each Distribution Date until the
principal balance of the Notes is reduced to zero, 100%, and (ii) zero for each
Distribution Date thereafter.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, the product of (i) one-twelfth of the
Pass-Through Rate (or, in the case of the first Distribution Date, the
Pass-Through Rate multiplied by a fraction, the numerator of which is the number
of days elapsed from and including the Closing Date to but excluding such
Distribution Date) and the denominator of which is 360) and (ii) the Certificate
Balance on the immediately preceding Distribution Date, after giving effect to
all payments of principal to the Certificateholders on or prior to such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date).
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest at the Pass-Through Rate that is
actually deposited in the Certificate Distribution Account on such preceding
Distribution Date, plus interest on such excess, to the extent permitted by law,
at the Pass-Through Rate from and including such preceding Distribution Date to
but excluding the current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Certificate
Final Scheduled Distribution Date, the principal required to be distributed to
Certificateholders will include the lesser of (a) any payments of principal due
and remaining unpaid on each Receivable in the Trust as of the Final Scheduled
Maturity Date or (b) the portion of the amount that is necessary (after giving
effect to the other amounts to be deposited in the Certificate Distribution
Account on such Distribution Date and allocable to principal) to reduce the
Certificate Balance to zero, in either case after giving effect to any required
distribution of the Noteholders' Principal Distributable Amount to the Note
Distribution Account. In addition, on any Distribution Date on which, after
giving effect to all distributions to the Servicer, the Noteholders and the
Certificateholders on such Distribution Date, (i) the outstanding principal
balance of the Notes is zero and (ii) the amount on deposit in the Reserve
Account is equal to or greater than the Certificate Balance, the
Certificateholders' Principal Distributable Amount shall include an amount equal
to such Certificate Balance.
"Certificateholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distribution Amount or, with respect to any Distribution Date on or
after the Distribution Date on which the outstanding principal balance of the
Notes is reduced to zero, 100% of the Principal Distribution Amount (less any
amount required on the first such Distribution Date to reduce the outstanding
principal balance of the Notes to zero, which shall be deposited into the Note
Distribution Account).
"Certificateholders' Percentage" means 100% minus the Noteholders'
Percentage.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders' Principal
Carryover Shortfall from the preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account on such Distribution Date.
"Certificate Balance" equals, initially, $_____________ and, thereafter,
equals the initial Certificate Balance, reduced by all amounts allocable to
principal previously distributed to Certificateholders.
"Pass-Through Rate" means, with respect to the Certificates, ____% per
annum.
CREDIT ENHANCEMENT
RESERVE ACCOUNT. Pursuant to the Sale and Servicing Agreement, the Reserve
Account will be initially funded by a deposit by the Depositor on the Closing
Date in the amount of $_______ (____% of aggregate initial principal balance of
the Notes plus the initial Certificate Balance) (the "Reserve Account Initial
Deposit"). The Reserve Account Initial Deposit will be augmented on each
Distribution Date by the deposit in the Reserve Account of amounts remaining
after distribution of the Total Servicing Fee and amounts to be paid to the
Noteholders and Certificateholders. If the amount on deposit in the Reserve
Account on any Distribution Date (after giving effect to all deposits or
withdrawals therefrom on such Distribution Date) is greater than the Specified
Reserve Account Balance for such Distribution Date, the Servicer will instruct
the Indenture Trustee to distribute the amount of the excess to the Depositor.
Upon any distribution to the Depositor of amounts from the Reserve Account,
neither the Noteholders nor the Certificateholders will have any rights in, or
claims to, such amounts. In certain circumstances, funds in the Reserve Account
will be used to reduce the Certificate Balance to zero.
"Specified Reserve Account Balance" with respect to any Distribution Date
generally means the greater of (a) % of the sum of the aggregate outstanding
principal amount of the Notes and the outstanding Certificate Balance on such
Distribution Date (after giving effect to all payments on the Notes and
distributions with respect to the Certificates to be made on such Distribution
Date) or (b) % of the aggregate initial principal balance of the Notes plus the
initial Certificate Balance. In no circumstances will the Depositor be required
to deposit any amounts in the Reserve Account other than the Reserve Account
Initial Deposit to be made on the Closing Date.
SUBORDINATION OF THE CERTIFICATES. The rights of the Certificateholders to
receive distributions will be subordinated to the rights of the Noteholders
following the occurrence of certain Events of Default or an acceleration of the
Notes. The subordination of the Certificates is intended to enhance the
likelihood of receipt by Noteholders of amounts due them and to decrease the
likelihood that the Noteholders will experience losses. In addition, the Reserve
Account is intended to enhance the likelihood of receipt by Noteholders and
Certificateholders of amounts due them and to decrease the likelihood that the
Noteholders and Certificateholders will experience losses. However, in certain
circumstances, the Reserve Account could be depleted. If the amount required to
be withdrawn from the Reserve Account to cover shortfalls in collections on the
Receivables exceeds the amount on deposit in the Reserve Account a temporary
shortfall in the amounts distributed to the Noteholders or the
Certificateholders could result. In addition, depletion of the Reserve Account
ultimately could result in losses to Noteholders and Certificateholders.
FEDERAL INCOME TAX CONSEQUENCES
Stroock & Stroock & Lavan LLP is of the opinion that, (x) based on the
terms of the Notes and the transactions relating to the Receivables as set forth
herein, the Notes will be treated as debt for federal income tax purposes and
(y) based on the applicable provisions of the Trust Agreement and Related
Documents, for federal income tax purposes, (i) the Trust will not be classified
as an association taxable as a corporation and (ii) the Trust will not be
treated as a publicly traded partnership taxable as a corporation. The Notes
will not be issued will original issue discount ("OID"). See "Federal Income Tax
Consequences" in the Prospectus.
STATE AND LOCAL TAX CONSEQUENCES
The discussion above does not address the tax consequences of purchase,
ownership or disposition of the Securities under any state or local tax law.
Investors are encouraged to consult their own tax advisors regarding state and
local tax consequences.
ERISA CONSIDERATIONS
THE NOTES
A fiduciary of an employee benefit plan or other retirement arrangement
subject to Title I of ERISA, should consider the fiduciary standards under ERISA
in the context of the plan or arrangement's particular circumstances before
authorizing an investment of a portion of such plan or arrangement's assets in
the Notes. Accordingly, pursuant to Section 404 of ERISA, such fiduciary should
consider among other factors (i) whether the investment is for the exclusive
benefit of participants and their beneficiaries; (ii) whether the investment
satisfies the applicable diversification requirements; (iii) whether the
investment is in accordance with the documents and instruments governing the
plan or arrangement; and (iv) whether the investment is prudent, considering the
nature of the investment.
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan or retirement arrangements,
including individual retirement accounts and certain types of Keogh Plans, as
well as any entity whose underlying assets include plan assets by reason of a
plan or arrangement investing in such entity (including an insurance company
general account), (each a "Benefit Plan"), from engaging in certain transactions
with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to such Benefit Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code with respect to a Benefit Plan that purchases Notes if assets of the Trust
were deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor, 29 C.F.R. ' 2510.3-101 (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation was applicable. An "equity interest" is defined
under the Plan Assets Regulation as an interest other than an instrument which
is treated as indebtedness under applicable local law and which has no
substantial equity features. Assuming that the Notes are treated as indebtedness
under applicable local law without substantial equity features for purposes of
the Plan Assets Regulation, then the Notes will be eligible for purchase by
Benefit Plans.
However, without regard to whether the Notes are treated as an equity
interest for such purposes, 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 Trust, the owner of collateral, or any of their respective affiliates is
or becomes a party in interest or a disqualified person with respect to such
Benefit Plan. In such case, certain exemptions from the prohibited transaction
rules could be applicable depending on the type and circumstances of the plan
fiduciary making the decision to acquire a Note. Included among these exemptions
are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments
by insurance company pooled separate accounts; PTCE 95-60, regarding investments
by insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 96-23, regarding transactions affected by
"in-house asset managers"; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers."
A Benefit Plan fiduciary considering the purchase of Notes should consult
its tax and/or legal advisors regarding whether the assets of the Trust would be
considered Plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
THE CERTIFICATES
The Certificates may not be acquired (directly or indirectly) by or on
behalf of any Benefit Plan or any entity (including an insurance company general
account) whose underlying assets include plan assets of the Benefit Plan by
reason of a plan's investment in the entity. By acceptance of a Certificate,
each Certificateholder will be deemed to have represented and warranted that it
is not a Benefit Plan.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting agreement
relating to the Notes and the Certificates (the "Underwriting Agreement"), the
Depositor has agreed to sell to ____________________ (the "Underwriter"), and
the Underwriter has agreed to purchase, the Notes and the Certificates, subject
to the satisfaction of certain conditions precedent.
The Depositor has been advised by the Underwriter that the Underwriter
proposes to offer the Notes to the public initially at the public offering
prices set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such prices less a concession of % per Note, that the Underwriter and
such dealers may allow a discount of ___% per Note on the sale to certain other
dealers; and that after the initial public offering of the Notes, the public
offering prices and the concessions and discounts to dealers may be changed by
the Underwriter.
The Depositor has been advised by the Underwriter that the Underwriter
proposes to offer the Certificates to the public initially at the public
offering price set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession of % per Certificate; that the
Underwriter and such dealers may allow a discount of % per Certificate on the
sale to certain other dealers; and that after the initial public offering of the
Certificates, the public offering price and the concession and discount to
dealers may be changed by the Underwriter.
The Depositor has 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. In
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and, may, therefore, be unenforceable.
The Trust may, from time to time, invest the funds in the Trust Accounts
and the Certificate Distribution Account in Eligible Investments acquired from
the Underwriter.
The closing of the sale of the Notes is conditioned on the closing of the
sale of the Certificates, and the closing of the sale of the Certificates is
conditioned on the closing of the sale of the Notes.
LEGAL MATTERS
Certain legal matters with respect to the Notes and the Certificates will
be passed upon for the Depositor by Carl Krasik, Esq., Associate General Counsel
of Mellon Bank Corporation (the "Corporation"). Mr. Krasik is also a shareholder
of the Corporation and one of its subsidiaries and holds options to purchase
additional shares of the Corporation's Common Stock. Certain legal matters with
respect to the Notes and the Certificates will be passed upon for the
Underwriter by Stroock & Stroock & Lavan LLP, New York, New York. Stroock &
Stroock & Lavan LLP also will pass upon the material federal income tax
consequences related to the Notes and the Certificates.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. MELLON
AUTO RECEIVABLES CORPORATION (THE "DEPOSITOR") MAY NOT SELL THE SECURITIES THAT
ARE DESCRIBED IN THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT A REQUEST FOR ANY OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE LAWS IN THAT STATE DO NOT PERMIT THE DEPOSITOR
TO OFFER OR SELL THESE SECURITIES.
PROSPECTUS
$__________ ASSET BACKED NOTES
$_________ ASSET BACKED CERTIFICATES
------------
MELLON AUTO RECEIVABLES CORPORATION
DEPOSITOR
------------
MELLON BANK, N.A.
SERVICER
------------
From time to time, Mellon Auto Receivables Corporation (the "Depositor ")
may offer to sell (1) Asset Backed Notes (the "Notes"), (2) Asset Backed
Certificates (the "Certificates") or (3) a combination of both Notes and
Certificates. The term "Securities" means the Notes and/or the Certificates,
depending on which type of securities are being offered for sale at the time.
Each group of Securities, whether they include only Notes, only Certificates or
both, is called a "Series" of Securities. The Securities do not exist now. Each
Series of Securities will be created by a trust (each, a "Trust") to be formed
by the Depositor at the time those Securities are sold. Each Series of
Securities will be described in a supplement to this Prospectus (each, a
"Prospectus Supplement").
Each Trust will hold a group (each, a "Receivables Pool") of motor vehicle
retail installment contracts ("Receivables") entered into by individuals when
they purchase new or used automobiles, including passenger cars, minivans, sport
utility vehicles and light trucks. The only source of payments on the Securities
of any Series will be payments made by individuals on the Receivables in the
Receivables Pool held by the Trust that issues those Securities. The Securities
will not be bank deposits and will not be insured by the Federal Deposit
Insurance Corporation or by any other governmental agency.
------------------
AN INVESTMENT IN THE SECURITIES OF ANY SERIES INVOLVES SIGNIFICANT RISKS.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER THE CAPTION "RISK
FACTORS" BEGINNING ON PAGE __ IN THIS PROSPECTUS BEFORE DECIDING WHETHER OR NOT
TO MAKE AN INVESTMENT.
-------------------
The Securities of each Series will not be listed on any trading exchange.
No secondary trading market for the Securities of any Series will exist at the
time those Securities are issued, and there can be no assurance that a secondary
trading market for the Securities of any Series will develop. Even if a
secondary trading market does develop, it may not continue for the entire period
that the Securities are outstanding and may not provide sufficient liquidity to
permit investors to sell their Securities when they desire to do so.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. MAKING ANY CONTRARY REPRESENTATION IS A
CRIMINAL OFFENSE.
The Depositor may not use this Prospectus to sell these Securities unless a
Prospectus Supplement is also delivered. The Depositor may offer Securities
through underwriters or by other methods described under the caption "Method of
Distribution."
------------------
The date of this Prospectus is , 199__
<PAGE>
AVAILABLE INFORMATION
The Depositor, as creator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes and the Certificates offered
pursuant to this Prospectus. The Registration Statement includes information
about the Securities which is not included in this Prospectus. Prospective
investors may read the Registration Statement and make copies of it at the
Commission's main office located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's regional offices located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World
Trade Center, New York, New York 10048. Prospective investors also may obtain a
copy of the Registration Statement by paying a fee set by the Commission and
requesting a copy from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Prospective
investors who have access to the Internet also may read the Registration
Statement at the Commission's site on the World Wide Web located at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Each Trust will be required to file certain reports and documents 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"). Any reports and documents
so filed by or on behalf of a Trust before the termination of the offering of
the Securities of that Trust will be incorporated in this Prospectus. The
information incorporated in this Prospectus may modify or change the information
in this Prospectus and may itself be modified or changed by another document
incorporated in this Prospectus or by a change made in this Prospectus. Any
reports and documents that are incorporated in this Prospectus will not be
physically included in this Prospectus or delivered with this Prospectus.
The Servicer will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated in this Prospectus or in any related Prospectus
Supplement (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to Mellon Bank, N.A. at Two Mellon Bank Center,
8th Floor, Pittsburgh, Pennsylvania Attention: Asset Backed Finance. Telephone
requests for such copies should be directed to the Servicer, at (412) 236-6559.
IN ORDER TO RECEIVE ANY REQUESTED INFORMATION IN A TIMELY FASHION, PROSPECTIVE
INVESTORS MUST MAKE THEIR REQUESTS NO LATER THAN FIVE BUSINESS DAYS BEFORE THEY
MUST MAKE THEIR INVESTMENT DECISIONS.
The Exchange Act and the rules and regulations of the Commission permit
each Trust to terminate its obligation to file reports and documents with the
Commission following the end of the calendar year in which that such Trust is
formed. The Depositor expects that each Trust will terminate its filing
obligation as soon as it is permitted to do so.
REPORTS TO SECURITYHOLDERS
The Servicer will prepare monthly and annual unaudited reports regarding
the performance of the Receivables in each Trust. Those reports will not be
financial statements prepared in accordance with generally accepted accounting
practices. Because the Depositor expects that the Securities of each Series will
be issued in book entry form, those monthly and annual unaudited reports will be
sent on behalf of the Trust only to Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC") and registered holder of the Notes and the
Certificates. DTC will forward such reports to Participants and Indirect
Participants, which in turn, will forward the reports to the beneficial owners
of the Securities in accordance with their own procedures.
<PAGE>
TABLE OF CONTENTS
CAPTION PAGE
<PAGE>
SUMMARY OF TERMS
THIS SECTION GIVES A BRIEF SUMMARY OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS. THE SUMMARY DOES NOT INCLUDE ALL OF THE IMPORTANT INFORMATION ABOUT
THE SECURITIES. THE DEPOSITOR ENCOURAGES PROSPECTIVE INVESTORS TO REVIEW
CAREFULLY THE MORE DETAILED INFORMATION IN THIS PROSPECTUS AND IN THE PROSPECTUS
SUPPLEMENT FOR A SERIES OF SECURITIES.
ISSUER............................... The issuer for each Series of Securities
(each, an "Issuer" or the "Trust") will
be a trust formed by the Depositor. Each
Trust will be formed pursuant to either
a Trust Agreement (a "Trust Agreement")
between the Depositor and the Trustee
for such Trust or a Pooling and
Servicing Agreement (a "Pooling and
Servicing Agreement") among the Trustee,
the Depositor, the Servicer and the
Seller.
DEPOSITOR............................ Mellon Auto Receivables Corporation (the
"Depositor"), a wholly-owned subsidiary
of Mellon Bank, N.A. See "The
Depositor."
SERVICER............................. Mellon Bank, N.A. (in such capacity, the
"Servicer").
SELLERS.............................. Mellon Bank, N.A. and/or another entity
identified in the related Prospectus
Supplement (each, a "Seller").
TRUSTEE.............................. The trustee for a Series of Certificates
(each, a "Trustee") will be identified
in the related Prospectus Supplement.
INDENTURE TRUSTEE.................... The indenture trustee for a Series of
Notes (each, an "Indenture Trustee")
will be identified in the related
Prospectus Supplement.
THE NOTES
GENERAL......................... A Series of Securities may include one
or more classes of Notes. The Notes will
be issued by a Trust pursuant to an
Indenture between that Trust and the
Indenture Trustee (each, an
"Indenture"). The Trust will pledge its
assets (other than the Certificate
Distribution Account) to the Indenture
Trustee as security for payment of the
Notes issued by that Trust.
PAYMENT DATES................... Payments of interest on and principal of
the Notes will be made on the dates
specified in the related Prospectus
Supplement (each, a "Payment Date").
DENOMINATIONS AND REGISTRATION.. The Depositor expects that the Notes
will be (1) available for purchase in
minimum denominations of $25,000 and
integral multiples of $1,000 in excess
thereof and (2) issued in book-entry
form only. See "Certain Information
Regarding the Securities" and "Annex I"
hereto.
INTEREST........................ Each class of Notes will bear interest
at a specified rate or rates (with
respect to each class of Notes, the
"Interest Rate"). Each class of Notes
may have a different Interest Rate,
which may be a fixed, variable or
adjustable Interest Rate, or any
combination. The related Prospectus
Supplement will specify the Interest
Rate for each class of Notes, or the
method for determining the Interest
Rate.
PRINCIPAL....................... The amount and timing of the payments of
principal of the Notes of a Series will
be described in the related Prospectus
Supplement.
MULTIPLE CLASSES................ If a Series of Notes includes more than
one class of Notes, each class may have
significant differences including the
following:
o the timing of payments
o the priority of payments
o the allocation of losses
o the Interest Rate
o the amount of payments
o the source of payments
See "Description of the Notes -
Principal and Interest on the Notes."
STRIP NOTES..................... A Series of Notes may include one or
more classes of Notes ("Strip Notes")
that are entitled to (i) little or no
payments of interest, (ii) little or no
payments of principal or (iii) payments
of principal and/or interest that are
disproportionately large relative to the
interest and/or principal payments. An
investment in Strip Notes involves
significant risks. See "Risk Factors -
Strip Securities Involve Increased
Risk."
THE CERTIFICATES
GENERAL......................... A Series of Securities may include one
or more classes of Certificates and may
not include any Notes. Any Certificates
will be issued pursuant to a Trust
Agreement or a Pooling and Servicing
Agreement.
DISTRIBUTION DATES.............. Distributions on the Certificates will
be made on the dates specified in the
related Prospectus Supplement (each, a
"Distribution Date").
DENOMINATIONS AND REGISTRATION. The Depositor expects that the
Certificates will be (i) available for
purchase in minimum denominations of
$25,000 and integral multiples of $1,000
in excess thereof and (2) issued in
book-entry form only. See "Certain
Information Regarding the Securities."
INTEREST....................... Each class of Certificates will accrue
interest at a specified rate or rates
(with respect to each class of
Certificates, the "Pass-Through Rate").
Each class of Certificates may have a
different Pass-Through Rate, which may
be a fixed, variable or adjustable
Pass-Through Rate, or any combination.
The related Prospectus Supplement will
specify the Pass-Through Rate for each
class of Certificates or the method for
determining the Pass-Through Rate.
MULTIPLE CLASSES............... If a Series of Certificates includes
more than one class of Certificates,
each class may have significant
differences including the following:
o the timing of distributions
o the priority of distributions
o the allocation of losses
o the Pass-Through Rate
o the amount of distributions
o the source of distributions
See "Description of the Certificates -
Principal and Interest on the
Certificates."
STRIP CERTIFICATES............. A Series of Certificates may include one
or more classes of Certificates ("Strip
Certificates") that are entitled to (i)
little or no distributions of interest,
(ii) little or no distributions of
principal or (iii) distributions of
principal and/or interest that are
disproportionately large relative to the
distributions of interest and/or
principal. An investment in Strip
Certificates involves significant risks.
See "Risk Factors - Strip Securities
Involve Increased Risks."
CUTOFF DATE......................... The Prospectus Supplement for each
Series of Securities will specify the
date that will be used to determine the
payments on the related Receivables to
which the Holders of such Securities are
entitled (each, a "Cutoff Date").
THE RECEIVABLES...................... The Receivables will be loans made to
individuals to purchase or refinance new
or used automobiles, including passenger
cars, minivans, sport utility vehicles
and light trucks. The Receivables will
be originated directly or indirectly by
motor vehicle dealers (the "Dealers")
and will be purchased by a Seller. On or
prior to the Closing Date for a Series
of Securities, the Depositor will buy
the Receivables from the Seller and
immediately will sell those Receivables
to the Trust pursuant to a Sale and
Servicing Agreement or Pooling and
Servicing Agreement, as the case may be.
PRE-FUNDING.......................... The Depositor may sell Securities with
an original principal amount that is
greater than the principal amount of the
Receivables delivered to the Trust on
the applicable Closing Date. In that
case, the Depositor will deposit an
amount equal to the difference (the
"Pre-Funded Amount") into an account
held by the Trustee or the Indenture
Trustee (the "Pre-Funding Account"). The
Trust will use the Pre-Funded Amount to
purchase additional Receivables
("Subsequent Receivables) from the
Depositor during the period (the
"Funding Period") set forth in the
related Prospectus Supplement. No
Pre-Funded Amount will be greater than
50% of the aggregate initial principal
balance of the Notes, if any, and
Certificates of the related Series, and
no Funding Period will be longer than
six months. If any Pre-Funded Amount
remains on deposit in the Pre-Funding
Account at the end of the Funding
Period, it will be used to prepay some
or all classes of the Notes and/or
Certificates.
CREDIT AND CASH FLOW
ENHANCEMENT.......................... Each Trust will include one or more
mechanisms to protect the Holders of all
or certain classes of Securities of the
related Series from losses on the
Receivables and/or other shortfalls in
funds available to make required
payments on those Securities. These
mechanisms (called "credit enhancement")
may include any one or more of the
following forms:
o subordination of one or more other
classes of Securities
o a reserve account
o the use of certain excess cashflow
to create overcollateralization
o letters of credit
o surety bonds or security insurance
policies
o guaranteed investment contracts
o swaps or other interest rate
protection agreements
o repurchase agreements
o yield supplement agreements or
accounts
o third party credit, liquidity or
payment agreements
Any form of credit enhancement will have
certain limitations and exclusions from
coverage, and those limitations and
exclusions will be described in the
related Prospectus Supplement.
SERVICING
GENERAL......................... The Servicer will agree with each Trust
to be responsible for servicing,
managing, maintaining custody of and
making collections on the Receivables
pursuant to the Pooling and Servicing
Agreement or the Sale and Servicing
Agreement.
Each Trust will pay the Servicer a fee
for servicing the related Receivables.
The fee will equal a specified
percentage of the aggregate principal
balance of the related Receivables Pool,
as set forth in the related Prospectus
Supplement. The "Servicing Fee" also
will include certain late fees,
prepayment charges and other
administrative fees or similar charges.
See "Description of the Transfer and
Servicing Agreements-Servicing
Compensation and Payment of Expenses"
herein and in the related Prospectus
Supplement.
ADVANCES.......................... The Servicer generally will advance
scheduled payments of interest and/or
principal under each Receivable which
are not timely made (each, an
"Advance"), to the extent that the
Servicer, in its sole discretion,
expects to recoup such Advance from
subsequent payments on or with respect
to such Receivable. The Servicer will be
entitled to reimbursement of Advances
from subsequent payments on or with
respect to the Receivables. See
"Description of the Transfer and
Servicing Agreements--Advances."
OPTIONAL PURCHASE.................... The Servicer or another person
identified in the related Prospectus
Supplement will have the option, but not
the obligation, to cause a Trust to be
terminated when the principal balance of
the Receivables in the related
Receivables Pool is equal to or less
than a specified percentage (not more
than 10%) of the principal balance of
those Receivables as of the applicable
Cutoff Date. The exercise of that option
will result in the redemption of the
Notes and/or the prepayment of the
Certificates of the related Series of
Securities at a price generally equal to
the outstanding principal amount of such
Securities plus accrued but unpaid
interest. See "Description of the
Transfer and Servicing
Agreements--Termination."
PREPAYMENT
CONSIDERATIONS....................... The amount and timing of payments on the
Securities of a Series will depend
primarily on the amount and timing of
payments by the Obligors on the
Receivables. Payments may be regular
scheduled monthly payments or payoffs
due to sales or trade-ins of the
Financed Vehicle. Payments to
Securityholders also will include
amounts received following repossession
and disposition of a Financed Vehicle if
the Obligor fails to make the required
payments. Because a Receivables Pool
will include thousands of Receivables
that are payable by Obligors, it is
impossible to predict the amount and
timing of payments that will be received
and paid to Securityholders in any month
or over the period of time that the
Securities of a Series remain
outstanding. The option to terminate a
Trust early and, if a Trust includes a
Pre-Funding Account, the possibility
that all of the Pre-Funded Amount will
not be used to purchase Subsequent
Receivables, creates additional
uncertainty regarding the timing of
payments to Securityholders.
Investors may not be able to reinvest
amounts received by them at rates that
are equal to or higher than the
applicable Interest Rate or Pass-Through
Rate. In addition, investors will not
know with any certainty how long they
will receive interest at the applicable
Interest Rate or Pass-Through Rate. As a
result, the Securities are not an
appropriate investment for any investor
that requires a fixed schedule of
payments, a payment on any particular
date or certainty regarding the length
of the investment.
RISK FACTORS......................... An investment in the Securities of any
Series involves significant additional
risks. Prospective investors are
encouraged to review the information
under the caption "Risk Factors"
beginning on page and in the applicable
Prospectus Supplement before making an
investment.
FEDERAL TAX STATUS................... If a Series of Securities includes
Notes, Stroock & Stroock & Lavan LLP
("Federal Tax Counsel") is of the
opinion, as of the date hereof, that,
for federal income tax purposes: (i) any
Notes of that Series will be
characterized as debt and (ii) the
related Trust will not be characterized
as an association (or a publicly traded
partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a
Note, will agree to treat such Note as
indebtedness, and each
Certificateholder, by the acceptance of
a Certificate of that Series, will agree
to treat the related Trust as a
partnership in which such
Certificateholder is a partner for
federal income tax purposes, or if there
is a single Certificateholder, to
disregard the Trust as an entity
separate from its owner. Alternative
characterizations of such Trust and such
Certificates are possible, but would not
result in materially adverse tax
consequences to Certificateholders.
If a Series of Securities includes only
Certificates, Federal Tax Counsel is of
the opinion, as of the date hereof, that
the related Trust will be treated as a
grantor trust for federal income tax
purposes and will not be subject to
federal income tax. See "Federal Income
Tax Consequences."
ERISA CONSIDERATIONS................. Each Prospectus Supplement will identify
the class or classes of Securities that
are eligible for purchase by employee
benefit plans or other retirement
arrangements that are subject to either
Title I of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as
amended (such plans or arrangements,
"Plans"). See "ERISA Considerations" in
this Prospectus and in the related
Prospectus Supplement.
RATINGS.............................. Any Securities offered by this
Prospectus and the related Prospectus
Supplement will be rated in one of the
four highest rating categories by at
least one nationally recognized rating
agency (a "Rating Agency") as specified
in the related Prospectus Supplement. A
security rating is not a recommendation
to buy, sell or hold securities. Similar
ratings on different types of securities
do not necessarily mean the same thing.
Prospective investors are encouraged to
analyze the significance of each rating
independently of any other rating. Any
Rating Agency may change its rating of
the Securities after those Securities
are issued if that Rating Agency
believes that circumstances have
changed. Any subsequent change in a
rating will likely affect the price that
a subsequent purchaser will be willing
to pay for the applicable Security. See
"Ratings."
<PAGE>
RISK FACTORS
An investment in the Securities of any Series involves significant risks.
BEFORE MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS SHOULD REVIEW THE
FOLLOWING INFORMATION AND THE INFORMATION UNDER THE CAPTION "RISK FACTORS" IN
THE APPLICABLE PROSPECTUS SUPPLEMENT.
THERE IS NO ESTABLISHED SECONDARY MARKET
Asset backed securities generally are not, and the Securities will not be,
listed on any securities exchange. As a result, an investor in the Securities
that wishes to sell those Securities must locate a purchaser that is willing to
purchase those Securities. The Depositor expects that any underwriter through
which the Securities of a Series are offered will intend to make a secondary
market for those Securities. Those underwriters will do so by offering to buy
the Securities from investors that wish to sell. However, no underwriter will be
obligated to make offers to buy the Securities and any underwriter may stop
making offers at any time. In addition, the prices offered, if any, may not
reflect prices that other potential purchasers, were they to be given the
opportunity, would be willing to pay. There have been times in the past where
there have been very few buyers of asset backed securities (i.e., there has been
a lack of liquidity), and there may be such times in the future. As a result, an
investor in the Securities may not be able to sell the investor's Securities
when the investor wishes to do so or may not be able to obtain the price the
investor wishes to receive.
TRUST ASSETS ARE THE ONLY SOURCE OF PAYMENTS
No Trust will have any significant assets or sources of funds other than
the Receivables and the credit enhancement identified in the related Prospectus
Supplement. The issuing Trust will be the only person obligated to make payments
on the Securities issued by that Trust. Investors will not have any recourse
against the Depositor, the Seller, the Servicer, the Trustee, the Indenture
Trustee or any related company if the assets of a Trust are not sufficient to
make the required payments on the Securities issued by that Trust. As a result,
investors must depend on payments by the Obligors on the Receivables and any
related credit enhancement for required payments on the investor's Securities.
Any credit enhancement will not cover all contingencies, and losses in excess of
the coverage provided by that credit enhancement will be borne directly by the
affected Securityholders.
NON-DELIVERY OF CONTRACTS COULD CAUSE LOSSES
Under applicable law, sales of financial instruments like the contracts
creating the Receivables can be completed either by filing a statement under the
Uniform Commercial Code in the applicable state (the "UCC") or by actually
delivering the Receivables to the purchaser. Although either method "perfects"
the sale, if the contracts are not actually delivered to the purchaser, another
person that buys those Receivables in the ordinary course of business without
knowledge of the prior sale and that takes possession of the contracts will own
the Receivables free of the claims of the original purchaser.
The sales by the Seller to the Depositor and by the Depositor to a Trust
will be perfected by filing statements as required by the UCC. However, the
contracts creating the Receivables in each Receivables Pool will not be actually
delivered to the Trustee or Indenture Trustee. The Receivables will be held by
the Servicer, as custodian for the Trust. In addition, the contracts will not be
segregated, stamped or otherwise marked to indicate that they have been sold to
the applicable Trust. If, through inadvertence or otherwise, another party
purchases (or takes a security interest in) the related Receivables for new
value in the ordinary course of business and takes possession of the related
contracts without actual knowledge of the applicable Trust's interest, the
purchaser (or secured party) will acquire an interest in the related Receivables
superior to the interest of that Trust. In that event, the applicable Trust will
not be able to realize any liquidation proceeds on the related Receivables and
Securityholders may suffer a loss.
FAILURE TO NOTE TRANSFER ON TITLE DOCUMENTS MAY CAUSE LOSSES
The Seller will assign its security interests in the related Financed
Vehicles to the Depositor and, the Depositor will assign those security
interests to a Trust. The Servicer, as custodian for the related Trust, will
hold the certificates of title or ownership or other documents evidencing the
notation of the Seller's lien on the related Financed Vehicles. Due to the
administrative burden and expense, the certificates of title or ownership will
not be endorsed or otherwise amended to identify the Trust as the new secured
party. In most states, in the absence of fraud or forgery by the vehicle owner
or of fraud, forgery, negligence or error by the Seller, the Servicer or the
Depositor or administrative error by state or local agencies, the notation of
the Seller's lien on the certificates of title or ownership and/or possession of
such certificates with such notation will be sufficient to protect the related
Trust against the rights of subsequent purchasers of a Financed Vehicle or
subsequent lenders who take a security interest in a Financed Vehicle. However,
if the Trust or the related Indenture Trustee is not identified as the new
secured party on the certificate of title that the security interest of the
Trust or related Indenture Trustee may not be enforceable. If a Trust has failed
to obtain or maintain a perfected security interest in a Financed Vehicle, its
security interest would be subordinate to, among others, a bankruptcy trustee of
the Obligor, a subsequent purchaser of the Financed Vehicle or a holder of a
perfected security interest in the Financed Vehicle or a bankruptcy trustee of
such holder. If the Trust elects to attempt to repossess the related Financed
Vehicles, it might not be able to realize any liquidation proceeds on those
Financed Vehicles and, as a result, Securityholders may suffer a loss.
BANKRUPTCY OF DEPOSITOR MAY CAUSE LOSSES
The Depositor intends that its sale of the Receivables to each Trust will
be a valid sale and assignment of the Receivables to that Trust. If the
Depositor were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of the Depositor or the Depositor itself were to take the
position that the sale of Receivables by the Depositor to a Trust should instead
be treated as a pledge of the Receivables to secure a borrowing of such debtor,
delays in payments of collections of Receivables to the related Securityholders
could occur. If a court ruled in favor of any such trustee, debtor or creditor,
reductions in the amounts of such payments could result. If the transfer of
Receivables to a Trust is treated as a pledge instead of a sale, a tax or
government lien on the property of the Depositor arising before the transfer of
a Receivable to the Trust may have priority over that Trust's interest in those
Receivables. If the transactions contemplated herein are treated as a sale, the
Receivables would not be part of the Depositor's bankruptcy estate and would not
be available to the Depositor's creditors.
In a 1993 case decided by the U.S. Court of Appeals for the Tenth Circuit,
OCTAGON GAS SYSTEM, INC. V. RIMMER, the court determined that "accounts," a
defined term under the Uniform Commercial Code, would be included in the
bankruptcy estate of a transferor regardless of whether the transfer is treated
as a sale or a secured loan. Although the Receivables are likely to be viewed as
"chattel paper," as defined under the Uniform Commercial Code, rather than as
accounts, the Octagon holding is equally applicable to chattel paper. The
circumstances under which the Octagon 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 the Depositor, however, even if the transfer of
Receivables to the Trust were treated as a sale, the Receivables would be part
of the Depositor's bankruptcy estate and would be subject to claims of certain
creditors, and delays and reductions in payments to the Securityholders could
result.
SUBORDINATED SECURITIES MAY INCUR LOSSES
A Series of Securities may provide that one or more classes of those
Securities are subordinated in right of payment to one or more other classes of
that Series. In general, securities that are subordinated to other securities
have a greater risk of loss because the subordinated securities will not receive
payments of interest, principal or both, until the more senior securities
receive the payments to which they are entitled. If the amount available for
payments to Securityholders is less than the amount required, the Holders of the
subordinated Securities will not receive the payments that they would have
received if there had not been a shortfall in the amount available.
THE INVESTMENT RETURN ON THE SECURITIES IS UNCERTAIN
The return on an investment in the Securities of any Series will depend on
(1) the price paid by an investor for those Securities, (2) the rate at which
interest accrues on those Securities and (3) the rate at which the investor
receives a return of the principal and, consequently, the length of time that
the investor's Securities are outstanding and accruing interest. The last factor
is the biggest uncertainty in an investment in the Securities.
An Obligor may prepay a Receivable in whole or in part, at any time. In
addition, a Trust may receive other unscheduled payments from liquidations due
to default, including rebates of extended warranty contract costs and insurance
premiums, as well as receipts of proceeds from physical damage, credit life,
theft and disability insurance policies and certain other Receivables purchased
or repurchased pursuant to the terms of a Sale and Servicing Agreement or
Pooling and Servicing Agreement, as the case may be. The rate of prepayments on
the Receivables may be influenced by a variety of economic, social, competitive
and other factors, including changes in interest rates and the fact that an
Obligor generally may not sell or transfer the related Financed Vehicle securing
a Receivable without the consent of the secured party which generally results in
the repayment of the remaining principal balance of the related Receivable.
Because a Receivables Pool will include thousands of Receivables that are
payable by Obligors, it is impossible to predict the amount and timing of
payments that will be received and paid to Securityholders in any month or over
the period of time that the Securities of a Series remain outstanding. The
option to terminate a Trust early and, if a Trust includes a Pre-Funding
Account, the possibility that all of the Pre-Funded Amount will not be used to
purchase Subsequent Receivables, creates additional uncertainty regarding the
timing of payments to Securityholders.
The different amounts of principal payments on the Securities and the
uncertainty of the timing of those payments creates reinvestment risk.
Reinvestment risk refers to the fact that an investor may not be able to invest
the payments on the Securities received by that investor at a rate that is equal
to or greater than the rate of interest borne by the investor's Securities.
An investment in the Securities also involves a risk that the investor may
lose all or part of the investor's investment. Although every Trust will include
some form of credit enhancement, that credit enhancement may not cover every
class of Securities issued by a Trust. In addition, every form of credit
enhancement will have certain limitations on, and exclusions from, coverage. No
Securities will be guaranteed by any governmental entity or agency or insured by
the Federal Deposit Insurance Corporation. As a result, there is always a risk
that investors may not recover the full amount of their investment.
STRIP SECURITIES INVOLVE ADDITIONAL RISK
Strip Notes or Strip Certificates involve greater uncertainty regarding the
return on investment. These types of securities are often called "interest only
securities" or "principal only securities". An interest only security is not
entitled to any principal payments. If the Receivables in a Receivables Pool
prepay at rapid rates, it will reduce the amount of interest available to pay a
related interest only security and may cause an investor in that interest only
security to fail to recover the investor's initial investment.
A principal only security is not entitled to any interest payments, and is
usually sold at a price that is less than the face amount of the security. If an
investor in a principal only security receives payments on the security at a
slow rate, the return on the investment will be low (because, in part, there is
no interest payments to compensate the investor for the use of the investor's
money).
The prices offered by potential purchasers for interest only securities and
principal only securities vary significantly from time to time, and there may be
times when no potential purchaser is willing to buy an interest only security or
principal only security. As a result, an investment in Strip Notes and Strip
Certificates involves a high degree of risk.
SERVICER MAY BE PERMITTED TO COMMINGLE FUNDS
So long as Mellon Bank, N.A. is the Servicer, and provided that (i) there
is no Servicer Default and (ii) each other condition to making monthly deposits
as may be specified by the Rating Agencies and described in the related
Prospectus Supplement is satisfied, the Servicer will not be required to deposit
amounts collected on the Receivables into the Collection Account of a Trust
until the business day preceding each Distribution Date. Pending deposit into a
Collection Account, collections may be invested by the Servicer at its own risk
and for its own benefit and will not be segregated from funds of the Servicer.
If the Servicer were unable to remit such funds, the applicable Securityholders
might incur a loss.
CERTIFICATEHOLDERS MAY NOT EXERCISE REMEDIES UPON SERVICER DEFAULT
If a Series of Securities includes Notes and a Servicer Default occurs, the
Indenture Trustee or the Noteholders may remove the Servicer without the consent
of the Trustee or any of the Certificateholders. Moreover, only the Indenture
Trustee or the Noteholders, and not the Certificateholders, with respect to the
applicable Series will have the ability to remove the Servicer if a Servicer
Default occurs. In addition, the Noteholders of that Series have the ability,
with certain specified exceptions, to waive defaults by the Servicer, including
defaults that could materially adversely affect the Certificateholders of that
Series. See "Description of the Transfer and Servicing Agreements--Waiver of
Past Defaults."
EVENTS OF DEFAULT MAY NOT BE ADEQUATE PROTECTION
Although each Trust will covenant to sell the related Receivables if
directed to do so by the related Indenture Trustee following an acceleration of
the related Notes upon an Event of Default, the market value of those
Receivables may not be equal to or greater than the aggregate outstanding
principal of the related Notes. Therefore, upon an Event of Default with respect
to a Series of Notes the Noteholders may not have an effective remedy because
the sale of the related Receivables might result in losses.. In addition, the
amount of principal required to be distributed to Noteholders under the
Indenture is generally limited to amounts available to be deposited in the
applicable Note Distribution Account. Therefore, the failure to pay principal on
a class of the Notes of a Series may not result in the occurrence of an Event of
Default until the Final Scheduled Distribution Date for such class of Notes.
BALLOON LOANS CREATE ADDITIONAL RISKS
Certain of the Receivables in a Trust may consist of Balloon Loans.
"Balloon Loans" have a term to stated maturity that is less than the period of
time of the corresponding amortization schedule. As a result, upon the maturity
of a Balloon Loan, the Obligor will be required to make a balloon payment (a
"Balloon Payment") which will be significantly larger than the Obligor's other
scheduled monthly payments. The ability of an Obligor to repay a Balloon Loan at
maturity frequently will depend on the Obligor's ability to refinance the
Receivable. The ability of an Obligor to refinance a Receivable may be affected
by a number of factors, including the prevailing available automobile interest
rates at the time, the value of the related Financed Vehicle, the financial
condition of the Obligor, and the general economic conditions at the time. Under
certain of the Balloon Loans, the Obligor may be able to return the related
Financed Vehicle to the related Seller in satisfaction of the Balloon Loan.
A low interest rate environment may make it easier for an Obligor to
refinance. However, the related Securityholders will then receive the payoff of
the applicable Receivable but may not be able to invest the amount received at a
rate equal to or greater than the Interest Rate or Pass-Through Rate on the
investor's Securities. Conversely, a high interest rate environment may make it
more difficult for the Obligor to accomplish a refinancing and may result in
delinquencies or defaults. See "Maturity and Prepayment Assumptions Balloon
Loans."
BOOK ENTRY REGISTRATION MAY ADVERSELY AFFECT INVESTORS
The Depositor expects that each class of Securities will be initially
represented by one or more certificates registered in the name of Cede & Co.
("Cede"), or any other nominee for DTC set forth in the related Prospectus
Supplement (Cede, or such other nominee, "DTC's Nominee"), and will not be
registered in the names of the holders of these Securities. Unless and until
Definitive Securities for a Series are issued, holders of the Securities of that
Series will not be recognized by the Trustee or any applicable Indenture Trustee
as "Certificateholders," "Noteholders" or "Securityholders," as the case may be.
As a result, holders of the Securities will only be able to exercise the rights
of Securityholders indirectly through DTC and its participating organizations.
In addition, investors may experience some delays in receiving distributions on,
and reports regarding their Securities, because the distributions and reports
will be sent to DTC. In turn, DTC and its participating organizations will
forward the distributions and reports either directly or indirectly to
investors. See "Certain Information Regarding the Securities Book-Entry
Registration" and " Definitive Securities."
SECURITIES ARE NOT SUITABLE FOR ALL INVESTORS
The Securities are complex investments that are not appropriate for all
investors. The interaction of the factors described above are difficult to
analyze and may change from time to time while the Securities of a Series are
outstanding. It is impossible to predict with any certainty the amount or timing
of distributions on the Securities of a Series or the likely return on an
investment in those Securities. As a result, only sophisticated investors with
the resources to analyze the potential risks and rewards of an investment in the
Securities should consider such an investment.
THE TRUSTS
With respect to each Series of Securities, the Depositor will cause a
separate Trust to be formed pursuant to the respective Trust Agreement or
Pooling and Servicing Agreement, as applicable, for the transactions described
herein and in the related Prospectus Supplement. The property of each Trust will
include a pool (a "Receivables Pool") of motor vehicle retail installment sales
contracts and other motor vehicle installment chattel paper which were or will
be originated by Dealers and purchased by a Seller pursuant to the Dealer
Agreements and all monies received thereunder on and after the Cutoff Date (as
such term is defined in the related Prospectus Supplement, a "Cutoff Date"),
and, with respect to Receivables which are Actuarial Receivables, monies
received thereunder prior to the Cutoff Date that are due on or after the Cutoff
Date. On or prior to the Closing Date, the Seller(s) will sell the Receivables
of the applicable Receivables Pool to the Depositor. On the applicable Closing
Date, the Depositor will sell the Initial Receivables of the applicable
Receivables Pool to the Trust. To the extent so provided in the related
Prospectus Supplement, Subsequent Receivables will be conveyed to the Trust as
frequently as daily during the Funding Period. Any Subsequent Receivables so
conveyed will also be assets of the applicable Trust, subject to the prior
rights of the related Indenture Trustee and the Noteholders, if any, therein.
The property of each Trust will also include (i) such amounts as from time to
time may be held in separate trust accounts established and maintained pursuant
to the related Sale and Servicing Agreement or Pooling and Servicing Agreement,
as described herein and in the related Prospectus Supplement; (ii) security
interests in the vehicles securing the Receivables (the "Financed Vehicles");
(iii) the rights of the Seller(s) to receive proceeds from claims under certain
insurance policies; (iv) the rights of the Trust under either a Sale and
Servicing Agreement or a Pooling and Servicing Agreement, as specified in the
related Prospectus Supplement; (v) the rights of the Seller(s) to refunds for
the costs of extended service contracts and to refunds of unearned premiums with
respect to credit life and credit accident and health insurance policies
covering the Financed Vehicles or the retail purchasers of, or other persons
owing payments on, the Financed Vehicles (the "Obligors"); (vii) all right,
title and interest of the Seller(s) (other than with respect to any Dealer
commission) with respect to the Receivables under the related Dealer Agreements;
and (viii) all proceeds (within the meaning of the UCC) of the foregoing. To the
extent specified in the related Prospectus Supplement, a Pre-Funding Account, a
Reserve Account or other form of credit enhancement may be a part of the
property of any given Trust or may be held by the Trustee or an Indenture
Trustee for the benefit of holders of the related Securities.
The Servicer will service the Receivables held by each Trust and will
receive fees for such services. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" herein. To
facilitate the servicing of the Receivables, each Trustee will authorize the
Servicer to retain physical possession of the Receivables held by each Trust and
other documents relating thereto as custodian for each such Trust. Due to the
administrative burden and expense, the certificates of title to the Financed
Vehicles will not be amended to reflect the sale and assignment of the security
interest in the Financed Vehicles to each Trust. In the absence of such an
amendment, any Trust may not have a perfected security interest in the Financed
Vehicles in all states. See "Risk Factors -Failure to Note Transfer on Title
Documents May Cause Losses," "Certain Legal Aspects of the Receivables" and
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables."
If the protection provided to any Noteholders of a given Series by the
subordination of the related Certificates and by the Reserve Account, if any, or
other credit enhancement for such Series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be, would
have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having perfected security interests in the Financed
Vehicles in all states, may affect the Servicer's ability to repossess and sell
the collateral securing the Receivables, and thus may reduce the proceeds to be
distributed to the holders of the Securities of such Series. See "Description of
the Transfer and Servicing Agreements Distributions," "--Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables." The principal
offices of each Trust and the related Trustee will be specified in the
applicable Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Trust may make an
election to be treated as a "financial asset securitization investment trust" (a
"FASIT"). The applicable Transfer and Servicing Agreement for such a Trust may
contain any such terms and provide for the issuance of Notes or Certificates of
such Series on such terms and conditions as are permitted to a FASIT and
described in the related Prospectus Supplement. See "Federal Income Tax
Consequences FASIT Legislation."
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the expressed obligations of such
Trustee set forth in the related Trust Agreement or the related Pooling and
Servicing Agreement, as applicable. A Trustee may resign at any time, in which
event the Servicer, or its successor, will be obligated to appoint a successor
trustee. The Servicer may also remove the Trustee if the Trustee ceases to be
eligible to continue as Trustee under the related Trust Agreement or Pooling and
Servicing Agreement, as applicable, or if the Trustee becomes legally unable to
act, is judged insolvent or is placed in receivership or similar proceedings. In
such circumstances, the Servicer, will be obligated to appoint a successor
trustee. Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of the appointment by the
successor trustee.
THE PORTFOLIO OF MOTOR VEHICLE LOANS
DEALER AGREEMENTS
Mellon Bank, N.A. (the "Bank") generally purchases through Dealers motor
vehicle retail installment sales contracts and other installment chattel paper
secured by Financed Vehicles ("Motor Vehicle Loans") . The Bank purchases Motor
Vehicle Loans in accordance with its established underwriting procedures and
subject to the terms of the Dealer Agreements. A Dealer Agreement, among other
things, obligates a Dealer to repurchase any Receivable for its outstanding
principal balance (including accrued but unpaid interest) if the Dealer breaches
the representations and warranties contained therein. The representations and
warranties typically relate to the origination of the Receivable and the
security interest in the related Financed Vehicle and not to the collectibility
of the Receivable or the creditworthiness of the Obligor thereunder.
The Bank audits the Dealers with varying frequencies depending on
performance and stability. However, the Bank audits all transactions with new
Dealers. While the Bank does not have financial requirements for new Dealers,
most of the Dealers consist of manufacturer franchised dealerships and the
related manufacturers do have financial requirements. The Bank has the right to
audit the books and records of all Dealers.
UNDERWRITING
MELLON BANK, N.A. All of the Motor Vehicle Loans will be underwritten or,
in the case of bulk purchases, re-underwritten to the Bank's underwriting
standards. The underwriting standards emphasize each prospective obligor's
ability to pay and creditworthiness, based on employment and residential
stability, as well as the asset value of the motor vehicle that secures the
Motor Vehicle Loan. Although the Bank does not have minimum policy requirements
on the length of time an applicant has been an employee of a particular employer
or resident at a particular address, generally, an applicant must be employed
for not less than one year with the same employer or have established comparable
stability in a particular field. Applications without employment and/or
residential stability may require greater levels of authority for approval.
The Bank's credit review process takes into account factors such as credit
bureau information, past analogous borrowing experience and income requirements.
Prior to the purchase of a Motor Vehicle Loan, the Bank reviews the credit
application from each applicant, including information about each obligor's
income, credit obligations, and other personal information. Upon receipt of an
application, the Bank obtains a credit report from an independent credit bureau,
which the Bank reviews to determine the applicant's current credit status and
past credit performance. Where necessary, the Bank may obtain more than one
credit report. The Bank considers the following information contained in the
credit report: length of time in file, number of trade lines, level of
obligations maintained, breadth of credit experience, previous automobile
financing experience and other credit. The Bank then compares the amount
requested to be financed in the application to the applicant's credit history.
Generally, the Bank requires an applicant to have a minimum of three years
history in the file and a minimum household income of $20,000.
The Bank utilizes credit scoring systems to assist in the processing of the
applications including the Fair, Isaac Auto Enhanced bureau score and a custom
built scorecard ("MDS") derived from the Fair, Isaac Auto Enhanced bureau score.
The credit scores are used to increase the productivity of the underwriters,
automatically approve and decline applications, recommend approve or reject
decisions and to route applications to more experienced underwriters.
Applications identified by score as less creditworthy may either be
automatically declined or routed to more experienced underwriters for their
concurrence before an approval is rendered. Conversely, applications identified
by score as creditworthy may either be automatically approved or routed to less
experienced underwriters for their concurrence before an acceptance is rendered.
Applications scoring below the established score guidelines, regardless of other
circumstances, require senior management concurrence/approval.
The Bank may also conduct an additional investigation, which may consist of
some or all of the following steps: requiring written proof of employment and
income, direct telephone verification of an applicant's employment, and
discussions with the originating Dealer to resolve concerns about the
applicant's creditworthiness. The Bank then analyzes the application under the
Bank's underwriting criteria, and, for those applications that are approved,
determines the amount and terms of the financing the Bank will offer.
The Bank's standards permit to a minimum loan of $2,500 and a maximum loan
of $100,000. The maximum advance rate for current year models is 120% of the
manufacturer's suggested retail price ("MSRP") plus 100% of dealer installed
options (at dealer costs) and tax and licensing fees. The maximum advance rate
for used vehicles is 120% of the wholesale value in the National Automobile
Dealers Association Guide on Retail and Wholesale Values ("NADA") plus tax and
licensing fees. A vehicle more than seven years old will be considered an
exception. All overrides are monitored for performance and reported to
management on a regular basis. The decision is communicated to the Dealer. In
the case of a declined application, the Bank's practice is to explain the reason
for the declination to the Dealer and send a declination letter to the
applicant.
The standard maximum term for a Motor Vehicle Loan depends, in part, on the
age of the Financed Vehicle, the MDS credit score and the purchase price. In any
case, the minimum term for a Motor Vehicle Loan is 12 months, the maximum term
for a new vehicle is 72 months and the maximum term for a vehicle that is five
or more years old is 36 months.
Exceptions to the above credit parameters are made at the discretion of the
credit underwriter and/or credit manager with the appropriate decision
authority. In considering any exception, the Bank looks for compensating factors
in the borrower's credit such as a higher credit score or lower advance rate
than would otherwise be required to approve such loan if the borrower had
otherwise satisfied each of the underwriting criteria. The Bank's' exceptions
policy is designed to ensure that the credit quality of the loan subject to any
such exception is consistent with the credit quality of the Bank's' other loans.
Underwriters are assigned specific dollar and decision (policy) authority based
on experience, performance results and position. The greater the deviation from
established policy, the higher the level of authority required. Caps are placed
on all policy rules where no one carries override authority except the senior
credit policy officer.
UNAFFILIATED SELLERS. If a Trust includes Receivables originated by an
entity that is not affiliated with the Depositor, the applicable Prospectus
Supplement will describe the underwriting standards of such entity.
CONTRACT MODIFICATION
The Servicer will follow specific procedures with respect to contract
extensions and modifications. Extensions may be granted to a current or
delinquent customer to cure a short term cash flow problem and an extension fee
may be charged. Extensions are granted on an individual basis and are reported
and monitored closely. Generally, the extension policy includes: (i) at least
six monthly payments must be made before an account is eligible for extension,
(ii) one extension is allowed for every 12 month period, (iii) extensions will
not be granted if the loan is deemed to be uncollectible and (iv) extensions
will not be granted if the Obligor has not made at least one payment in the last
30 days. Approval by the collection's supervisor must be obtained before any
extension is granted.
The Servicer may also change a payment date once during the term of the
Motor Vehicle Loan as an accommodation to the Obligor if the new payment date is
within 20 days of the original scheduled payment date. Such change of payment
date is not deemed to be an extension and no extension fee is charged.
Each Sale and Servicing Agreement generally will prohibit the Servicer,
except as provided or required under applicable law, from making modifications
to the Motor Vehicle Loans that (i) reduce the original rates of interest on the
Motor Vehicle Loans, (ii) reduce the amount of the regularly scheduled payments
on the Motor Vehicle Loans or (iii) extend the final payment dates on such Motor
Vehicle Loans beyond the Collection Period relating to the Certificate Final
Scheduled Distribution Date.
INSURANCE
Each Motor Vehicle Loan requires the Obligor to obtain physical damage
insurance covering loss or damage to the motor vehicle naming the Bank as loss
payee, with a maximum deductible amount of $500.00. As a prerequisite to
acquiring a Motor Vehicle Loan, the Obligor must provide the related Seller with
evidence of insurance acceptable to the Bank, in the form of either a
certificate of insurance, a binder or an agreement evidencing a commitment to
provide insurance to the obligor. The Servicer will not force place insurance.
However, in the event that an Obligor's insurance coverage lapses, the Servicer
may foreclose on the Motor Vehicle Loan.
SERVICING AND COLLECTION
The Servicer, either directly or through subservicers, will be responsible
for managing, administering, servicing and making collections on the Receivables
held by each Trust. Although a 10-day grace period is provided before the
assessment of a late charge, the Servicer considers a Motor Vehicle Loan
delinquent when the obligor fails to make a contractual payment by the due date.
The Servicer's policy is to begin collection activities with respect to
delinquent Motor Vehicle Loans on the sixth day following the due date, at which
time a system-generated notification prompts a collection representative to make
telephone contact with the Obligor to request payment whether a collector
attempts to contact the delinquent Obligor by telephone or by letter is
determined by the term of the delinquency and the history of the account. If
attempts to contact the delinquent Obligor have failed, the collection officer
may attempt to contact the Obligor's references. Repossession procedures begin
when all other collection efforts are exhausted.
The Servicer follows specific procedures with respect to repossessions and
uses unaffiliated independent contractors to perform repossessions. Once a motor
vehicle is repossessed, a notice of repossession is sent to the Obligor,
detailing the requirements that must be met for the Obligor to redeem the
financed vehicle. Motor vehicles that remain unredeemed beyond the required
state law notice period are remarketed through various channels, including
auction sales, consignment sales and direct sales to Dealers.
The current policy of the Servicer is to write-off a Motor Vehicle Loan on
or before the date on which the contract becomes 150 days delinquent. If the
motor vehicle securing the Motor Vehicle Loan is repossessed, the Servicer's
current policy is to write-off the contract amount upon the earlier of the sale
of the motor vehicle or before the date on which the contract becomes 150 days
delinquent. Any deficiencies remaining after the full write-off of the related
Motor Vehicle Loan or deficiencies remaining after repossession and sale of the
related motor vehicle are pursued by the Servicer, when practicable and legally
permitted. Collection officers generally continue to contact the Obligors to
establish repayment schedules or to repossess until a final resolution is
achieved.
THE RECEIVABLES POOLS
The Receivables to be held by each Trust will be selected from the Seller's
portfolio of Motor Vehicle Loans for inclusion in a Receivables Pool by several
criteria, including that, unless otherwise provided in the related Prospectus
Supplement, each Receivable (i) is secured by a new or used vehicle, (ii) was
originated in the United States, (iii) provides for level monthly payments which
fully amortize the amount financed (except for the last payment, which may be
different from the level payments), (iv) is an Actuarial Receivable or a Simple
Interest Receivable and (v) satisfies the other criteria, if any, set forth in
the related Prospectus Supplement. No selection procedures believed by the
Depositor to be adverse to the Securityholders of any Series were or will be
used in selecting the related Receivables.
"Actuarial Receivables" are receivables that provide for the amortization
of the amount financed over a series of fixed, level monthly installments. Each
monthly installment, including the monthly installment representing the final
payment on the Receivable, consists of an amount of interest equal to 1/12 of
the Annual Percentage Rate (the "APR") of the amount financed multiplied by the
unpaid principal balance of the amount financed, and an amount of principal
equal to the remainder of the monthly payment.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed over a series of fixed level monthly
payments. However, unlike the monthly payment under a Actuarial Receivable, 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 received. As payments
are received under a Simple Interest Receivable, the amount received is applied
first to interest accrued to 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 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 the prepayment in full (voluntarily or by acceleration) of
an Actuarial Receivable, with minor variations based upon state law, the
Actuarial Receivable requires that a "rebate" will be made to the Obligor of the
portion of the total amount of payments then due and payable under the contract
allocable to "unearned" add-on interest, calculated on the basis of a constant
interest rate. If a Simple Interest Receivable is prepaid, rather than receive a
rebate, the Obligor is required to pay interest only to the date of prepayment.
The amount of a rebate on an Actuarial Receivable generally will be less than
the remaining scheduled payments of interest that would have been due under a
Simple Interest Receivable for which all payments were made on schedule.
The Servicer may accede to an Obligor's request to pay scheduled payments
in advance, in which event the Obligor will not be required to make another
regularly scheduled payment until the time a scheduled payment not paid in
advance is due. The amount of any payment (which are not amounts representing
Payaheads) made in advance will be treated as a principal prepayment and will be
distributed as part of the Principal Distribution Amount in the month following
the Collection Period in which the prepayment was made. See "Maturity and
Prepayment Assumptions."
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, the composition, the distribution by
APR and by the states of origination, the portion of such Receivables Pool
consisting of Actuarial Receivables and of Simple Interest Receivables and the
portion of such Receivables Pool secured by new vehicles and by used vehicles.
MATURITY AND PREPAYMENT ASSUMPTIONS
GENERAL
The weighted average life of the Notes, if any, and the Certificates of any
Series will generally be influenced by the rate at which the principal balances
of the related Receivables are paid, which payment may be in the form of
scheduled amortization or prepayments. All of the Receivables are prepayable at
any time without penalty to the Obligor. For this purpose, the term
"prepayments" includes prepayments by Obligors in full or in part, certain
partial prepayments related to liquidations due to default, including rebates of
extended warranty contract costs and insurance premiums, as well as proceeds
received from physical damage, credit life, theft and disability insurance
policies and certain other Receivables, purchased or repurchased pursuant to the
terms of a Sale and Servicing Agreement or Pooling and Servicing Agreement, as
the case may be. The rate of prepayments on the related Receivables may be
influenced by a variety of economic, social and other factors, including changes
in interest rates and the fact that an Obligor generally may not sell or
transfer the Financed Vehicle securing a Receivable without the consent of the
secured party, which generally results in repayment of the remaining principal
balance of the related Receivable. In addition, under certain circumstances, the
Seller will be obligated to repurchase Receivables from a given Trust pursuant
to the related Sale and Servicing Agreement or Pooling and Servicing Agreement
as a result of breaches of representations and warranties and the Servicer will
be obligated to purchase Receivables from such Trust pursuant to such Sale and
Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of certain covenants. See "Description of the Transfer and Servicing Agreements
Sale and Assignment of Receivables" and " Servicing Procedures." See also
"Description of the Transfer and Servicing Agreements Termination" regarding the
Servicer's option to purchase the Receivables from a given Trust or regarding
the Auction Sale of the Receivables by the Applicable Trustee if so specified in
the related Prospectus Supplement if satisfactory bids for the purchase of
Receivables are received.
There can be no assurance as to the amount of principal payments to be made
on the Notes, if any, or the Certificates of a given Series on each Payment Date
or Distribution Date, as applicable, since such amount will depend, in part, on
the amount of principal collected on the related Receivables Pool during the
applicable Collection Period. Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables will be borne entirely by the
Noteholders, if any, and the Certificateholders of a given Series. In addition,
the extent to which the yield to maturity of a class of Securities may vary from
the anticipated yield may depend upon the degree to which it is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of the Receivables.
Further, an investor should consider the risk that, in the case of any class of
Securities purchased at a discount, a slower than anticipated rate of principal
payments (including prepayments) on the Receivables could result in an actual
yield to such investor that is lower than the anticipated yield and, in the case
of a class of Securities purchased at a premium, a faster than anticipated rate
of principal payments on the Receivables could result in an actual yield to such
investor that is lower than the anticipated yield. See "Risk Factors--The
Investment Return on the Securities is Uncertain."
PAID-AHEAD RECEIVABLES
If an Obligor on a Simple Interest Receivable pays more than one scheduled
payment at a time, the entire amount of the additional payment will be treated
as a principal prepayment and distributed as part of the principal collections
in the month following the month of receipt. The Bank does not generally require
the Obligor on a Simple Interest Receivable to make any scheduled payment in
respect of such Receivable (a "Paid-Ahead Receivable") for the number of due
dates corresponding to the number of such additional scheduled payments (the
"Paid-Ahead Period"). Although the terms of the retail installment contract
require the Obligor on a Simple Interest Receivable to make its next scheduled
payment, the Obligor's Receivable is not considered delinquent for purposes of
the related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
the case may be, during the Paid-Ahead Period and, interest will continue to
accrue on the principal balance of the Receivable, as reduced by the application
of the early payment. When the Obligor on a Simple Interest Receivable pays the
next required payment, although such payment may be insufficient to cover the
interest that has accrued since the last payment by the Obligor on a Simple
Interest Receivable, the Obligor's Receivable would be considered to be current.
This situation will continue until the installments are once again sufficient to
cover all accrued interest and to reduce the principal balance of the Simple
Interest Receivable. Depending on the principal balance and the APR of the
related Simple Interest Receivable and on the number of installments that were
paid early, there may be extended periods of time during which Simple Interest
Receivables that are current are not amortizing. During such periods, no
distributions in respect of principal will be made to the Securityholders with
respect to such Receivables.
Paid-Ahead Receivables will affect the weighted average life of the Notes
and Certificates of any Series. The distribution of the paid-ahead amount on the
Distribution Date following the Collection Period in which such amount was
received will generally shorten the weighted average life of the Notes and
Certificates of any Series. However, depending on the length of time during
which a Paid-Ahead Receivable is not amortizing as described above, the weighted
average life of such Notes and Certificates may be extended.
The Bank's' portfolio of Motor Vehicle Loans has historically included
contracts which have been paid-ahead by one or more scheduled monthly payments.
There can be no assurance as to the number of Receivables which may become
Paid-Ahead Receivables or the number or the principal amount of the scheduled
payments which may be paid-ahead.
The related Prospectus Supplement may set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to the particular Receivables Pool and the related series of
Securities.
BALLOON LOANS
[Under certain of the Balloon Loans, the Obligor may be able to return the
related Financed Vehicle to the Bank in satisfaction of the Balloon Loan,
subject to certain charges. The ability of Obligors to make Balloon Payments, if
any, will normally depend on the Obligor's ability to obtain refinancing of
their Balloon Loans. The ability to obtain refinancing will depend on a number
of factors prevailing at the time refinancing is required, including, without
limitation, the value of the related motor vehicle, the Obligor's financial
situation, prevailing automobile loan interest rates and general economic
conditions. The Bank sometimes provides refinancing of Balloon Loans and in
certain limited circumstances must at the option of the Obligor refinance the
related Receivable]. Delinquencies, if any, in the payment of Balloon Payments
may delay the date on which the principal balance of the Notes and the
Certificate Balance is reduced to zero, and may increase the weighted average
lives of such Notes and Certificates. Although a low interest rate environment
may facilitate the refinancing of a Balloon Loan, the receipt and reinvestment
by Securityholders of the proceeds in such an environment may produce a lower
return than that previously received in respect of the related Balloon Loan.
Conversely, a high interest environment may make it more difficult for the
Obligor to accomplish a refinancing and may result in delinquencies or defaults.
See "Risk Factors--Balloon Loans Create Additional Risks."
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal balance of
such class of Notes, as of the applicable Payment Date (after giving effect to
payments to be made on such Payment Date), as a fraction of the initial
outstanding principal balance of such class of Notes. The "Certificate Pool
Factor" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be. A Noteholder's portion of
the aggregate outstanding principal balance of the related class of Notes is the
product of (i) the original denomination of such Noteholder's Note and (ii) the
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates is the
product of (a) the original denomination of such Certificateholder's Certificate
and (b) the applicable Certificate Pool Factor.
Unless otherwise provided in the related Prospectus Supplement with respect
to each Trust, the Noteholders, if any, and the Certificateholders will receive
monthly reports pursuant to the Indenture, the Trust Agreement or the Pooling
and Servicing Agreement, as the case may be, concerning payments received on the
Receivables, the Pool Balance (as such term is defined in the related Prospectus
Supplement, the "Pool Balance"), each Certificate Pool Factor or Note Pool
Factor, as applicable, and various other items of information. In addition,
Securityholders of record during any calendar year will be furnished information
for tax reporting purposes not later than the latest date permitted by law. See
"Certain Information Regarding the Securities-Reports to Securityholders.
USE OF PROCEEDS
The net proceeds from the sale of the Securities of a given Series will be
applied by the Depositor to the purchase of the Receivables and other Trust
property from the Seller, to make the Reserve Account Initial Deposit, if any,
and to make the deposit of the Pre-Funded Amount into the Pre-Funding Account,
if any.
THE DEPOSITOR
The Depositor is a wholly-owned subsidiary of Mellon Bank, N.A. The
Depositor was incorporated in the State of Delaware in September 1998. The
principal executive offices of the Depositor are located at One Mellon Bank
Center, Fourth Floor, Pittsburgh, Pennsylvania, and its telephone number is
(412) 234-7142.
The Depositor is a separate, limited purpose subsidiary the certificate of
incorporation of which contains certain limitations (including restrictions on
the nature of the Depositor's business and a restriction on the Depositor's
ability to commence a voluntary case or proceeding under any Insolvency Law
without the prior unanimous affirmative vote of all of its directors).
The Indenture Trustee, the Trustee, all Noteholders and all
Certificateholders of each Trust will covenant that they will not at any time
institute against the Depositor any bankruptcy, reorganization or other
proceeding under any Federal or state bankruptcy or similar law.
THE SERVICER
Mellon Bank, N.A. , is engaged in, among other things, the business of
leasing new and used automobiles (including passenger cars, minivans,
sport/utility vehicles and light trucks) to individuals and businesses,
servicing such leases during their term and remarketing the automobiles upon the
expiration of the leases. Mellon Bank, N.A. services motor vehicle retail
installment sales contracts secured by new and used motor vehicles originated as
described in the related Prospectus Supplement. The Servicer's servicing
operations are located at Two Mellon Bank Center, Eighth Floor, Pittsburgh,
Pennsylvania, and its telephone number is (412) 236-2271.
As of June 30, 1998, the Servicer serviced approximately 22,600 retail
installments sale contracts, consisting primarily of new and used automobile
(including passenger car, minivan, sport/utility vehicle and light truck)
receivables, representing an outstanding balance of approximately $226 million.
As of June 30, 1998, the Servicer serviced approximately 60 automobile leases
equaling approximately $12.2 million of automobile lease receivables.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of Notes
of the related Series will be issued pursuant to the terms of an Indenture, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following summary describes the material
terms of the Notes and the Indenture but does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the related
Prospectus Supplement all the provisions of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, the Notes
will initially be represented by one or more Notes, in each case registered in
the name of the nominee of DTC, except as set forth below. Unless otherwise
specified in the related Prospectus Supplement, persons acquiring beneficial
ownership interests in the Notes will hold their interests in the Notes through
DTC in the United States and Cedel Bank, societe anonyme ("Cedel") and the
Euroclear System ("Euroclear") in Europe. See "Certain Information Regarding the
Securities" and "Annex I" hereto. Unless the related Prospectus Supplement
specifies that the Notes are offered in definitive form, the Notes will be
available for purchase in denominations of $25,000 and integral multiples of
$1,000 in excess thereof in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Notes of each class. Unless and until
Definitive Notes are issued under the limited circumstances described herein or
in the related Prospectus Supplement, no Noteholder will be entitled to receive
a physical certificate representing a Note. All references herein and in the
related Prospectus Supplement to actions by Noteholders refer to actions taken
by DTC upon instructions from its participating organizations (the
"Participants") and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to Noteholders
refer to distributions, notices, reports and statements to DTC or its nominee,
as the registered holder of the Notes, for distribution to Noteholders in
accordance with DTC's procedures with respect thereto. See "Certain Information
Regarding the Securities Book-Entry Registration" and " Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given Series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such Series, as
described in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, payments of interest on the Notes of such Series
will be made prior to payments of principal thereon. To the extent provided in
the related Prospectus Supplement, a Series may include one or more classes of
Strip Notes entitled to (i) principal payments with disproportionate, nominal or
no interest payments or (ii) interest payments with disproportionate, nominal or
no principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a given Series or the method for determining such Interest Rate. See
also "Certain Information Regarding the Securities-Fixed Rate Securities" and
"-Floating Rate Securities." One or more classes of Notes of a Series may be
redeemable in whole or in part under the circumstances specified in the related
Prospectus Supplement, including at the end of the Funding Period (if any) or as
a result of the Servicer's exercising its option to purchase the related
Receivables Pool.
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given Series may have fixed principal payment schedules, as set
forth in such Prospectus Supplement; Noteholders of such Notes would be entitled
to receive as payments of principal on any given Payment Date the applicable
amounts set forth on such schedule with respect to such Notes, in the manner and
to the extent set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments
to Noteholders of all classes within a Series in respect of interest will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "Payment Date," which may be the same date as each Distribution Date as
specified in the related Prospectus Supplement), in which case each class of
Noteholders will receive its ratable share (based upon the aggregate amount of
interest due to such class of Noteholders) of the aggregate amount available to
be distributed in respect of interest on the Notes of such Series. See
"Description of the Transfer and Servicing Agreements Distributions" and "
Credit and Cash Flow Enhancement."
With respect to a Series that includes two or more classes of Notes, each
class may differ as to the timing and priority of payments, seniority,
allocations of losses, Interest Rate or amount of payments of principal or
interest, or payments of principal or interest in respect of any such class or
classes may or may not be made upon the occurrence of specified events relating
to the performance of the Receivables (including loss, delinquency and
prepayment experience), the related subordination and/or the lapse of time or on
the basis of collections from designated portions of the related Receivables
Pool. Generally, the related Rating Agencies, the credit enhancer, if any, and
the prevailing market conditions at the time of issuance of the Notes of a
Series dictate the applicable specified events with respect to such Series.
Payments in respect of principal and interest of any class of Notes will be made
on a pro rata basis among all the Noteholders of such class.
THE INDENTURE
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the Notes
of a given Series, unless otherwise specified in the related Prospectus
Supplement, "Events of Default" under the related Indenture will consist of: (i)
a default for five days or more in the payment of any interest on any such Note
when the same becomes due and payable; (ii) a default in the payment of the
principal of or any installment of the principal of any such Note when the same
becomes due and payable; (iii) a default in the observance or performance of any
covenant or agreement of the applicable Trust made in the related Indenture and
the continuation of any such default for a period of 30 days after notice
thereof is given to such Trust by the applicable Indenture Trustee or to such
Trust and such Indenture Trustee by the holders of at least 25% in aggregate
principal amount of such Notes then outstanding; (iv) any representation or
warranty made by such Trust in the related Indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in a
material respect as of the time made, and such breach not having been cured
within 30 days after notice thereof is given to such Trust by the applicable
Indenture Trustee or to such Trust and such Indenture Trustee by the holders of
at least 25% in principal amount of such Notes then outstanding; or (v) certain
events of bankruptcy, insolvency, receivership or liquidation of the applicable
Trust. However, the amount of principal required to be paid to Noteholders of
such Series under the related Indenture will generally be limited to amounts
available to be deposited from the applicable Collection Account (including
amounts deposited therein from the Reserve Account, if any) in the applicable
Note Distribution Account. Therefore, unless otherwise specified in the related
Prospectus Supplement, the failure to pay principal on a class of Notes
generally will not result in the occurrence of an Event of Default until the
final scheduled Payment Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any Series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Unless otherwise specified in the
related Prospectus Supplement, such declaration may, under certain
circumstances, be rescinded by the holders of a majority in principal amount of
such Notes then outstanding.
If the Notes of any Series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may, in its
discretion, either require the applicable Trust to sell the related Receivables
or elect to have the applicable Trust maintain possession of such Receivables
and continue to apply collections on such Receivables as if there had been no
declaration of acceleration. Unless otherwise specified in the related
Prospectus Supplement, however, such Indenture Trustee is prohibited from
directing the Trust to sell the related Receivables following an Event of
Default, other than a default in the payment of any principal or a default for
five days or more in the payment of any interest on any Note of such Series,
unless (i) the holders of all such outstanding Notes consent to such sale, (ii)
the proceeds of such sale are sufficient to pay in full the principal of and the
accrued interest on such outstanding Notes at the date of such sale or (iii)
such Indenture Trustee determines that the collections on Receivables would not
be sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such obligations had not been declared due and
payable, and such Indenture Trustee obtains the consent of the holders of 66
2/3% of the aggregate outstanding amount of such Notes then outstanding. In the
event the Notes are accelerated and the Receivables are sold, no distributions
will be made on the Certificates until all of the interest on and principal of
the Notes has been paid in full. In such event, all the funds, if any, on
deposit in the applicable Reserve Account, if any, will be available to first
pay interest on and principal of the Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes, if such
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to such provisions for indemnification and
certain limitations contained in the related Indenture, the holders of a
majority in aggregate principal amount of the outstanding Notes of a given
Series will have the right to direct the time, method and place of conducting
any proceeding or any remedy available to the applicable Indenture Trustee, and
the holders of a majority in aggregate principal amount of such Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect
of a covenant or provision of such Indenture that cannot be modified without the
waiver or consent of all the holders of such outstanding Notes.
No holder of a Note of any Series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in aggregate
principal amount of the outstanding Notes of such Series have made written
request to such Indenture Trustee to institute such aggregate proceeding in its
own name as Indenture Trustee, (iii) such holder or holders have offered such
Indenture Trustee reasonable indemnity, (iv) such Indenture Trustee has for 60
days after its receipt of such written request failed to institute such
proceeding and (v) no direction inconsistent with such written request has been
given to such Indenture Trustee during such 60-day period by the holders of a
majority in principal amount of such outstanding Notes. Notwithstanding the
foregoing, the holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the respective due dates thereof and to institute suit for
the enforcement of any such payment, and such right shall not be impaired
without the consent of such holder.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the Depositor or the applicable Trust any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor the Seller, the Depositor
nor the Servicer nor any of their respective owners, beneficiaries, agents,
officers, directors, employees, affiliates, successors or assigns will, in the
absence of an express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the related Notes or for the
agreements of such Trust contained in the applicable Indenture.
CERTAIN COVENANTS. Each Indenture will provide that the related Trust may
not consolidate or merge with or into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments on
the Notes of the related Series and the performance or observance of every
agreement and covenant of such Trust under the related Indenture, (iii) no Event
of Default shall have occurred and is continuing immediately after such
transaction, (iv) neither of the Rating Agencies, after 10 days' prior notice,
shall have notified the Depositor, the Seller, the Servicer or such Trust in
writing that such transaction will result in a reduction of withdrawal of the
then current ratings of any class of Notes of such Series, (v) such Trust has
received an opinion of counsel to the effect that such transaction would have no
material adverse federal or state tax consequence to such Trust or to any
Certificateholder or Noteholder, (vi) any action necessary to maintain the lien
and security interest created by the related Indenture has been taken and (vii)
that such Trust has delivered to the related Indenture Trustee an officers'
certificate of such Trust and an opinion of counsel each stating that such
transaction and the supplemental indenture executed in connection with such
transaction comply with such Indenture and that all conditions precedent
relating to the transaction have been complied with (including any filing
required by the Exchange Act).
A Trust may not convey or transfer all or substantially all its properties
or assets to any other entity, unless (i) the entity that acquires the assets of
such Trust (A) agrees that all right, title and interest conveyed or transferred
shall be subject and subordinate to the rights of the related Noteholders, (B)
unless otherwise agreed, expressly agrees to indemnify, defend and hold harmless
such Trust against and from any loss, liability or expense arising under or
related to the applicable Indenture and the Notes of such Series, (C) expressly
agrees to make all filings with the Commission and any other appropriate entity)
required by the Exchange Act in connection with the Notes of such Series and (D)
is organized under the laws of the United States, any state, or the District of
Columbia; and (ii) the criteria specified in clauses (ii) through (vii) of the
preceding paragraph have been complied with.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Trust Agreement, the applicable Sale
and Servicing Agreement or certain related documents with respect to such Trust
(collectively, the "Related Documents"), sell, transfer, exchange or otherwise
dispose of any of the assets of such Trust, (ii) claim any credit on or make any
deduction from the principal and interest payable in respect of the Notes of the
related Series (other than amounts withheld under the Code or applicable state
law) or assert any claim against any present or former holder of such Notes
because of the payment of taxes levied or assessed upon the collateral for such
Notes, (iii) except as contemplated in the Related Documents, dissolve or
liquidate in whole or in part, (iv) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from any
covenants or obligations with respect to such Notes under such Indenture except
as may be expressly permitted thereby, (v) permit any lien, charge, excise,
claim, security interest, mortgage or other encumbrance to be created on or
extend to or otherwise arise upon or burden the collateral for such Notes, or
any part thereof, or any interest therein or the proceeds thereof, except as
expressly permitted by the Related Documents or (vi) permit the lien of the
applicable Indenture not to constitute a valid first priority security interest
in the collateral for the related Receivables.
No Trust may engage in any activity other than financing, purchasing,
owning, selling and managing the related Receivables, in each case as
contemplated by the Related Documents and activities incidental thereto. No
Trust will incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the related Notes and the related Indenture, pursuant to
any Advances made to it by the Servicer or otherwise in accordance with the
Related Documents.
ANNUAL COMPLIANCE STATEMENT. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to, among other things, its eligibility and qualification to continue
as Indenture Trustee under the related Indenture, any amounts advanced by it
under the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by such Trust to the applicable Indenture Trustee in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the related
Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
MODIFICATION OF INDENTURE. With respect to each Trust that has issued Notes
pursuant to an Indenture, the Trust and the Indenture Trustee may, with the
consent of the holders of a majority of the outstanding Notes of the related
Series, execute a supplemental indenture to add provisions to, change in any
manner or eliminate any provisions of, the related Indenture, or modify (except
as provided below) in any manner the rights of the related Noteholders.
Unless otherwise specified in the related Prospectus Supplement with
respect to a Series of Notes, without the consent of the holder of each such
outstanding Note affected thereby, however, no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any such
Note or reduce the principal amount thereof, the interest rate specified thereon
or the redemption price with respect thereto, change the provisions of the
related Indenture relating to the application of collections on or the proceeds
of the sale of, the collateral for the Notes to payment of principal of or
interest on the Notes of such Series or change any place of payment where or the
coin or currency in which any such Note or any interest thereon is payable; (ii)
impair the right to institute suit for the enforcement of certain provisions of
the related Indenture regarding payment; (iii) reduce the percentage of the
aggregate principal amount of the outstanding Notes of such Series, the consent
of the holders of which is required for any such supplemental indenture or the
consent of the holders of which is required for any waiver of compliance with
certain provisions of the related Indenture or of certain defaults thereunder
and their consequences as provided for in such Indenture; (iv) modify or alter
the provisions of the related Indenture regarding the voting of Notes held by
the applicable Trust, the Depositor or an affiliate of any of them or any
obligor on such Notes; (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related Indenture Trustee to sell or liquidate the Receivables if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such Series; (vi)
decrease the percentage of the aggregate principal amount of such Notes required
to amend the sections of the related Indenture which specify the applicable
percentage of aggregate principal amount of the Notes of such Series necessary
to amend such Indenture or certain other related agreements; (vii) modify any of
the provisions of the related Indenture in such manner as to affect the
calculation of the amount of any payment of interest on any Distribution Date or
principal due on any Note of such Series on any Distribution Date (including the
calculation of any of the individual components of such calculation) or to
affect the rights of the related Noteholders to the benefit of any provision for
the mandatory redemption of the Notes of such Series contained in the related
Indenture; or (viii) permit the creation of any lien ranking prior to or on a
parity with the lien of the related Indenture with respect to any of the
collateral for such Notes or, except as otherwise permitted or contemplated in
such Indenture, terminate the lien of such Indenture on any such collateral or
deprive the holder of any such Note of the security afforded by the lien of such
Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, the
Trust and the applicable Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
Series, for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; so long
as such action will not, in the opinion of counsel satisfactory to the
applicable Indenture Trustee adversely affect in any material respect the
interest of any such Noteholder.
TRUST INDENTURE ACT. The related Indenture will comply with the applicable
provisions of the Trust Indenture Act of 1939, as amended.
THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the applicable Trust will be obligated to appoint a
successor trustee for such Series. The applicable Trust may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue as
such under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances, the applicable Trust will be obligated to appoint a
successor trustee for the related Series of Notes. Any resignation or removal of
the Indenture Trustee and appointment of a successor trustee for any Series of
Notes does not become effective until acceptance of the appointment by the
successor trustee for such Series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related Series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary describes the material terms of each Trust Agreement and
Pooling and Servicing Agreement but does not purport to be complete and is
subject to, and is qualified in its entirety by reference to the related
Prospectus Supplement and all the provisions of the Certificates and the Trust
Agreement or Pooling and Servicing Agreement, as applicable.
Unless otherwise specified in the related Prospectus Supplement, each class
of Certificates will initially be represented by one or more Certificates
registered in the name of the Depository, except as set forth below. Unless the
related Prospectus Supplement specifies that Certificates are offered in
definitive form, the Certificates will be available for purchase in minimum
denominations of $25,000 and integral multiples of $1,000 in excess thereof in
book-entry form only (other than the Certificates sold to the Depositor, as
described in the related Prospectus Supplement). The Depositor has been informed
by DTC that DTC's nominee will be Cede, unless another nominee is specified in
the related Prospectus Supplement. Accordingly, such nominee is expected to be
the holder of record of the Certificates of any Series. Unless and until
Definitive Certificates are issued under the limited circumstances described
herein or in the related Prospectus Supplement, no Certificateholder will be
entitled to receive a physical certificate representing a Certificate. All
references herein and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from the
Participants and all references herein and in the related Prospectus Supplement
to distributions, notices, reports and statements to Certificateholders refer to
distributions, notices, reports and statements to DTC or its nominee, as the
case may be, as the registered holder of the Certificates, for distribution to
Certificateholders in accordance with DTC's procedures with respect thereto. See
"Certain Information Regarding the Securities Book-Entry Registration" and "
Definitive Securities."
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest of each class of Certificates will be
described in the related Prospectus Supplement. Distributions of interest on
such Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and will be made prior to distributions
with respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a Series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-Through Rate (and which may be
zero for certain classes of Strip Certificates) or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass-Through Rate
for each class of Certificates of a given Series or the method for determining
such Pass-Through Rate. See also "Certain Information Regarding the
Securities-Fixed Rate Securities" and "-Floating Rate Securities." Distributions
in respect of the Certificates of a given Series that includes Notes may be
subordinate to payments in respect of the Notes of such Series as more fully
described in the related Prospectus Supplement. Distributions in respect of
interest on and principal of any class of Certificates will be made on a pro
rata basis among all the Certificateholders of such class.
With respect to a Series that includes two or more classes of Certificates,
each class may differ as to timing and priority of distributions, seniority,
allocations of losses, Pass-Through Rate or amount of distributions in respect
of principal or interest, or distributions in respect of principal or interest
in respect of any such class or classes may or may not be made upon the
occurrence of specified events relating to the performance of the Receivables
(including loss, delinquency and prepayment experience), the related
subordination and/or the lapse of time or on the basis of collections from
designated portions of the related Receivables Pool. Generally the related
Rating Agencies, the credit enhancer, if any, and the prevailing market
conditions at the time of issuance of the Certificates of a Series dictate the
applicable specified events with respect to such Series.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass-Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. Unless otherwise set forth in
the applicable Prospectus Supplement, interest on each class of Fixed Rate
Securities will be computed on the basis of a 360-day year of twelve 30-day
months. See "Description of the Notes-Principal and Interest on the Notes" and
"Description of the Certificates -Distributions of Principal and Interest."
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) LIBOR (a "LIBOR
Security"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate Security"),
(iii) the Treasury Rate (a "Treasury Rate Security"), (iv) the Federal Funds
Rate (a "Federal Funds Rate Security"), (v) the CD Rate (a "CD Rate Security")
or (vi) such other Base Rate as is set forth in such Prospectus Supplement. The
"Index Maturity" for any class of Floating Rate Securities is the period of
maturity of the instrument or obligation from which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System. "Composite Quotations" means the
daily statistical release entitled "Composite 3:30 p.m. Quotations for U.S.
Government Securities" published by the Federal Reserve Bank of New York.
"Interest Reset Date" will be the first day of the applicable Interest Reset
Period, or such other day as may be specified in the related Prospectus
Supplement with respect to a class of Floating Rate Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given Series, which may be either the
related Trustee or Indenture Trustee with respect to such Series. All
determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Securities of a given class. Unless otherwise specified in the
applicable Prospectus Supplement, all percentages resulting from any calculation
of the rate of interest on a Floating Rate Security will be rounded, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward.
CD RATE SECURITIES. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
The "CD Rate" for each Interest Reset Period generally will be the rate as
of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "CD Rate Determination Date") for negotiable certificates of
deposit having the Index Maturity designated in the applicable Prospectus
Supplement as published in H.I5 (519) under the heading "Cds (Secondary
Market)." In the event that such rate is not published prior to 3:00 p.m., New
York City time, on the Calculation Date (as defined below) pertaining to such CD
Rate Determination Date, then the "CD Rate" for such Interest Reset Period will
be the rate on such CD Rate Determination Date for negotiable certificates of
deposit of the Index Maturity designated in the applicable Prospectus Supplement
as published in Composite Quotations under the heading "Certificates of
Deposit." If by 3:00 p.m., New York City time, on such Calculation Date such
rate is not yet published in either H.I5 (519) or Composite Quotations, then the
"CD Rate" for such Interest Reset Period will be calculated by the Calculation
Agent for such CD Rate Security and will be the arithmetic mean of the secondary
market offered rates as of 10:00 a.m., New York City time, on such CD Rate
Determination Date, of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York selected by the Calculation
Agent for such CD Rate Security for negotiable certificates of deposit of major
United States money center banks of the highest credit standing (in the market
for negotiable certificates of deposit) with a remaining maturity closest to the
Index Maturity designated in the related Prospectus Supplement in a denomination
of $5,000,000; provided, however, that if the dealers selected as aforesaid by
such Calculation Agent are not quoting offered rates as mentioned in this
sentence, the "CD Rate" for such Interest Reset Period will be the same as the
CD Rate for the immediately preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date will be
the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset Date.
COMMERCIAL PAPER RATE SECURITIES. Each Commercial Paper Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Commercial Paper Rate and the Spread or Spread Multiplier,
if any, specified in such Security and in the applicable Prospectus Supplement.
The "Commercial Paper Rate" for each Interest Reset Period generally will
be determined by the Calculation Agent for such Commercial Paper Rate Security
as of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "Commercial Paper Rate Determination Date") and generally will
be the Money Market Yield (as defined below) on such Commercial Paper Rate
Determination Date of the rate for commercial paper having the Index Maturity
specified in the applicable Prospectus Supplement, as such rate shall be
published in H.I5(519) under the heading "Commercial Paper." In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Commercial Paper Rate
Determination Date, then the "Commercial Paper Rate" for such Interest Reset
Period will be the Money Market Yield on such Commercial Paper Rate
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper." If by 3:00 p.m., New York City time, on such Calculation Date such rate
is not yet published in either H.I5 (519) or Composite Quotations then the
"Commercial Paper Rate" for such Interest Reset Period will be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
City time, on such Commercial Paper Rate Determination Date of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent for such Commercial Paper Rate Security for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bonds are rated
"AA" or the equivalent by a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "Commercial Paper
Rate" for such Interest Reset Period will be the same as the Commercial Paper
Rate for the immediately preceding Interest Reset Period.
"Money Market Yield" will be a yield calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
-----------------------
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date will be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period following
the applicable Interest Reset Date.
FEDERAL FUNDS RATE SECURITIES. Each Federal Funds Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Federal Funds Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
The "Federal Funds Rate" for each Interest Reset Period generally will be
the effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.I5(519) under the heading "Federal Funds (Effective)." In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such Federal Funds Rate Determination
Date, the "Federal Funds Rate" for such Interest Reset Period will be the rate
on such Federal Funds Rate Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate." If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published in
either H.I5 (519) or Composite Quotations, then the "Federal Funds Rate" for
such Interest Reset Period will be the rate on such Federal Funds Rate
Determination Date made publicly available by the Federal Reserve Bank of New
York which is equivalent to the rate which appears in H.I5(5l9) under the
heading "Federal Funds (Effective);" provided, however, that if such rate is not
made publicly available by the Federal Reserve Bank of New York by 3:00 p.m.,
New York City time, on such Calculation Date, the "Federal Funds Rate" for such
Interest Reset Period will be the same as the Federal Funds Rate in effect for
the immediately preceding Interest Reset Period. In the case of a Federal Funds
Rate Security that resets daily, the interest rate on such Security for the
period from and including a Monday to but excluding the succeeding Monday will
be reset by the Calculation Agent for such Security on such second Monday (or,
if not a business day, on the next succeeding business day) to a rate equal to
the average of the Federal Funds Rates in effect with respect to each such day
in such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date will be the next succeeding business day.
LIBOR SECURITIES. Each LIBOR Security will bear interest for each Interest
Reset Period at the interest rate calculated with reference to LIBOR and the
Spread or Spread Multiplier, if any, specified in such Security and in the
applicable Prospectus Supplement.
"LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for any LIBOR Security generally as follows:
(i) On the second London Banking Day prior to the Interest Reset Date for
such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Security will determine the
arithmetic mean of the offered rates for deposits in U.S. dollars for
the period of the Index Maturity specified in the applicable
Prospectus Supplement, commencing on such Interest Reset Date, which
appear on the Reuters Screen LIBO Page at approximately 11:00 a.m.,
London time, on such LIBOR Determination Date. For purposes of
calculating LIBOR, "London Banking Day" means any business day on
which dealings in deposits in United States dollars are transacted in
the London interbank market and "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that
service for the purpose of displaying London interbank offered rates
of major banks). If at least two such offered rates appear on the
Reuters Screen LIBO Page, "LIBOR" for such Interest Reset Period will
be the arithmetic mean of such offered rates as determined by the
Calculation Agent for such LIBOR Security.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO Page
on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Security will request the principal London offices of each of four
major banks in the London interbank market selected by such
Calculation Agent to provide such Calculation Agent with its offered
quotations for deposits in U.S. dollars for the period of the
specified Index Maturity, commencing on such Interest Reset Date, to
prime banks in the London interbank market at approximately 11:00
a.m., London time, on such LIBOR Determination Date and in a principal
amount equal to an amount of not less than $1,000,000 that is
representative of a single transaction in such market at such time. If
at least two such quotations are provided, "LIBOR" for such Interest
Reset Period will be the arithmetic mean of such quotations. If fewer
than two such quotations are provided, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of rates quoted by three major
banks in The City of New York selected by the Calculation Agent for
such LIBOR Security at approximately 11:00 a.m., New York City time,
on such LIBOR Determination Date for loans in U.S. dollars to leading
European banks, for the period of the specified Index Maturity,
commencing on such Interest Reset Date, and in a principal amount
equal to an amount of not less than $1,000,000 that is representative
of a single transaction in such market at such time; provided,
however, that if the banks selected as aforesaid by such Calculation
Agent are not quoting rates as mentioned in this sentence, "LIBOR" for
such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period.
TREASURY RATE SECURITIES. Each Treasury Rate Security will bear interest
for each Interest Reset Period at the interest rate calculated with reference to
the Treasury Rate and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
The "Treasury Rate" for each Interest Period generally will be the rate for
the auction held on the Treasury Rate Determination Date (as defined below) for
such Interest Reset Period of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.I5 (519) under the heading
"U.S. Government Securities - Treasury bills - auction average (investment)" or,
in the event that such rate is not published prior to 3:00 p.m., New York City
time, on the Calculation Date (as defined below) pertaining to such Treasury
Rate Determination Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) on such Treasury Rate Determination Date as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills having the specified Index Maturity are
not published or reported as provided above by 3:00 p.m., New York City time, on
such Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, then the "Treasury Rate" for such Interest Reset Period will
be calculated by the Calculation Agent for such Treasury Rate Security and will
be the yield to maturity (expressed as a bond equivalent on the basis of a year
of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of three
leading primary United States government securities dealers selected by such
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting bid rates as
mentioned in this sentence, then the "Treasury Rate" for such Interest Reset
Period will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. If an auction date shall fall on
any day that would otherwise be an Interest Reset Date for a Treasury Rate
Security, then such Interest Reset Date shall instead be the business day
immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
will be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a business day, the next
succeeding business day or (b) the second business day preceding the date any
payment is required to be made for any period following the applicable Interest
Reset Date.
INDEXED SECURITIES
To the extent so specified in any Prospectus Supplement, any class of
Securities of a given Series may consist of Securities ("Indexed Securities") in
which the principal amount payable at the final scheduled Payment Date or
Distribution Date, as the case may be, for such class (the "Indexed Principal
Amount") is determined by reference to a measure (the "Index") which will be
related to (i) the difference in the rate of exchange between United States
dollars and a currency or composite currency (the "Indexed Currency") specified
in the applicable Prospectus Supplement (such Indexed Securities, "Currency
Indexed Securities"); (ii) the difference in the price of a specified commodity
(the "Indexed Commodity") on specified dates (such Indexed Securities,
"Commodity Indexed Securities"); or (iii) the difference in the level of a
specified stock index (the "Stock Index"), which may be based on U.S. or foreign
stocks, on specified dates (such Indexed Securities, "Stock Indexed
Securities"); or (iv) such other objective price or economic measures as are
described in the applicable Prospectus Supplement. The manner of determining the
Indexed Principal Amount of an Indexed Security and historical and other
information concerning the Indexed Currency, the Indexed Commodity, the Stock
Index or other price or economic measures used in such determination will be set
forth in the applicable Prospectus Supplement, together with information
concerning tax consequences to the holders of such Indexed Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then such
Index will be calculated for purposes of such Indexed Security by an independent
calculation agent named in the applicable Prospectus Supplement on the same
basis, and subject to the same conditions and controls, as applied to the
original third party. If for any reason such Index cannot be calculated on the
same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
will be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement as the "Face Amount" of such
Indexed Security. The applicable Prospectus Supplement will describe whether the
principal amount of the related Indexed Security, if any, that would be payable
upon redemption or repayment prior to the applicable final scheduled Payment
Date or Distribution Date, as the case may be, will be the Face Amount of such
Indexed Security, the Indexed Principal Amount of such Indexed Security at the
time of redemption or repayment or another amount described in such Prospectus
Supplement. Investors should carefully evaluate the Index related to each
Indexed Security since the return of principal and the payment of interest on
the related Indexed Securities is based on such Index. One Index might move in a
favorable direction to investors while another could move in the opposite
direction. The related Prospectus Supplement will contain the material risks of
the applicable Index related to each Indexed Security, if any.
BOOK-ENTRY REGISTRATION
The Depositor expects that persons acquiring beneficial ownership interests
in the Securities of each Series will hold their interests through DTC in the
United States or, in the case of any Series of Notes, Cedel or Euroclear in
Europe. Each Class of Securities will be registered in the name of Cede & Co.
("Cede") as nominee for DTC. Cedel and Euroclear will hold omnibus positions
with respect to the Notes and, if the related Prospectus Supplement so provides,
the Certificates on behalf of Cedel Participants and Euroclear Participants,
respectively, through customers' securities accounts in Cedel's and Euroclear's
name on the books of their respective depositories (collectively, the
"Depositories") which in turn will hold such positions in customers' securities
accounts in the Depositories' names on the books of DTC. For additional
information regarding clearance and settlement procedures see "Annex I" hereto.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a 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
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of 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 ("Indirect Participants"). The rules applicable to DTC
and its participants are on file with the Commission.
Securityholders who are not Participants but desire to purchase, sell or
otherwise transfer ownership of Securities may do so only through Participants
(unless and until Definitive Certificates or Definitive Notes, each as defined
below, are issued). In addition, Securityholders will receive all distributions
of principal of, and interest on, the Securities, from the applicable Trustee or
any Indenture Trustee, as applicable (the "Applicable Trustee"), through DTC and
Participants. Securityholders will not receive or be entitled to receive
certificates representing their respective interests in the Securities, except
under the limited circumstances described below and such other circumstances, if
any, as may be specified in the related Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede (other than the related Company, as described in the
related Prospectus Supplement) as nominee of DTC. Securityholders will not be
recognized by the Applicable Trustee as Certificateholders or as Noteholders, as
the case may be, as those terms are used in the Related Documents.
Securityholders will be permitted to exercise the rights of Certificateholders
or Noteholders, as the case may be, only indirectly through Participants and
DTC.
With respect to any Series of Securities issued in book-entry form, while
such Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants with whom Securityholders have accounts with
respect to Securities are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Securityholders. Accordingly, although Securityholders will not possess
Securities, the Rules provide a mechanism by which Securityholders will receive
distributions and will be able to transfer their interests.
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date, and any such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of Notes and, if the related Prospectus
Supplement so provides, Certificates by or through a Cedel Participant or
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Cross-market transfers between persons directly holding Notes and, if the
related Prospectus Supplement so provides, Certificates 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 Depository; 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 deadline (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depository 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 to the Depositories.
With respect to any Series of Securities, Certificates and Notes (if any)
will be issued in registered form to Securityholders, or their nominees, rather
than to DTC (such Certificates and Notes being referred to herein as "Definitive
Certificates" and "Definitive Notes," respectively), only if (i) the Depositor
advises the applicable Trustee or Indenture Trustee, as the case may be, in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as nominee and depository with respect to the Certificates or
the Notes and the Depositor is unable to locate a qualified successor, (ii) the
Depositor at its sole option has advised any Trustee or the applicable Indenture
Trustee, as the case may be, in writing that it elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default, the holders representing a majority of the Certificate Balance (a
"Certificate Majority") or a Note Majority advises any Trustee or the applicable
Indenture Trustee, as the case may be, through DTC that continuation of a
book-entry system is no longer in their best interests. Upon issuance of
Definitive Certificates or Definitive Notes to Securityholders, such
Certificates or Notes will be transferable directly (and not exclusively on a
book-entry basis) and registered holders will deal directly with any Trustee or
the applicable Indenture Trustee, as the case may be, with respect to transfers,
notices and distributions.
DTC has advised the Depositor that, unless and until Definitive
Certificates or Definitive Notes are issued, DTC will take any action permitted
to be taken by a Certificateholder or a Noteholder under the related Trust
Documents or Indenture only at the direction of one or more Participants to
whose DTC accounts the Certificates or Notes are credited. DTC has advised the
Depositor that DTC will take such action with respect to any fractional interest
of the Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
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 its participants
("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 be settled in any of 32 currencies, including United
States dollars. Euroclear 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. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York the "Euroclear Operator"), under contract
with Euroclear Clearance Systems, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear 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 Euroclear, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Notes and, if the related Prospectus
Supplement so provides, Certificates held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes and, if the related Prospectus
Supplement so provides, Certificates under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Notes and, if the related
Prospectus Supplement so provides, the Certificates among Direct Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
NEITHER THE TRUST, THE SELLER, THE DEPOSITOR, THE SERVICER, THE APPLICABLE
TRUSTEE, ANY INDENTURE TRUSTEE, NOR ANY OF THE UNDERWRITERS WILL HAVE ANY
RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS, CEDEL PARTICIPANTS OR
EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT
TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, CEDEL, EUROCLEAR OR ANY
PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL, EUROCLEAR OR ANY PARTICIPANT OF ANY
AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL BALANCE OF, OR
INTEREST ON, THE NOTES AND, IF THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES,
THE CERTIFICATES, (3) THE DELIVERY BY ANY PARTICIPANT, CEDEL PARTICIPANT OR
EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR
PERMITTED UNDER THE TERMS OF THE AGREEMENT TO BE GIVEN TO NOTEHOLDERS AND, IF
THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES, CERTIFICATEHOLDERS OR (4) ANY
OTHER ACTION TAKEN BY DTC OR ITS NOMINEE AS THE NOTEHOLDER AND, IF THE RELATED
PROSPECTUS SUPPLEMENT SO PROVIDES, THE CERTIFICATEHOLDER.
DEFINITIVE SECURITIES
The Notes, if any, and the Certificates of a given Series will be issued in
fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates," respectively, and collectively referred to herein as "Definitive
Securities") to Noteholders or Certificateholders or their respective nominees,
rather than to DTC or its nominee, only if (i) the Servicer advises the
Applicable Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
the Servicer is unable to locate a qualified successor, (ii) the Servicer, at
its option, elects to terminate the book-entry system through DTC or (iii) after
the occurrence of an Event of Default or a Servicer Default with respect to such
Securities, holders representing at least a majority of the outstanding
principal amount of the Notes or the Certificates, as the case may be, of such
Series advise the Applicable Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) with
respect to such Notes or Certificates is no longer in the best interest of the
holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given Series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive certificates
representing the corresponding Securities and receipt of instructions for
re-registration, the Trust will reissue such Securities as Definitive Securities
to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the Applicable Trustee. The final payment on any such Definitive
Security, however, will be made only upon presentation and surrender of such
Definitive Security at the office or agency specified in the notice of final
distribution to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
LIST OF SECURITYHOLDERS
Three or more holders of the Notes of such Series or one or more holders of
such Notes evidencing not less than 25% of the aggregate outstanding principal
balance of such Notes may, by written request to the related Indenture Trustee,
obtain access to the list of all Noteholders maintained by such Indenture
Trustee for the purpose of communicating with other Noteholders with respect to
their rights under the related Indenture or under such Notes.
Three or more holders of the Certificates of such Series or one or more
holders of such Certificates evidencing not less than 25% of the Certificate
Balance of such Certificates may, by written request to the related Trustee,
obtain access to the list of all Certificateholders maintained by such Trustee
for the purpose of communicating with other Certificateholders with respect to
their rights under the related Trust Agreement or Pooling and Servicing
Agreement or under such Certificates.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities that includes Notes, on or prior
to each Payment Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on such
Payment Date. With respect to each Series of Securities, on or prior to each
Distribution Date, the Servicer will prepare and provide to the related Trustee
a statement to be delivered to the related Certificateholders. With respect to
each Series of Securities, each such statement to be delivered to the Indenture
Trustee and Noteholders will include (to the extent applicable) the following
information (and any other information so specified in the related Prospectus
Supplement) as to the Notes of such Series with respect to such Payment Date or
the period since the previous Payment Date, as applicable, and each such
statement to be delivered to the Trustee and Certificateholders will include (to
the extent applicable) the following information (and any other information so
specified in the related Prospectus Supplement) as to the Certificates of such
Series with respect to such Distribution Date or the period since the previous
Distribution Date, as applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class
of such Certificates;
(ii) the amount of the distribution allocable to interest on or with
respect to each class of Securities of such Series;
(iii) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(iv) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance
and the Certificate Pool Factor for each class of such
Certificates, each after giving effect to all payments reported
under clause (i) above on such date;
(v) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period or Collection Periods, as the
case may be;
(vi) the Interest Rate or Pass-Through Rate for the next period for
any class of Notes or Certificates of such Series with variable
or adjustable rates;
(vii) the amount of the aggregate realized losses, net of Recoveries,
if any, for such Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest
Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall (each as defined in the related Prospectus
Supplement under "Description of the Transfer and Servicing
Agreements" or "Description of the Certificates", as the case may
be), if any, in each case as applicable to each class of
Securities, and the change in such amounts from the preceding
statement;
(ix) the aggregate Purchase Amounts paid by the Seller or the Servicer
in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date, after
giving effect to changes therein on such date;
(xi) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(xii) for the first such date that is on or immediately following the
end of the Funding Period (if any), the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of
principal on the Securities of such Series;
(xiii) the amounts collected by the Servicer;
(xiv) the amounts received by the related Trust from the Servicer; and
(xv) delinquency information relating to Receivables which are 30, 60
or 90 days delinquent.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (viii) with
respect to the Notes or the Certificates of any Series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Applicable Trustee
will mail to each person who at any time during such calendar year has been a
Securityholder with respect to such Trust and received any payment thereon a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Federal Income
Tax Consequences."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material terms of each Sale and
Servicing Agreement or Pooling and Servicing Agreement, as the case may be,
pursuant to which a Trust will purchase Receivables from the Depositor and the
Servicer will agree to service such Receivables and each Trust Agreement or
Pooling and Servicing Agreement, as the case may be, pursuant to which a Trust
will be created and Certificates will be issued (collectively, the "Transfer and
Servicing Agreements"). Forms of the Transfer and Servicing Agreements have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to the related Prospectus Supplement and
all the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date specified with respect to any given Trust
in the related Prospectus Supplement (the "Closing Date"), the Seller will sell
and assign to the Depositor, without recourse, the Initial Receivables of the
related Receivables Pool, including the security interests in the related
Financed Vehicles and all collections received or to be received on or after the
Cutoff Date and, with respect to Receivables which are Actuarial Receivables,
monies received prior to the Cutoff Date that are due on or after the Cutoff
Date, and the Depositor will transfer and assign to such Trust, without
recourse, pursuant to a Sale and Servicing Agreement or a Pooling and Servicing
Agreement, as applicable, its entire interest in the Initial Receivables of the
related Receivables Pool, including its security interests in the related
Financed Vehicles and all collections received or to be received with respect
thereto on or after the Cutoff Date and, with respect to Receivables which are
Actuarial Receivables, monies received prior to the Cutoff Date that are due on
or after the Cutoff Date. Each such Receivable will be identified in a schedule,
as may be amended to reflect any Subsequent Receivables, appearing as an exhibit
to such Pooling and Servicing Agreement or Sale and Servicing Agreement (a
"Schedule of Receivables"). The Applicable Trustee will, concurrently with such
sale and assignment, execute and deliver the related Notes and/or Certificates.
The related Prospectus Supplement for a given Trust will specify whether, and
the terms, conditions and manner under which, Subsequent Receivables will be
sold by the Depositor to the applicable Trust from time to time during any
Funding Period on each date specified as a transfer date in the related
Prospectus Supplement (each, a "Subsequent Transfer Date").
In each Sale and Servicing Agreement or Pooling and Servicing Agreement,
the Seller will represent and warrant to the applicable Trust, among other
things, that: (i) as of the related Cutoff Date, the information provided in the
related Schedule of Receivables is correct in all material respects and the
computer tape supplied to the Applicable Trustee describing certain
characteristics of the related Receivables is correct in all material respects
as of the related Cutoff Date; (ii) the Obligor on each related Receivable has
obtained physical damage insurance covering the Financed Vehicle in accordance
with the Seller's normal requirements; (iii) at the Closing Date, or with
respect to any Subsequent Receivables, the applicable Subsequent Transfer Date,
no right of rescission, setoff, counterclaim or defense exists or has been
asserted or threatened with respect to any related Receivable; (iv) as of the
Closing Date or the applicable Subsequent Transfer Date, if any, as applicable,
each of such Receivables is or will be secured by a validly perfected priority
first security interest in favor of the Seller or appropriate action has been
taken to obtain the same; (v) each related Receivable, at the time it was
originated, complied and, as of the Closing Date or the applicable Subsequent
Transfer Date, if any, complies in all material respects with applicable federal
and state laws, including, without limitation, consumer credit, truth in
lending, equal credit opportunity and disclosure laws; and (vi) as of the
related Cutoff Date, there are no liens or claims, including liens for work,
labor, materials or unpaid state or federal taxes relating to any Financed
Vehicle securing the related Receivable that are or may be prior to or equal to
the lien granted by such Receivable.
If the related Prospectus Supplement specifies that Subsequent Receivables
are to be acquired by a Trust, then during the related Funding Period, the
Depositor will be obligated to purchase from the Seller and sell to the Trust
the related Subsequent Receivables. The aggregate principal balance of the
Subsequent Receivables will be in an amount that the Seller anticipates will
equal the amount deposited in the Pre-Funding Account on the date of the
issuance of the related Series. On each Subsequent Transfer Date, the Seller
will sell and assign to the Depositor, without recourse, its entire interest in
the Subsequent Receivables identified in a schedule attached to a supplemental
conveyance relating to such Subsequent Receivables executed on such date by the
Depositor and the Seller. In connection with each purchase of Subsequent
Receivables, the Trust will be required to pay to the Depositor a cash purchase
price equal to the outstanding principal balance of each Subsequent Receivable
as of its Cutoff Date, which price the Depositor will pay to the Seller. The
purchase price will be withdrawn form the Pre-Funding Account and paid to the
Depositor for payment to the Seller so long as the representations and
warranties set forth in the preceding paragraph and under "The Receivables Pools
General" apply to each Subsequent Receivable to be conveyed, and the conditions
set forth below are satisfied. The Seller will convey Subsequent Receivables to
the Depositor on each such Subsequent Transfer Date pursuant to the applicable
Subsequent Transfer Agreement (each, a "Subsequent Transfer Agreement") executed
by the Seller and the Depositor on the Subsequent Transfer Date and including as
an exhibit a schedule identifying the Subsequent Receivables transferred on such
date. The Seller will convey the Subsequent Receivables to the Trust on such
Subsequent Transfer Date pursuant to the Pooling and Servicing Agreement or the
Sale and Servicing Agreement and the applicable Subsequent Transfer Assignment
(each, a "Subsequent Transfer Assignment") executed by the Depositor and the
Applicable Trustee on the Subsequent Transfer Date and including as an exhibit a
schedule identifying the Subsequent Receivables transferred on such date.
Any conveyance of Subsequent Receivables will be subject to the following
conditions, among others specified in the related Prospectus Supplement: (i)
each such Subsequent Receivable must satisfy the eligibility criteria specified
in the second preceding paragraph as of its Subsequent Cutoff Date and such
additional criteria as may be specified in the related Prospectus Supplement;
(ii) if and to the extent specified in the related Prospectus Supplement, the
third-party credit enhancement provider, if any, shall have approved the
transfer of such Subsequent Receivables to the Trust; (iii) neither the Seller
nor the Depositor will have selected such Subsequent Receivables in a manner
that either believes is adverse to the interests of the Securityholders; (iv)
the Seller and the Depositor will deliver certain opinions of counsel to the
Applicable Trustee and the Rating Agencies with respect to the validity of the
conveyance of such Subsequent Receivables; and (v) the Rating Agencies shall
confirm that the ratings on the Securities of such Series have not been
withdrawn or reduced as a result of the transfer of such Subsequent Receivables
to the Applicable Trustee.
Following the end of the Funding Period, a current report on Form 8-K
containing a description of the Receivables, including the information with
respect to the Subsequent Receivables represented in the tables under "The
Receivables Pool" in the related Prospectus Supplement, acquired by the Trust as
of their respective Cutoff Dates will be filed with the Commission. As described
under "Certain Information Regarding the Securities-Reports to Securityholders,"
the monthly statement to Securityholders will disclose the remaining Pre-Funded
Amount during any Funding Period and the remaining Pre-Funded Amount following
the end of the Funding Period.
Pursuant to a Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor, the Seller, the Servicer or the applicable Trustee
must promptly advise the others and the Indenture Trustee in writing upon a
discovery of a breach of any of the Seller's representations and warranties with
respect to the related Receivables. Unless any such breach shall have been cured
by the last day of the Collection Period following the discovery of such breach
by the applicable Trustee or receipt by the applicable Trustee of written notice
from the Depositor, the Seller or the Servicer of such breach, the Seller will
be obligated to repurchase any Receivable from the Trust in which the interests
of the Securityholders are materially and adversely affected by such breach as
of the last day of such Collection Period at a price equal to the unpaid
principal balance owed by the Obligor thereon plus interest thereon at the
respective APR to the last day of the month of repurchase (the "Purchase
Amount"). The repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee and any Noteholders or Indenture Trustee in
respect of such Trust for any such uncured breach.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement to assure uniform quality in servicing the Receivables and to reduce
administrative costs, the related Trust will appoint the Servicer as custodian
of the Receivables. The Servicer, in its capacity as custodian, will hold the
Receivables and all electronic entries, documents, instruments and writings
relating thereto (each, a "Receivable File"), either directly or through one or
more subservicers, on behalf of the Trust for the benefit of Certificateholders.
The Servicer will covenant, among other things, that it grant extensions only in
accordance with the Sale and Servicing Agreement or Pooling and Servicing
Agreement and maintain the security interest in the related Financed Vehicles.
The Servicer will be required to purchase the related Receivables for which such
covenants are breached.
The Receivables will not be stamped or otherwise marked to reflect the sale
and assignment of the Receivables to the Trust and will not be segregated from
other receivables held by the Servicer. The Depositor will cause the accounting
records and computer systems used by the Depositor as a master record of the
Receivables conveyed by it to the Trust to be marked to reflect the sale and
assignment of the Receivables to the Trust, and will file UCC financing
statements reflecting such sale and assignment with appropriate governmental
authorities. The Seller will cause its accounting records and computer systems
to be marked to reflect the sale and assignment of the related Receivables to
the Depositor, and will file UCC financing statements reflecting such sale and
assignment, with appropriate governmental authorities. The Obligors under the
Receivables will not be notified of the sale and assignment of the Receivables
to the Trust. See "The Trusts " and "Certain Legal Aspects of the Receivables."
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, Reserve
Account or other credit enhancement for payment to such Noteholders will be
deposited and from which all distributions to such Noteholders will be made (the
"Note Distribution Account"). The Servicer will establish and maintain with the
related Trustee an account, in the name of such Trustee on behalf of such
Certificateholders, into which amounts released from the Collection Account and
any Pre-Funding Account, Reserve Account or other credit or cash flow
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to each Trust that does not
issue Notes, the Servicer will also establish and maintain the Collection
Account and any other Trust Account in the name of the related Trustee on behalf
of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each Series an additional account (the "Payahead Account"), in the
name of the related Indenture Trustee on behalf of the Noteholders, into which,
to the extent required by the Sale and Servicing Agreement or Pooling and
Servicing Agreement, early payments by or on behalf of Obligors on Actuarial
Receivables will be deposited until such time as the payment becomes due. Until
such time as payments are transferred from the Payahead Account to the
Collection Account, they will not constitute collected interest or collected
principal and will not be available for distribution to the applicable
Noteholders or Certificateholders. The Payahead Account will initially be
maintained with the applicable Indenture Trustee or, in the case of each Trust
that does not issue Notes, the applicable Trustee.
Any other accounts to be established with respect to a Trust, including any
Pre-Funding Account or any Reserve Account, will be described in the related
Prospectus Supplement.
For any Series of Securities, funds in the Collection Account, the Note
Distribution Account and any Pre-Funding Account, Reserve Account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") and the Certificate Distribution Account will be invested
as provided in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement in Eligible Investments. "Eligible Investments" mean book-entry
securities, negotiable instruments or securities represented by instruments in
bearer or registered form which evidence: (a) direct obligations of, and
obligations fully guaranteed as to timely payment by, the United States of
America; (b) demand deposits, time deposits or certificates of deposit of any
depository institution (including the Depositor or any affiliate of the
Depositor) or trust company incorporated under the laws of the United States of
America or any state thereof or the District of Columbia (or any domestic branch
of a foreign bank) and subject to supervision and examination by Federal or
state banking or depository institution authorities (including depository
receipts issued by any such institution or trust company as custodian with
respect to any obligation referred to in clause (a) above or portion of such
obligation for the benefit of the holders of such depository receipts);
PROVIDED, HOWEVER, that at the time of the investment or contractual commitment
to invest therein (which shall be deemed to be made again each time funds are
reinvested following each Distribution Date), the commercial paper or other
short-term senior unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a Person other than such depository
institution or trust company) of such depository institution or trust company
shall have a credit rating from Standard & Poor's of A-1+ and from Moody's of
P-1; (c) commercial paper (including commercial paper of the Depositor or any
affiliate of the Depositor) having, at the time of the investment or contractual
commitment to invest therein, a rating from Standard & Poor's of A-1+ and from
Moody's of P-1; (d) investments in money market funds (including funds for which
the Depositor, the Trustee or the Owner Trustee or any of their respective
Affiliates is investment manager or advisor) having a rating from Standard &
Poor's Structured Ratings Group of AAA-m or AAAm-G and from Moody's Investors
Service, Inc. of Aaa; (e) bankers' acceptances issued by any depository
institution or trust company referred to in clause (b) above; (f) repurchase
obligations with respect to any security that is a direct obligation of, or
fully guaranteed by, the United States of America or any agency or
instrumentality thereof the obligations of which are backed by the full faith
and credit of the United States of America, in either case entered into with a
depository institution or trust company (acting as principal) referred to in
clause (b) above; and (g) any other investment which would not cause any Rating
Agency to downgrade or withdraw its then current rating of the Securities of a
Series. Investments will consist of Eligible Investments only to the extent that
the investments would not require registration of the related Trust as an
"investment company" under the Investment Company Act of 1940, as amended.
Subject to certain conditions, Eligible Investments may include securities or
other obligations issued by the Depositor or its affiliates or trusts originated
by the Depositor or its affiliates. Except as described below or in the related
Prospectus Supplement, Eligible Investments are limited to obligations or
securities that mature not later than the business day before the date on which
the funds invested in such Eligible Investments are required to be withdrawn
from the Trust Accounts or the Certificate Distribution Account. However, to the
extent permitted by the Rating Agencies, funds in any Reserve Account may be
invested in securities that will not mature prior to the date of the next
distribution with respect to such Certificates or Notes and will not be sold to
meet any shortfalls. Thus, the amount of cash in any Reserve Account at any time
may be less than the balance of the Reserve Account. If the amount required to
be withdrawn from any Reserve Account to cover shortfalls in collections on the
related Receivables (as provided in the related Prospectus Supplement) exceeds
the amount of cash in the Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result, which
could, in turn, increase the average life of the Notes or the Certificates of
such Series. Except as otherwise specified in the related Prospectus Supplement,
investment earnings on funds deposited in the Trust Accounts and the Certificate
Distribution Account, net of losses and investment expenses (collectively,
"Investment Earnings"), will be deposited in the applicable Collection Account
on each Distribution Date or Payment Date and will be treated as collections of
interest on the related Receivables.
The Trust Accounts and the Certificate Distribution Account will be
maintained as Eligible Deposit Accounts. "Eligible Deposit Account" means either
(a) a segregated account with an Eligible Institution satisfying the criteria
set forth in clause (b) of the definition thereof below or (b) a segregated
trust account with the corporate trust department of a depository institution
(other than the Depositor or any affiliate of the Depositor) organized under the
laws of the United States of America or any one of the states thereof or the
District of Columbia (or any domestic branch of a foreign bank), having
corporate trust powers and acting as trustee for funds deposited in such
account, so long as any of the securities of such depository institution have a
credit rating from each Rating Agency in one of its generic rating categories
which signifies investment grade (an "Eligible Trust Company"). "Eligible
Institution" means, with respect to a Trust (a) the corporate trust department
of the related Indenture Trustee or Trustee, as applicable, or (b) a depository
institution organized under the laws of the United States of America or any one
of the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), (i) which has either (A) a long-term senior unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term senior unsecured debt
rating or certificate of deposit rating acceptable to the Rating Agencies and
(ii) whose deposits are insured by the FDIC.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, in a manner, consistent
with the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, apply such collection procedures as it follows with respect to other
automobile retail installment sale contracts it services. Consistent with its
normal procedures, the Servicer may, in its discretion, arrange with the Obligor
on a Receivable to extend or modify the payment schedule, subject to certain
limitations contained in any Sale and Servicing Agreement or Pooling and
Servicing Agreement. Pursuant to any Sale and Servicing Agreement or Pooling and
Servicing Agreement, the Servicer or the applicable Trustee will inform the
other party and the Indenture Trustee in writing promptly upon the discovery of
the breach by the Servicer of certain covenants made by it. If the Servicer
fails to cure the breaches with respect to a related Receivable by the last day
of the second Collection Period following such discovery (or, at the Servicer's
option, the last day of the first following Collection Period), the Servicer
will be obligated to purchase for the Purchase Amount any Receivable in which
the interests of the Securityholders are materially and adversely affected by
the breach. See "Certain Legal Aspects of the Receivables."
PAYMENTS ON RECEIVABLES
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables (from whatever source), other than any late fees, prepayment
charges and other administrative fees or similar charges retained by the
Servicer as part of its compensation, and all proceeds of such Receivables
collected during each collection period specified in the related Prospectus
Supplement (each, a "Collection Period") into the related Collection Account
within two business days after receipt thereof. However, in the event that the
Servicer satisfies certain requirements for monthly remittances and none of the
related Rating Agencies, after 10 days prior notice, shall have notified the
Depositor, the Servicer, the related Trustee or the Indenture Trustee in writing
that monthly deposits by the Servicer in and of itself will result in a
reduction or withdrawal of the then-current ratings of the Securities of a
series, then for so long as Mellon Bank, N.A. is the Servicer and provided that
(i) there exists no Servicer Default and (ii) each other condition to making
monthly deposits as may be specified by the Rating Agencies or set forth in the
related Prospectus Supplement is satisfied, the Servicer will not be required to
deposit such amounts into the Collection Account until on or before the business
day preceding the applicable Distribution Date or Payment Date. Pending deposit
into the Collection Account, collections may be invested by the Servicer at its
own risk and for its own benefit and will not be segregated from its own funds.
If the Servicer were unable to remit such funds, Securityholders might incur a
loss. In such event, the Servicer will also deposit the aggregate Purchase
Amount of Receivables repurchased by the Seller or purchased by the Servicer
into the applicable Collection Account on or before the business day preceding
the applicable Distribution Date or Payment Date. Pending deposit into the
applicable Collection Account, collections may be invested by the Servicer at
its own risk and for its own benefit, and will not be segregated from funds of
the Servicer.
Collections on an Actuarial Receivable made during a Collection Period will
be applied first to repay any outstanding Advances on Actuarial Receivables made
by the Servicer with respect to such Receivable (as described below), and to the
extent that collections on an Actuarial Receivable during a Collection Period
exceed the outstanding Advances on Actuarial Receivables, the collections will
then be applied to the scheduled payment on such Receivable. If any collections
remaining after the scheduled payment is made are insufficient to prepay the
Actuarial Receivable in full, then, unless otherwise provided in the related
Prospectus Supplement, generally such remaining collections (the "Payaheads")
shall be transferred to and kept in the Payahead Account, until such later
Collection Period as the collections may be transferred to the Collection
Account and applied either to the scheduled payment or to prepay such Receivable
in full. The scheduled payment with respect to an Actuarial Receivable is that
portion of the payment required to be made by the related Obligor during each
calendar month sufficient to amortize the principal balance thereof under the
actuarial method over the term of the Receivable (except in the case of a
Balloon Loan to the extent of the Balloon Payment) and to provide interest at
the APR of such Receivable.
ADVANCES
To the extent the collections of interest and principal on an Actuarial
Receivable with respect to a Collection Period fall short of the respective
scheduled payment, the Sale and Servicing Agreement or Pooling and Servicing
Agreement will require the Servicer to make an Advance in the amount of such
shortfall. The Servicer will be obligated to make an Advance on an Actuarial
Receivable only to the extent that the Servicer, in its sole discretion, expects
to recoup such advance from subsequent collections or recoveries on such
Receivable or other Actuarial Receivables in the related Receivables Pool. The
Servicer will deposit the Advance in the applicable Collection Account on or
before the business day preceding the applicable Distribution Date or Payment
Date. The Servicer will recoup its Advance from subsequent payments by or on
behalf of the respective Obligor or from insurance or liquidation proceeds with
respect to the Receivable and will release its right to reimbursement in
conjunction with its purchase of the Receivable as Servicer, or, upon the
determination that reimbursement from the preceding sources is unlikely, will
recoup its Advance from any collections made on other Actuarial Receivables in
the related Receivables Pool.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, payable on each Distribution Date (other than the initial
Distribution Date), in an amount equal to the product of one-twelfth of the
specified percentage per annum (as set forth in the related Prospectus
Supplement, the "Servicing Fee Rate") and the Pool Balance as of the first day
of the related Collection Period (the "Servicing Fee"). The Servicing Fee,
together with any portion of the Servicing Fee that remains unpaid from prior
Distribution Dates or Payment Dates (the "Total Servicing Fee") will be paid
solely to the extent of the Total Distribution Amount. The Total Servicing Fee
will be paid prior to the distribution of any portion of the Interest
Distribution Amount to the Noteholders or the Certificateholders of the given
series.
The "Servicing Fee" will also include any late fees, prepayment charges and
other administrative fees or similar charges allowed by applicable law with
respect to the related Receivables and will be entitled to reimbursement from
such Trust for certain expenses. Payments by or on behalf of Obligors will be
allocated to scheduled payments and late fees and other charges in accordance
with the Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of automobile receivables as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, sending
payment coupons or coupon books to Obligors, paying costs of disposition of
defaults and policing the collateral. The Servicing Fee also will compensate the
Servicer for administering the particular Receivables Pool, accounting for
collections and furnishing monthly and annual statements to the related Trustee
and Indenture Trustee with respect to distributions and generating federal
income tax information for such Trust and for the related Noteholders and
Certificateholders. The Servicing Fee also will reimburse the Servicer for
certain taxes, accounting fees, outside auditor fees, data processing costs and
other costs incurred in connection with administering the applicable Receivables
Pool.
MANDATORY PREPAYMENT
To the extent a Pre-Funding Account is specified in the related Prospectus
Supplement, the Securities will be prepaid in part on the Payment Date or
Distribution Date on which the Funding Period ends (or on the Payment Date or
Distribution Date immediately following the last day of the Funding Period, if
the Funding Period does not end on a Payment Date or Distribution Date) in the
event that any amount remains on deposit in the Pre-Funding Account after giving
effect to the purchase of Subsequent Receivables, if any, on such Payment Date
or Distribution Date. The aggregate principal amount of Securities to be prepaid
will be an amount equal to the amount then on deposit in the Pre-Funding Account
in such portions as specified in the related Prospectus Supplement. In such
event, if and to the extent specified in the related Prospectus Supplement, a
limited recourse mandatory prepayment premium (the "Prepayment Premium") may be
payable by the Trust to the offered Securityholders if the aggregate principal
amount of the offered Securities to be prepaid pursuant to such mandatory
prepayment exceeds such threshold amount as will be specified in the related
Prospectus Supplement. The amount of such Prepayment Premium, if any, will be
specified in the related Prospectus Supplement. A Trust's obligation to pay the
Prepayment Premium will be limited to funds which are received from the Seller
as liquidated damages for the failure to deliver Subsequent Receivables. No
other assets of the Trust will be available for the purpose of making such
payment. The ratings of any Series of Securities with respect to which a
Prepayment Premium is payable does not evaluate the Prepayment Premium or the
likelihood that the Prepayment Premium will be paid.
DISTRIBUTIONS
With respect to each Series of Securities, beginning on the Payment Date or
Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, of
principal or interest only) on each class of such Securities entitled thereto
will be made by the Applicable Trustee to the Noteholders and the
Certificateholders of such Series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all distributions to each class of Certificateholders of such
Series will be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Payment Date and Distribution Date, as
applicable, collections on the related Receivables will be transferred from the
Collection Account to the Note Distribution Account, if any, and the Certificate
Distribution Account for distribution to Noteholders, if any, and
Certificateholders to the extent provided in the related Prospectus Supplement.
Credit enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a class of Securities of a given Series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of such Series
may be subordinate to payments in respect of Notes, if any, of such Series or
other classes of Certificates of such Series.
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a class or classes of Notes or
Certificates of a Series and ending in the date set forth on the related
Prospectus Supplement (the "Revolving Period") during which no principal
payments will be made to one or more classes of Notes or Certificates of the
related Series as are identified in such Prospectus Supplement. All collections
of principal otherwise allocated to such classes of Notes or Certificates may be
(i) utilized by the Trust during the Revolving Period to acquire additional
Receivables which satisfy the criteria described in the second paragraph under
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables" herein and the criteria required by the related Rating Agencies and
credit enhancer, if any, (ii) held in an account and invested in Eligible
Investments for later distribution to Securityholders, or (iii) applied to those
Notes or Certificates for such Series or another, if any, specified in the
related Prospectus Supplement as then are in amortization.
An "Amortization Period" is the period during which an amount of principal
is payable to holders of a Series of Securities which, during the Revolving
Period, were not entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Receivables may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
classes of Notes or Certificates specified in the related Prospectus Supplement
as then being entitled to payments of principal. In addition, if so specified in
the related Prospectus Supplement, amounts deposited in certain accounts for the
benefit of one or more classes of Notes or Certificates may be released from
time to time or on a specified date and applied as a payment of principal on
such classes of Notes or Certificates. The related Prospectus Supplement will
set forth the circumstances which will result in the commencement of an
Amortization Period.
Each Trust which has a Revolving Period may also issue to the Depositor a
certificate evidencing a Retained Interest in the Trust not represented by the
other Securities issued by such Trust. As further described in the related
Prospectus Supplement, the value of such Retained Interest will fluctuate as the
amount of Trust Property fluctuates and the amount of Notes and Certificates of
the related Series of Securities outstanding is reduced.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given Series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit and
cash flow enhancement may be in the form of subordination of one or more classes
of Securities, Reserve Accounts, a Yield Supplement Agreement, a Yield
Supplement Account, over-collateralization, letters of credit, credit or
liquidity facilities, surety bonds, guaranteed investment contracts, swaps or
other interest rate protection agreements, repurchase obligations, yield
supplement agreements, other agreements with respect to third party payments or
other support, cash deposits or such other arrangements as may be described in
the related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit or cash
flow enhancement for a class of Securities may cover one or more other classes
of Securities of the same Series, and credit or cash flow enhancement for a
Series of Securities may cover one or more other Series of Securities.
The presence of a Reserve Account, a Yield Supplement Agreement, a Yield
Supplement Account and other forms of credit enhancement for the benefit of any
class or Series of Securities is intended to enhance the likelihood of receipt
by the Securityholders of such class or Series of the full amount of principal
and interest due thereon and to decrease the likelihood that such
Securityholders will experience losses. Unless otherwise specified 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 repayment of the entire principal balance and interest thereon. If
losses occur which exceed the amount covered by any credit enhancement or which
are not covered by any credit enhancement, Securityholders of any class or
Series will bear their allocable share of deficiencies, as described in the
related Prospectus Supplement. In addition, if a form of credit enhancement
covers more than one Series of Securities, Securityholders of any such Series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other Series.
RESERVE ACCOUNT. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pool and Servicing
Agreement, the Depositor will establish for a Series or class of Securities an
account, as specified in the related Prospectus Supplement (the "Reserve
Account"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. Unless otherwise provided in the related Prospectus
Supplement, the Reserve Account will be funded by an initial deposit by the
Depositor on the Closing Date in the amount set forth in the related Prospectus
Supplement and, if the related Series has a Funding Period, will also be funded
on each Subsequent Transfer Date to the extent described in the related
Prospectus Supplement. As further described in the related Prospectus
Supplement, the amount on deposit in the Reserve Account will be increased on
each Distribution Date or Payment Date thereafter up to the Specified Reserve
Account Balance (as defined in the related Prospectus Supplement under "Summary
of Terms--Reserve Account" or "--Reserve Fund," as the case may be) by the
deposit therein of the amount of collections on the related Receivables
remaining on each such Distribution Date or Payment Date after the payment of
all other required payments and distributions on such date. The related
Prospectus Supplement will describe the circumstances and manner under which
distributions may be made out of the Reserve Account, either to holders of the
Securities covered thereby or to the Depositor.
YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT. If so provided in the
related Prospectus Supplement, the Depositor or a third party will enter into a
Yield Supplement Agreement and/or establish a Yield Supplement Account with the
related Indenture Trustee or related Trustee for the benefit of the holders of
the related Securities. A Yield Supplement Agreement or a Yield Supplement
Account will be designed to provide payments to the Securityholders in respect
of Receivables the Contract Rate of which is less than the Required Rate. A
Yield Supplement Account may be an asset of the Obligor under the Yield
Supplement Agreement holding funds to secure the obligation of such Obligor to
make payments under such Yield Supplement Agreement or, in the case of a Trust
that is not classified as a grantor trust, may be an asset of the Trust from
which cash may periodically be withdrawn to provide payments to the
Securityholders.
NET DEPOSITS
As an administrative convenience, if the Servicer is not required to remit
collections within two business days of receipt thereof (see "--Payments on
Receivables" above), the Servicer will be permitted to make the deposit of
collections, aggregate Advances and Purchase Amounts for any Trust for or with
respect to the related Collection Period net of distributions to be made to the
Servicer for such Trust with respect to such Collection Period. The Servicer may
cause to be made a single, net transfer from the Collection Account to the
related Payahead Account, if any, or vice versa. The Servicer, however, will
account to the Trustee, any Indenture Trustee, the Noteholders, if any, and the
Certificateholders with respect to each Trust as if all deposits, distributions
and transfers were made individually. With respect to any Trust that issues both
Certificates and Notes, if the related Payment Dates do not coincide with
Distribution Dates, all distributions, deposits or other remittances made on a
Payment Date will be treated as having been distributed, deposited or remitted
on the Distribution Date for the applicable Collection Period for purposes of
determining other amounts required to be distributed, deposited or otherwise
remitted on such Distribution Date.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date or Payment Date with respect to each Series
of Securities, the Servicer will provide to the applicable Indenture Trustee, if
any, and the applicable Trustee as of the close of business on the last day of
the preceding Collection Period a statement setting forth substantially the same
information as is required to be provided in the periodic reports provided to
Securityholders of such series described under "Certain Information Regarding
the Securities-Reports to Securityholders."
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
related Trust and Indenture Trustee or Trustee, as applicable, on or before
October 31 of each year a statement as to compliance by the Servicer during the
preceding twelve months ended June 30 (or, in the case of the first such
certificate with respect to each Trust, the period from the applicable Closing
Date to June 30 of such calendar year), with certain standards relating to the
servicing of the Receivables under the Sale and Servicing Agreement or Pooling
and Servicing Agreement, as the case may be.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Indenture Trustee or Trustee, as
applicable, concurrently with the delivery of the statement of compliance
referred to above, of a certificate signed by an officer of the Servicer stating
that the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, throughout the
preceding twelve months ended June 30 (or, in the case of the first such
certificate, from the Closing Date to June 30 of such calendar year) or, if
there has been a default in the fulfillment of any such obligation, describing
each such default. The Servicer has agreed to give each Indenture Trustee and
each Trustee notice of certain Servicer Defaults under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee at
the address specified in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the Servicer may not resign from its obligations and duties as
Servicer thereunder, except upon determination that the Servicer's performance
of such duties is no longer permissible under applicable law or if such
resignation is required by regulatory authorities. Such resignation will become
effective on the earlier of the date the Servicer is required by regulatory
authorities to resign or the date on which the related Indenture Trustee or
Trustee, as applicable, or a successor servicer has assumed the Servicer's
servicing obligations and duties under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to such Sale and Servicing Agreement
or Pooling and Servicing Agreement or for errors in judgment; provided, however,
that neither the Servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties thereunder or by
reason of reckless disregard of its obligations and duties thereunder. In
addition, each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer is under no obligation to appear in, prosecute or
defend any legal action that is incidental to its servicing responsibilities
under such Sale and Servicing Agreement or Pooling and Servicing Agreement and
that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to the business of
the Servicer or which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under such Sale and Servicing Agreement or Pooling and Servicing Agreement.
The Servicer may appoint one or more subservicers to perform all or any
portion of its obligations under the Pooling and Servicing Agreement or Sale and
Servicing Agreement; however, the Servicer shall remain obligated and be liable
to the Trust, the related Trustee and any Indenture Trustee and the
Securityholders for the servicing and administering of the related Receivables
as if the Servicer alone were servicing and administering such Receivables.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under each Sale and Servicing Agreement and Pooling and
Servicing Agreement will consist of (i) any failure by the Servicer to deliver
to the Applicable Trustee for deposit in any of the Trust Accounts or the
Certificate Distribution Account any required payment or to direct the
Applicable Trustee to make any required distributions therefrom, which failure
continues unremedied for three business days after written notice is received by
the Servicer from the Applicable Trustee, or after discovery of such failure by
the Servicer; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement in such Sale and Servicing
Agreement or Pooling and Servicing Agreement, which failure materially and
adversely affects the rights of the Noteholders or the Certificateholders of the
related Series and which continues unremedied for 30 days after the giving of
written notice of such failure (1) to the Servicer by the Applicable Trustee or
(2) to the Servicer and to the Applicable Trustee by holders of Notes or
Certificates of such Series, as applicable, evidencing not less than 25% in
aggregate outstanding principal amount of such Notes or of such Certificate
Balance; and (iii) the occurrence of an Insolvency Event with respect to the
Servicer. "Insolvency Event" means, with respect to any Person, any of the
following events or actions: certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings with respect to such
Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, unless otherwise provided
in the related Prospectus Supplement, as long as a Servicer Default under a Sale
and Servicing Agreement remains unremedied, the related Indenture Trustee or
holders of Notes of the related Series evidencing not less than 25% of principal
amount of such Notes then outstanding may terminate all the rights and
obligations of the Servicer under such Sale and Servicing Agreement, whereupon
such Indenture Trustee or a successor servicer appointed by such Indenture
Trustee will succeed to all the responsibilities, duties and liabilities of the
Servicer under such Sale and Servicing Agreement. In the case of any Trust that
has not issued Notes, unless otherwise provided in the related Prospectus
Supplement, as long as a Servicer Default under the related Pooling and
Servicing Agreement remains unremedied, the related Trustee or holders of
Certificates of the related Series evidencing not less than a majority of the
aggregate outstanding principal balance of such Certificates may terminate all
the rights and obligations of the Servicer under such Pooling and Servicing
Agreement, whereupon such Trustee or a successor Servicer appointed by such
Trustee will succeed to all the responsibilities, duties and liabilities of the
Servicer under such Pooling and Servicing Agreement. If, however, a conservator
or receiver has been appointed for the Servicer, and no Servicer Default other
than such appointment has occurred, such conservator or receiver may have the
power to prevent such Indenture Trustee, such Noteholders, such Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $50,000,000 and whose regular business
includes the servicing of automotive receivables. In no event may the servicing
compensation to be paid to such successor be greater than the servicing
compensation payable to the Servicer under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, unless otherwise provided
in the related Prospectus Supplement, the holders of Notes evidencing at least a
majority in aggregate principal amount of the then outstanding Notes of the
related Series (or the holders of the Certificates of such Series evidencing not
less than a majority of the aggregate outstanding Certificate Balance, in the
case of any default which does not adversely affect the related Indenture
Trustee or such Noteholders) may, on behalf of all such Noteholders and
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the related Sale and Servicing Agreement and its consequences,
except a default in making any required deposits to or payments from any of the
Trust Accounts or to the Certificate Distribution Account in accordance with
such Sale and Servicing Agreement. With respect to each Trust that has not
issued Notes, holders of Certificates of such Series evidencing not less than a
majority of the principal amount of such Certificates then outstanding, in the
case of any default which does not adversely affect the related Trustee may, on
behalf of all such Certificateholders, waive any default by the Servicer in the
performance of its obligations under the related Pooling and Servicing Agreement
and its consequences, except a default in making any required deposits to or
payments from the Certificate Distribution Account or the related Trust Accounts
in accordance with such Pooling and Servicing Agreement. No such waiver will
impair such Noteholders' or Certificateholders' rights with respect to
subsequent defaults.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the Transfer
and Servicing Agreements may also be amended by the Depositor, the Servicer, the
Seller, the related Trustee and any related Indenture Trustee with the consent
of the holders of Notes evidencing at least a majority in aggregate principal
amount of then outstanding Notes, if any, of the related Series and the holders
of the Certificates of such Series evidencing at least a majority of the
aggregate principal amount of such Certificates then outstanding, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Transfer and Servicing Agreements or of modifying in
any manner the rights of such Noteholders or Certificateholders; provided,
however, that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
related Receivables or distributions that are required to be made for the
benefit of such Noteholders or Certificateholders or (ii) reduce the aforesaid
percentage of the aggregate outstanding principal balance of the Notes or
Certificates of such Series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such Series.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given Series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights and duties of the Indenture Trustee, and the
Certificateholders of such Series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Depositor,
the Seller, the related Trustee and the related Indenture Trustee, if any,
pursuant to the Transfer and Servicing Agreements will terminate upon the
earlier of (i) the maturity or other liquidation of the last related Receivable
and the disposition of any amounts received upon liquidation of any such
remaining Receivables, (ii) the payment to Noteholders, if any, and
Certificateholders of the related Series of all amounts required to be paid to
them pursuant to the Transfer and Servicing Agreements and (iii) the occurrence
of either event described below.
Unless otherwise provided in the related Prospectus Supplement, in order to
avoid excessive administrative expense, the Servicer will be permitted at its
option to purchase from each Trust, as of the end of any applicable Collection
Period, if the then outstanding Pool Balance with respect to the Receivables
held by such Trust is equal to or less than a specified percentage (not more
than 10%) of the initial Pool Balance (as defined in the related Prospectus
Supplement, the "Initial Pool Balance"), all remaining related Receivables at a
price equal to an amount which, when added to the amounts on deposit in the
Collection Account for such Series for such Distribution Date, equals the unpaid
principal balances of the Securities of such Series, plus accrued and unpaid
interest thereon. The optional termination provision allows the Servicer
administrative convenience. Once the outstanding principal balance of the
Receivables is reduced to a small percentage of the Initial Pool Balance, it is
often not economical for the Servicer to service the Receivables for the Trust.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date or Payment Date as of which the Pool Balance is equal to or
less than 5% of the Initial Pool Balance and the Servicer has not exercised its
option to repurchase the Receivables, conduct an Auction sale by soliciting bids
for the purchase of the Receivables remaining in such Trust, in the manner and
subject to the terms and conditions set forth below. An Auction sale could be
included in the structure of a Series in order to provide investors a more
identifiable final maturity.
In the event that satisfactory bids are received as described below, the
sale proceeds will be distributed to Securityholders on the second Distribution
Date succeeding such Record Date. Any purchaser of the Receivables must agree to
the continuation of Mellon Bank, N.A. as Servicer on terms substantially similar
to those in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement. Any such sale will effect early retirement of the Securities. The
Applicable Trustee must receive at least two bids from prospective purchasers
that are considered at the time to be competitive participants in the market for
motor vehicle retail installment sale contracts. The highest bid may not be less
than the fair market value of such Receivables and must equal the greater of (a)
the aggregate purchase price for the Receivables (including liquidated
receivables), plus the appraised value of any other property held by the Trust
(less liquidation expenses) or (b) an amount that when added to amounts on
deposit in the Collection Account for such Series available for distribution to
Securityholders for such second succeeding Determination Date would result in
proceeds sufficient to distribute the amount of monthly principal and interest
for such Distribution Dates, and the Total Servicing Fee payable on such final
Distribution Date. The Applicable Trustee may consult with financial advisors,
including any underwriter, to determine if the fair market value of such
Receivables has been offered. Upon the receipt of such bids, the Applicable
Trustee shall sell and assign such Receivables to the highest bidder and the
Securities shall be retired on such Distribution Date. If any of the foregoing
conditions are not met, the Applicable Trustee will not consummate such sale and
will not be under any obligation to solicit any further bids or otherwise
negotiate any future sale of Receivables remaining in the Trust. In such event,
however, the Applicable Trustee may from time to time solicit bids in the future
for the purchase of such Receivables upon the same terms described above.
In the event that an Auction Sale is consummated, the Applicable Trustee
will give written notice of termination to each Securityholder of record. The
final distribution to each Securityholder will be made only upon surrender and
cancellation of such holder's Securities at any office or agency of the
Applicable Trustee specified for such purpose. Any funds remaining in the Trust,
after the applicable Trustee has taken certain measures to locate a
Securityholder and such measures have failed, will be distributed to the
Depositor.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related Series will be redeemed concurrently with
either of the events specified above, and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such Series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC. Pursuant to the
UCC, for most purposes, a sale of chattel paper is treated in a manner similar
to a transaction creating a security interest in chattel paper. The Depositor
will cause appropriate financing statements to be filed with the appropriate
governmental authorities in the Commonwealth of Pennsylvania to perfect the
interest of the Trust in its purchase of the Receivables from the Depositor and
in the Depositor's purchase of the Receivables from the Seller.
Pursuant to the related Pooling and Servicing Agreement or Sale and
Servicing Agreement, the Servicer will hold the Receivables, either directly or
through subservicers, as custodian for the Trust and Indenture Trustee following
the sale and assignment of the Receivables to the Trust. The Depositor will take
such action as is required to perfect the rights of the Trust and the Indenture
Trustee in the Receivables. The Receivables will not be segregated, stamped or
otherwise marked to indicate that they have been sold to the Trust. If, through
inadvertence or otherwise, another party purchases (or takes a security interest
in) the Receivables for new value in the ordinary course of business and takes
possession of the Receivables without actual knowledge of the Trust's interest,
the purchaser (or secured party) will acquire an interest in the Receivables
superior to the interest of the Trust.
Under the related Pooling and Servicing Agreement or Sale and Servicing
Agreement, the Servicer will be obligated from time to time to take such actions
as are necessary to protect and perfect the Trust's interest in the Receivables
and their proceeds.
SECURITY INTERESTS IN THE FINANCED VEHICLES
Generally, motor vehicle retail installment sale contracts, such as the
Receivables, evidence loans to obligors to finance the purchase of such motor
vehicles. The Receivables also constitute personal property security agreements
and include grants of security interests in the vehicles under the UCC.
Perfection of security interests in motor vehicles is generally governed by the
motor vehicle registration laws of the state in which the vehicle is located. In
most states, a security interest in the vehicle is perfected by notation of the
secured party's lien on the vehicle's certificate of title.
The Bank's practice is to take such action as is required in order to
perfect its security interest in a Financed Vehicle under the laws of the
jurisdiction in which the Financed Vehicle is registered. If the Bank, because
of clerical error or otherwise, has failed to take such action with respect to a
Financed Vehicle, it will not have a perfected security interest in the Financed
Vehicle and its security interest may be subordinate to the interests of, among
others, subsequent purchasers of the Financed Vehicle that give value without
notice of the Bank's security interest and to whom a certificate of ownership is
issued in such purchaser's name, holders of perfected security interests in the
Financed Vehicle, and the trustee in bankruptcy of the Obligor. The Bank's
security interest may also be subordinate to such third parties in the event of
fraud or forgery by the Obligor or administrative error by state recording
officials or in the circumstances noted below. As described more fully below,
the Seller will warrant in the related Pooling and Servicing Agreement or Sale
and Servicing Agreement that an enforceable first priority perfected security
interest with respect to each Financed Vehicle on the Closing Date has been
created in favor of the Seller, and the Seller will be required to repurchase
the related Receivable in the event of an uncured breach of such warranty in
accordance with the related Pooling and Servicing Agreement or Sale and
Servicing Agreement.
The Seller will assign its security interest in any related Financed
Vehicles, along with the sale and assignment of the related Receivables to the
Depositor and pursuant to the related Pooling and Servicing Agreement or Sale
and Servicing Agreement, the Depositor will assign its security interests in the
Financed Vehicles, along with the sale and assignment of the Receivables, to the
Trust, and the Servicer will hold the certificates of title relating to the
Financed Vehicles, either directly or through subservicers, as custodian for the
Trust following such sale and assignment. The certificates of title will not be
endorsed or otherwise amended to identify the Trust or the related Trustee or
Indenture Trustee as the new secured party, however, because of the
administrative burden and expense involved in connection therewith.
In most states, an assignment of a security interest in a Financed Vehicle
along with the applicable Receivable is effective without amendment of any lien
noted on a vehicle's certificate of title or ownership, and the assignee
succeeds thereby to the assignor's rights as secured party. In most states, in
the absence of fraud or forgery by the vehicle owner or of fraud, forgery,
negligence or error by the Seller or administrative error by state or local
agencies, the notation of the Seller's lien on the certificates of title or
ownership and/or possession of such certificates with such notation will be
sufficient to protect the Trust against the rights of subsequent purchasers of a
Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. There exists a risk, however, in not identifying the Trust and
the Indenture Trustee, if applicable, as the new secured party on the
certificate of title, that the security interest of the Trust or the Indenture
Trustee may not be enforceable. In the event the Trust has failed to obtain or
maintain a perfected security interest in a Financed Vehicle, its security
interest would be subordinate to, among others, a bankruptcy trustee of the
Obligor, a subsequent purchaser of the Financed Vehicle or a holder of a
perfected security interest.
The Seller will warrant in the related Pooling and Servicing Agreement or
Sale and Servicing Agreement as to each Receivable conveyed by it to the
Depositor that, on the Closing Date, the Seller has a valid, subsisting, and
enforceable first priority perfected security interest in the Financed Vehicle
securing the Receivable (subject to administrative delays and clerical errors on
the part of the applicable government agency and to any statutory or other lien
arising by operation of law after the Closing Date which is prior to such
security interest) and such security interest will be assigned to the Depositor
and, by the Depositor to the Trust and the Indenture Trustee, if applicable. In
the event of an uncured breach of such warranty, the Seller will be required to
repurchase such Receivable for its Purchase Amount in accordance with the
related Pooling and Servicing Agreement or Sale and Servicing Agreement. This
repurchase obligation will constitute the sole remedy available to the Trust,
the related Trustee, any Indenture Trustee, the Noteholders and the
Certificateholders in respect of a given Trust for such breach. The Seller's
warranties with respect to perfection and enforceability of a security interest
in a Financed Vehicle will not cover statutory or other liens arising after the
Closing Date by operation of law which have priority over such security
interest. Accordingly, any such lien would not by itself give rise to a
repurchase obligation on the part of the Seller. In the event that an Obligor
moves to a state other than the state in which the Financed Vehicle is
registered, under the laws of most states, a perfected security interest in a
motor vehicle continues for four months after such relocation and thereafter, in
most instances, until the Obligor re-registers the motor vehicle in the new
state, but in any event not beyond the surrender of the certificate. A majority
of states require surrender of a certificate of title to re-register a motor
vehicle and require that notice of such surrender be given to each secured party
noted on the certificate of title. In those states that require a secured party
to take possession of a certificate of title to perfect a security interest, the
secured party would learn of the re-registration through the request from the
Obligor to surrender possession of the certificate of title. In those states
that require a secured party to note its lien on a certificate of title to
perfect a security interest but do not require possession of the certificate of
title, the secured party would learn of the re-registration through the notice
from the applicable state department of motor vehicles that the certificate of
title had been surrendered. The requirements that a certificate of title be
surrendered and that notices of such surrender be given to each secured party
also apply to re-registrations effected following a sale of a motor vehicle. The
Seller would therefore have the opportunity to re-perfect its security interest
in a Financed Vehicle in the state of re-registration following relocation of
the Obligor and would be able to require satisfaction of the related Receivable
following a sale of the Financed Vehicle. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing motor vehicle
receivables, the Servicer takes steps to effect re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
However, there is a risk that an Obligor could relocate without notification to
the Servicer, then file a false affidavit with the new state to cause a new
certificate of title to be issued without notation of the Seller's lien.
Under the laws of many states, certain possessory liens for repairs
performed on or storage of a motor vehicle and liens for unpaid taxes as well as
certain rights arising from the use of a motor vehicle in connection with
illegal activities, may take priority over a perfected security interest in the
motor vehicle. The Seller will warrant in the related Pooling and Servicing
Agreement or Sale and Servicing Agreement that, as of the Closing Date, the
Seller has not received notice that any such liens are pending. In the event of
a breach of such warranty which has a material and adverse effect on the
interests of the Trust, the related Trustee, any Indenture Trustee, the
Noteholders and the Certificateholders in respect of a given Trust, the Seller
will be required to repurchase the Receivable secured by the Financed Vehicle
involved. This repurchase obligation will constitute the sole remedy available
to the Trust, the related Trustee, any Indenture Trustee, the Noteholders and
the Certificateholders in respect of a given Trust for such breach. Any liens
for repairs or taxes arising at any time after the Closing Date during the term
of a related Receivable would not give rise to a repurchase obligation on the
part of the Seller.
REPOSSESSION
In the event of a default by an Obligor, the holder of a Receivable has all
the remedies of a secured party under the UCC, except where specifically limited
by other state laws or by contract. The remedies of a secured party under the
UCC include the right to repossession by means of self-help, unless such means
would constitute a breach of the peace. Self-help repossession is the method
employed by the Seller in most cases, and is accomplished simply by taking
possession of the motor vehicle. Generally, where the Obligor objects or raises
a defense to repossession, a court order must be obtained from the appropriate
state court and the motor vehicle must then be repossessed in accordance with
that order. In the event of a default by an Obligor, many jurisdictions require
that, absent a waiver, the Obligor be notified of the default and be given a
time period within which he may cure the default prior to repossession except
such notice need not be given in emergency situations pursuant to an order from
the appropriate state court.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
Obligor generally has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal balance of the obligation plus, in
most cases, reasonable expenses for repossessing, holding and preparing the
collateral for disposition and arranging for its sale plus, in some
jurisdictions, reasonable attorneys' fees. In some states, the obligor has the
right, prior to actual sale, to reinstatement of the original loan terms and to
return of the collateral by payment of delinquent installments of the unpaid
balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Financed Vehicles generally will be applied first
to the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related Receivable. 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. Any such deficiency
judgment would be a personal judgment against the Obligor for the shortfall,
however, a defaulting Obligor may have very little capital or sources of income
available following repossession. Other statutory provisions, including state
and federal bankruptcy laws, may interfere with a lender's ability to enforce a
deficiency judgment or to collect a debt owed or realize upon collateral.
Therefore, in many cases, it may not be useful to seek a deficiency judgment or,
if one is obtained, it may be settled at a significant discount or not paid at
all.
Occasionally, after resale of a repossessed motor vehicle and payment of
all expenses and indebtedness, there is a surplus of funds. In that case, the
UCC requires the secured party to remit the surplus to any other holder of a
lien with respect to the motor vehicle or, if no such lienholder exists or funds
remain after paying such other lienholder, to the Obligor.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth In Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B, Z and AA,
and other similar acts and regulations, state adoptions of the Uniform Consumer
Credit Code and other similar laws, and state usury laws. Also, state laws
impose other restrictions on consumer transactions, may require contract
disclosures in addition to those required under Federal law and may limit the
remedies available in the event of default by an Obligor. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions where applicable. In most cases, this liability could affect
the ability of an assignee, such as the Trust, to enforce secured loans such as
the Receivables.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting any assignee of the seller of the vehicle to all claims and defenses
which the purchaser could assert against such seller of the vehicle. Liability
under the FTC Rule is limited to the amounts paid by the purchaser under the
contract, and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the purchaser. The FTC Rule may be
duplicated by state statutes or the common law in certain states. Although the
Seller is not a seller of motor vehicles and is not subject to the jurisdiction
of the FTC, the retail installment sale contracts evidencing the Receivables
contain provisions which contractually apply the FTC Rule. Accordingly, the
Seller, the Depositor, and the Trust as holders of the Receivables, may be
subject to claims or defenses, if any, that the purchaser of a Financed Vehicle
may assert against the seller of such vehicle.
Under the motor vehicle dealer licensing laws of most states, sellers of
motor vehicles are required to be licensed to sell such vehicles at retail sale.
In addition, with respect to used motor vehicles, the FTC's Rule on Sale of Used
Vehicles requires that all sellers of used motor vehicles prepare, complete and
display a "Buyer's Guide" which explains the warranty coverage for such
vehicles. Federal Odometer Regulations promulgated under the Motor Vehicle
Information and Cost Savings Act require that all sellers of used motor 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 either a Buyer's
Guide or Odometer Disclosure Statement was not properly provided to the
purchaser of a Financed Vehicle, such purchaser may be able to assert a claim
against the seller of such vehicle. Although the Seller is not a seller of motor
vehicles and is not subject to these laws, a violation thereof may form the
basis for a claim or defense against the Seller, the Depositor, the Trust and
the Indenture Trustee as holders of the Receivables.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
The Seller will warrant as to each Receivable conveyed by it to the
Depositor that such Receivable complied at the time it was originated and as of
the Closing Date in all material respects with all requirements of applicable
law. The Depositor will assign the Seller's warranty to the Trust. If, as of the
related Cutoff Date, an Obligor had a claim against the Trust for violation of
any law and such claim materially and adversely affected the Trust's interest in
a Receivable, such violation would create an obligation of the Seller to
repurchase the Receivable unless the breach was cured. This repurchase
obligation will constitute the sole remedy of the Trust, the related Trustee,
any Indenture Trustee, the Noteholders and the Certificateholders in respect of
a given Trust against the Seller in respect of any such uncured breach. See
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the Bankruptcy Code, a court may prevent a lender
from repossessing a motor vehicle and, as part of the rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of such
vehicle at the time of bankruptcy (as determined by the court), leaving the
party providing financing as a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness. In such a case, the amount collected on the related Receivable and
payable to the Securityholders on account thereof, may be less than the amount
anticipated.
The Depositor intends that the transfer of the Receivables by it to the
Trust under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement constitutes a valid sale and assignment of such Receivables.
Notwithstanding the foregoing, if the Depositor were to become a debtor in a
bankruptcy case and a creditor or trustee-in-bankruptcy of the Depositor or the
Depositor itself were to take the position that the sale of the Receivables by
the Depositor to the Trust should instead be treated as a pledge of Receivables
to secure a borrowing of the Depositor, delays in payments or collections of
Receivables could occur or (should the court rule in favor of any such trustee,
debtor or creditor) reductions in the amounts of such payments could result. If
the transfer of Receivables by the Depositor to the Trust is treated as a pledge
instead of a sale, a tax or government lien on the property of the Depositor
arising before the transfer of the Receivables to the Trust may have priority
over the Trust's interest in such Receivables.
FEDERAL INCOME TAX CONSEQUENCES
This section sets forth (i) certain federal income tax opinions of Stroock
& Stroock & Lavan LLP, special counsel to the Depositor ("Federal Tax Counsel"),
and (ii) a summary, based on the advice of Federal Tax Counsel, of the material
federal income tax consequences of the purchase, ownership and disposition of
Securities. The summary does not purport to deal with federal income tax
consequences of special rules that are applicable to certain categories of
holders. Furthermore, this summary does not deal with the tax consequences to
individuals holding Securities directly or indirectly through partnerships,
trusts, estates, or corporations. 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.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The opinion of 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 holders of Securities will vary
depending on whether an election is made to treat the Trust as a partnership or
division of its owner under the Code or whether the Trust will be treated as a
grantor trust. The Prospectus Supplement for each Series of Certificates will
specify whether the Trust is intended to be treated as a partnership or a
division of its owner, or the Trust will be treated as a grantor trust.
OPINIONS
Federal Tax Counsel is of the opinion, as of the date of this Prospectus,
that:
(i) If a Prospectus Supplement indicates that one or more classes of
Notes of the related Series are to be treated as indebtedness for federal
income tax purposes, assuming that all of the provisions of the applicable
Indenture are complied with, the Notes so designated will be considered
indebtedness for federal income tax purposes;
(ii) If a Prospectus Supplement indicates that a Trust will be treated
as a grantor trust for federal income tax purposes, assuming compliance
with all of the provisions of the applicable Pooling and Servicing
Agreement, (a) the Trust will be considered to be a grantor trust under
Subpart E, Part 1 of Subchapter J of the Code and will not be considered to
be an association taxable as a corporation and (b) an owner of the related
Certificates (referred to herein as "Grantor Trust Certificates") will be
treated for federal income tax purposes as the owner of an undivided
interest in the Trust's assets;
(iii) If a Prospectus Supplement indicates that a Trust is to be
treated as a partnership for federal income tax purposes, assuming that all
of the provisions of the applicable Trust Agreement or Pooling and
Servicing Agreement are complied with, such Trust will not be considered to
be an association or publicly traded partnership taxable as a corporation;
(iv) If a Prospectus Supplement indicates that one or more classes of
Certificates of the related Series are to be treated as indebtedness for
federal income tax purposes, assuming all of the provisions of the
applicable Pooling and Servicing Agreement are complied with, the
Certificates so designated will be considered indebtedness for federal
income tax purposes.
Each such opinion is an expression of an opinion only, is not a guarantee
of results and is not binding on the IIRS or any third-party.
TRUSTS CHARACTERIZED AS PARTNERSHIPS OR DIVISIONS
TAX CHARACTERIZATION OF THE TRUST
If a Trust is intended to be a partnership for federal income tax purposes,
the applicable Pooling and Servicing Agreement or Trust Agreement will provide
that the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations or the issuance
of the Securities will be structured as a private placement under an IRS safe
harbor, so that the Trust will not be characterized as a publicly traded
partnership taxable as a corporation and that no election will be made to treat
the Trust as a corporation for federal income tax purposes. If the Trust has a
single owner, it will be treated as a division of its owner, and as such will be
disregarded as an entity separate from its owner for federal income tax
purposes, assuming no election will be made to treat the Trust as a corporation
for federal income tax purposes.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Depositor will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. The discussion below assumes this
characterization of the Notes is correct, 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" within
the meaning of Section 1273 of the Code ("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., 3% of their principal amount
multiplied by the number of full years included in their term), all within the
meaning of the OID regulations. If these conditions are not satisfied with
respect to any given Series of Notes, additional tax considerations with respect
to such Notes will be disclosed in the applicable Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a DE MINIMIS amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed,
but Federal Tax Counsel is unable to opine, that any prepayment premium paid as
a result of a mandatory redemption will be taxable as contingent interest when
it becomes fixed and unconditionally payable. A purchaser who buys a Note for
more or less than its principal amount will generally be subject, respectively,
to the premium amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID,
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 will be capital gain
or loss if the Note was held as a capital asset, except for gain representing
accrued interest and accrued market discount not previously included in income.
Capital losses generally may be used only to offset capital gains.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder who is
a foreign corporation or other non-United States person (a "foreign person")
generally will be considered "portfolio interest", and generally will not be
subject to United States federal income tax and withholding tax, if the interest
is not effectively connected with the conduct of a trade or business within the
United States by the foreign person and the foreign person (i) is not actually
or constructively a "10 percent shareholder" of the Trust or the Depositor
(including a holder of 10% of the outstanding Certificates) or a "controlled
foreign corporation" with respect to which the Trust or the Depositor is a
"related person" within the meaning of the Code and (ii) provides the Applicable
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 a Note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by a Form W-8 or substitute form provided
by the foreign person that owns the Note. If such interest is not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant
to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person generally will be exempt from
United States federal income and withholding tax, provided that such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person.
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 or individual retirement account will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
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
certain tax-exempt entities (including pension funds) would be "unrelated
business taxable income," income to foreign holders generally would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Depositor and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes, if any, being debt of the partnership, or if there is a single
Certificateholder, to disregard the Trust as an entity separate from its owner.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, if any, the Depositor and the Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
For example, because the Certificates have certain features characteristic
of debt, the Certificates might be considered debt of the Depositor 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.
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 Certificates, 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
related documents). The related Trust Agreement or Pooling and Servicing
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 amount of Trust income that corresponds to any excess of
the principal amount of the Certificates over their initial issue price; (iii)
prepayment premium payable to the Certificateholders for such month; and (iv)
any other amounts of income payable to the Certificateholders for such month.
Such allocation will be reduced by any amortization by the Trust of premium on
Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining taxable income of the Trust will be
allocated to the related Company. 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.
Substantially all of the taxable income allocated to a Certificateholder
that is a pension, profit sharing or employee benefit plan or other tax-exempt
entity (including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
Except as provided in the following paragraph 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 or Pooling and Servicing 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 partnership will be
considered to have transferred 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, 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 over the life of the Certificates that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The related
Company is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
SECTION 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (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-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder timely notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The [Servicer/Applicable Trustee] will be designated as the tax matters
partner in the related Trust Agreement or Pooling and Servicing Agreement and,
as such, will be responsible for representing the Certificateholders in any
dispute with the IRS. The Code provides for administrative examination of a
partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return is
filed. Any adverse determination following an audit of the return of the Trust
by the appropriate taxing authorities could result in an adjustment of the
returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the Trust. An adjustment could also result in an
audit of a Certificateholder's returns and adjustments of items not related to
the income and losses of the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. As discussed below, an
investment in a Certificate is not suitable for any non-U.S. person 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 non-U.S. person.
No regulations, published rulings or judicial decisions exist that would
discuss the characterization for Federal withholding tax purposes with respect
to non-U.S. persons 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 or Pooling 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. Also, in such cases, a non-U.S. Certificateholder that is a
corporation may be subject to the branch profits tax. 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 U.S. 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 U.S. trade or business.
However, interest payments made 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 with respect to Holders
of the Notes - Foreign Holders." 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 holder 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
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 all other Section 212 expenses
exceed two percent of its adjusted gross income. For taxable years beginning
after December 31, 1997, in the case of a partnership that has 100 or more
partners and elects to be treated as an "electing large partnership," 70 percent
of such partnership's miscellaneous itemized deductions will be disallowed,
although the remaining deductions will generally be allowed at the partnership
level and will not be subject to the 2 percent floor that would otherwise be
applicable to individual partners.
A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Servicer, whichever is
earlier. If the servicing fees 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.
The first two subsections below describe certain federal income tax
consequences dependent on whether or not the stripped bond rules apply and the
third subsection below describes certain federal income tax consequence which
are not dependent on the applicability of the stripped rules.
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, Federal Tax Counsel is of the opinion
that, although the matter is not entirely clear, the interest income on the
Certificates at the sum of the Pass-Through Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations and such income will be so treated in the Trustee's tax information
reporting.
ORIGINAL ISSUE DISCOUNT. 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. The daily portions of OID with respect to a Stripped Bond generally
would be determined 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.
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
Receivables 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.
There is no law as to 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 or premium.
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 above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
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. 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 not a U.S. Person (as defined below) or (ii) a
Grantor Trust Certificateholder holding on behalf of an owner that is not a U.S.
Person will be subject to federal income tax, collected by withholding, at a
rate of 30% or such lower rate as may be provided for interest by an applicable
tax treaty. Accrued OID recognized by the owner on the sale or exchange of such
a Grantor Trust Certificate also will be subject to federal income tax at the
same rate. Generally, such payments would not be subject to withholding to the
extent that a Grantor Trust Certificate evidences ownership in Receivables
issued after July 18, 1984, by natural persons if such Grantor Trust
Certificateholder complies with certain identification requirements (including
delivery of a statement, signed by the Grantor Trust Certificateholder under
penalties of perjury, certifying that such Grantor Trust Certificateholder is
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.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof (unless, in the case of a
partnership, future Treasury regulations provide otherwise), an estate, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States, or a trust other than a
"foreign trust," as defined in Section 7701(a)(3) of the Code.
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. In
appropriate 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."
TAXATION OF INCOME OF DEBT CERTIFICATEHOLDERS
As set forth above, it is expected that Federal Tax Counsel will advise the
Depositor 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 Certificates 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 Depositor 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 Depositor 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
Depositor 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 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
interest 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 Characterized as Partnerships or Divisions--Tax
Consequences to Holders of the Certificates--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.
FASIT LEGISLATION
In August, 1996, the United States Congress passed and President Clinton
signed into law the "Small Business Job Protection Act of 1996," H.R. 3448 (the
"Act"). The Act creates a new type of entity for federal income tax purposes
called a "financial asset securitization investment trust" or "FASIT." The
effective date of the FASIT provisions of the Act is September 1, 1997. The Act
enables certain arrangements similar to a Trust to elect to be treated as a
FASIT. Under the FASIT provisions of the Act a FASIT generally would avoid
federal income taxation and could issue securities substantially similar to the
Certificates and Notes, and those securities would be treated as debt for
federal income tax purposes. If so specified in the related Prospectus
Supplement, a Trust may make an election to be treated as a FASIT. The
applicable Transfer and Servicing Agreement for such a Trust may contain any
such terms and provide for the issuance of Notes or Certificates on such terms
and conditions as are permitted to a FASIT and described in the related
Prospectus Supplement. In addition, upon satisfying certain conditions set forth
in the Transfer and Servicing Agreements, the Depositor, the Seller and Servicer
will be permitted to amend the Transfer and Servicing Agreements in order to
enable all or a portion of a Trust to qualify as a FASIT and to permit a FASIT
election to be made with respect thereto, and to make such modifications to a
"Description of the Transfer and Servicing Agreements--Amendment." However,
there can be no assurance that the Depositor will or will not cause any
permissible FASIT election to be made with respect to a Trust or amend a
Transfer and Servicing Agreement in connection with any election. In addition,
if such an election is made, it may cause a holder to recognize gain (but not
loss) with respect to any Notes or Certificates held by it, even though Federal
Tax Counsel will deliver its opinion that a Note will be treated as debt for
federal income tax purposes without regard to the election and the Note or
Certificate would be treated as debt following the election. Additionally, any
such election and any related amendments to a Transfer and Servicing Agreement
may have other tax and non-tax consequences to Securityholders. Accordingly,
prospective Securityholders are encouraged to consult their tax advisors with
regard to the effects of any such election and any permitted related amendments
on them in their particular circumstances.
STATE AND LOCAL TAX CONSEQUENCES
The discussion above does not address the tax consequences of purchase,
ownership or disposition of the Securities under any state or local tax law.
Investors are encouraged to consult their own tax advisors regarding state and
local tax consequences.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), should consider
the fiduciary standards under ERISA in the context of the plan's particular
circumstances before authorizing an investment of a portion of such plan's
assets in the Securities. Accordingly, among other factors, such fiduciary
should consider (i) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries; (ii) whether the investment satisfies the
diversification requirements of Section 404 of ERISA; (iii) whether the
investment is in accordance with the documents and instruments governing the
plan; and (iv) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of such plans also should consider ERISA's prohibition
on improper delegation of control over, or responsibility for, plan assets.
In addition, fiduciaries of employee benefit plans subject to Title I of
ERISA, as well as certain plans or other retirement arrangements not subject to
ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of a plan or account investing
in such entity (collectively, "Plans(s)") are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. The Depositor, the related Trustee, the related
Indenture Trustee and any underwriter of the offered Securities and certain of
their affiliates might be considered "parties in interest" or "disqualified
persons" with respect to a Plan. If so, the acquisition, holding or transfer of
Securities by, or on behalf of, such Plan could be considered to give rise to a
"prohibited transaction" within the meaning of ERISA and the Code unless a
regulatory exception or administrative exemption is available. In addition, the
Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "Plan Assets Regulation") concerning the definition of what
constitutes the assets of a Plan, which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. If an investing Plan's assets were deemed to include an
interest in the Trust Property and not merely an interest in the Securities,
transactions occurring in connection with the servicing, management and
operation of the Trust between the Depositor, the related Trustee, the related
Indenture Trustee, the Servicer (or any other servicer), any insurer or any of
their respective affiliates might constitute prohibited transactions, and the
Trust Property would become subject to the fiduciary investment standards of
ERISA, unless a regulatory exception or administrative exemption applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the "Exemption"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III. B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III. B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of: (1) secured consumer receivables, (2) secured credit instruments, (3)
obligations secured by residential or commercial real property, (4) obligations
secured by motor vehicles or equipment or qualified motor vehicle leases, (5)
guaranteed governmental mortgage pool certificates or (6) an undivided
fractional interest in any of the obligations listed in clauses (1) - (5) above.
If the general conditions of Section II of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Certificates by Plans in the initial issue of Certificates, the holding of
Certificates by Plans or the direct or indirect acquisition or disposition in
the secondary market of Certificates by Plans. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Certificate on behalf of an "Excluded Plan" by
any person who has discretionary authority or renders investment advice with
respect to the assets of such Excluded Plan. For purposes of the Certificates,
an Excluded Plan is a Plan sponsored by (1) an underwriter which has been
granted an Exemption (or certain specified entities affiliated or associated
with such underwriter) ("Underwriter"), (2) the Depositor, (3) the Servicer (or
any other servicer), (4) the related Trustee or the related Indenture Trustee,
(5) any obligor with respect to Receivables constituting more than 5 percent of
the aggregate unamortized principal balance of the Receivables as of the date of
initial issuance, (6) any insurer and (7) any affiliate or successor of a person
described in (1) to (6) above (the "Restricted Group").
If the specific conditions of paragraph I.B of Section I of the Exemption
are also satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(I)(E) of the
Code in connection with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates between the Depositor or
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan assets in
Certificates is (a) an obligor with respect to 5 percent or less of the fair
market value of the Receivables or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
Certificates by Plans and (3) the holding of Certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the Exemption
are satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust and the Trust Property.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which must
be satisfied for a transaction to be eligible for exemptive relief thereunder.
(1) The acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated
party;
(2) The rights and interests evidenced by the Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by
other Securities issued by the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poor's Structured Ratings
Group, Moody's Investors Service, Inc., Duff & Phelps Credit Rating
Co. or Fitch IBCA, Inc. ("National Credit Rating Agencies");
(4) Neither the Trustee or the related Indenture Trustee is an affiliate
of any other member of the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of Certificates represents not more
than reasonable compensation for underwriting the Certificates. The
sum of all payments made and retained by the Depositor pursuant to the
assignment of the loans to the trust fund represents not more than the
fair market value of such loans. The sum of all payments made to and
retained by the Servicer or any other servicer represents not more
than reasonable compensation for such person's services under the
pooling and servicing agreement and reimbursement of such person's
reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D under the Securities Act of
1933. The Depositor assumes that only Plans which are accredited
investors under the federal securities laws will be permitted to
purchase the Certificates.
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of one of the
National Credit Rating Agencies for at least one year prior to the
Plan's acquisition of Certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of certificates.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust and the
Trust Property as specified in the related Prospectus Supplement. In addition,
in the event the Exemption is not available, certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers".
Certain transactions involving the purchase of Securities which are Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if the Trust Property were deemed to be assets of a Plan. Under the Plan Assets
Regulation, the Trust Property would be treated as plan assets of a Plan for the
purposes of ERISA and the Code only if the Plan acquires an "Equity Interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Depositor
believes that the Notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. In addition, even in
the event that the Notes are deemed to be an Equity Interest in the Trust, the
Exemption may be applicable to both a Plan's purchase, holding and transfer of
Notes (which in this situation are considered Certificates for purposes of the
Exemption) and the operation, management and servicing of the Trust and the
Trust Property, if so specified in the related Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity Interests,
the acquisition, transfer or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust, the related
Trustee or the related Indenture Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan. In such case, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14
may be applicable depending on the type and circumstances of the plan fiduciary
making the decision to acquire a Note.
Investors that are insurance companies are encouraged to consult with their
legal counsel with respect to the United States Supreme Court case, JOHN HANCOCK
MUTUAL LIFE INSURANCE CO. V. HARRIS TRUST AND SAVINGS Bank, 114 S.Ct. 517
(1993). In HARRIS TRUST, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed plan assets under certain
circumstances. Accordingly, such insurance company general accounts would be
subject to the same considerations under ERISA and would be eligible for the
same relief under the Exemption that would apply to any other Plan investor. In
the event the Exemption is not applicable to the purchase, holding and transfer
of Securities and the operation, management and servicing of the Trust and Trust
Property, PTCE 95-60 may be applicable depending on the circumstances.
Any Plan fiduciary considering the purchase of Securities is encouraged to
consult with its counsel with respect to the potential applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment.
RATINGS
As a condition of issuance, the offered Securities of each Series will be
rated an investment grade, that is, in one of its four highest rating
categories, by at least one nationally recognized rating agency (a "Rating
Agency") as specified in the related Prospectus Supplement. Ratings on the
offered Securities of each Series address the likelihood of receipt by the
related Securityholders of all distributions on the underlying Receivables.
These ratings address the structural, legal and issuer-related aspects
associated with the Securities of such Series, the nature of the underlying
Receivables of such Series, the subordination and any credit enhancement
provided therefor, including the credit quality of the third party credit
enhancement provider, if any. Ratings on offered Securities of each Series do
not represent any assessment of the likelihood of principal prepayments by
Obligors or of the degree by which prepayments might differ from those
originally anticipated. As a result, the related Securityholders might suffer a
lower than anticipated yield, and, in addition, holders of Strip Securities in
extreme cases might fail to recoup their underlying investments. Each security
rating should be evaluated independently of any other security rating. A
security rating is not a recommendation to buy, sell or hold securities. There
is no assurance that the ratings initially assigned to the Securities will not
be subsequently lowered or withdrawn by the Rating Agencies. In the event the
rating initially assigned to any Securities is subsequently lowered for any
reason, no person or entity will be obligated to provide any credit enhancement
unless otherwise specified in the related Prospectus Supplement.
METHOD OF DISTRIBUTION
Notes and/or Certificates are being offered hereby in Series from time to
time through any of the following methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily with
institutional investors and dealers; and
3. By placement directly by the Depositor with institutional investors.
A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Notes and/or the Certificates will be determined. Each Prospectus
Supplement for an underwritten offering will also contain information regarding
the nature of the underwriters' obligations, any material relationship between
the Depositor and any underwriter and, where appropriate, information regarding
any discounts or concessions to be allowed or reallowed to dealers or others and
any arrangements to stabilize the market for the Notes and/or the Certificates
so offered. In firm commitment underwritten offerings, the underwriters will be
obligated to purchase all of the Notes and/or Certificates of such Series if any
such Notes and/or Certificates are purchased. Notes and/or Certificates may be
acquired by the underwriters for their own accounts and may be resold from time
to time in one or more transactions including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Mellon Financial Services, Inc., an affiliate of the Depositor, may from
time to time act as agent or underwriter in connection with the sale of the
Notes and/or Certificates. This Prospectus and the related Prospectus Supplement
may be used by Mellon Financial Services, Inc. in connection with offers and
sales related to secondary market transactions in any Series of Notes and/or
Certificates. Mellon Financial Services, Inc. may act as principal or agent in
such transactions. Such sales will be made at prices related to the prevailing
prices at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Notes and/or Certificates of such Series.
LEGAL OPINIONS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters relating to the issuance of the Securities of any Series and the
income tax consequences thereof will be passed upon for the Underwriters and the
Depositor by Stroock & Stroock & Lavan LLP, New York, New York.
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, any globally offered series of
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes and, if the related Prospectus Supplement so
provides, Certificates will be effected on a delivery-against-payment basis
through the respective Depositories of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their Participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their Participants through their respective Depositories,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices specified by the Underwriters. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global securities
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to insure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC DEPOSITOR AND CEDEL OR EUROCLEAR Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depository, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depository of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance the settlement.
Under this procedure, Cedel Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depository for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR DEPOSITOR AND DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depository, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depository, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
interest payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL WITHHOLDING TAXES AND DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owners take one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. Persons WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the
Certificateholder or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The holder of a Global
Securities or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source or a trust if a court within the United States is able
to exercise primary supervision of the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust. This summary of documentation requirements does not deal
with all aspects of U.S. Federal income tax withholding or that may be relevant
to foreign holders of the Global Securities. Investors are advised to consult
their own tax advisors for specific tax advice concerning their holding and
disposing of the Global Securities.
<PAGE>
INDEX OF TERMS
Act.......................................................................57
Actuarial Receivables.....................................................16
Advance....................................................................7
Applicable Trustee........................................................29
APR.......................................................................16
Balloon Loans.............................................................12
Balloon Payment...........................................................12
Base Rate.................................................................24
Calculation Agent.........................................................25
Calculation Date..........................................................25
CD Rate...................................................................24
CD Rate Determination Date................................................25
CD Rate Security..........................................................24
Cede.......................................................................2
Cedel Participants........................................................30
Certificate Distribution Account..........................................35
Certificate Majority......................................................29
Certificate Pool Factor...................................................18
Certificateholders........................................................11
Certificates...............................................................1
Closing Date..............................................................33
Code......................................................................46
Collection Account........................................................35
Commercial Paper Rate.....................................................25
Commercial Paper Rate Determination Date..................................25
Commercial Paper Rate Security............................................24
Commission.................................................................2
Commodity Indexed Securities..............................................28
Composite Quotations......................................................24
Cooperative...............................................................30
Currency Indexed Securities...............................................28
Cuttoff Date...............................................................6
Dealers....................................................................6
Definitive Certificates...................................................29
Definitive Notes..........................................................29
Definitive Securities.....................................................31
Depositor..................................................................1
Depositories..............................................................28
Distribution Date..........................................................5
DOL.......................................................................58
DTC........................................................................2
DTC's Nominee.............................................................12
Eligible Deposit Account..................................................36
Eligible Institution......................................................36
Eligible Trust Company....................................................36
Equity Interest...........................................................60
ERISA......................................................................8
Euroclear Operator........................................................30
Euroclear Participants....................................................30
Events of Default.........................................................20
Exchange Act...............................................................2
Excluded Plan.............................................................58
Exemption.................................................................58
Face Amount...............................................................28
FASIT.....................................................................13
Federal Funds Rate........................................................24
Federal Funds Rate Determination Date.....................................26
Federal Funds Rate Security...............................................24
Financed Vehicle Loans....................................................14
Fixed Rate Securities.....................................................24
Floating Rate Securities..................................................24
FTC Rule..................................................................45
Global Securities.........................................................62
H.15(519).................................................................24
Indenture..................................................................4
Indenture Trustee..........................................................4
Index.....................................................................28
Index Maturity............................................................24
Indexed Commodity.........................................................28
Indexed Currency..........................................................28
Indexed Principal Amount..................................................28
Indexed Securities........................................................28
Indirect Participants.....................................................28
Initial Pool Balance......................................................42
Insolvency Event..........................................................41
Interest Rate..............................................................4
Interest Reset Date.......................................................25
Interest Reset Period.....................................................24
Investment Earnings.......................................................36
IRS.......................................................................46
Issuer.....................................................................4
LIBOR.....................................................................26
LIBOR Determination Date..................................................26
LIBOR Security............................................................24
London Banking Day........................................................26
Money Market Yield........................................................26
National Credit Rating Agencies...........................................59
Note Distribution Account.................................................35
Note Pool Factor..........................................................18
Notes......................................................................1
OID.......................................................................47
OID Regulations...........................................................47
Paid-Ahead Period.........................................................17
Paid-Ahead Receivable.....................................................17
Participants..............................................................19
Pass-Through Rate..........................................................5
Payahead Account..........................................................35
Payaheads.................................................................36
Payment Date..............................................................20
Plan Assets Regulation....................................................58
Plans......................................................................8
Pool Balance..............................................................18
Pooling and Servicing Agreement............................................4
Prepayment Premium........................................................37
Prospectus Supplement......................................................1
PTCE......................................................................59
Purchase Amount...........................................................34
Rating Agency..............................................................8
Receivable File...........................................................34
Receivables Pool...........................................................1
Registration Statement.....................................................2
Related Documents.........................................................22
Related Person............................................................48
Reserve Account...........................................................39
Restricted Group..........................................................58
Reuters Screen LIBO Page..................................................27
Rules.....................................................................29
Schedule of Receivables...................................................33
Section 1286 Treasury Regulations.........................................52
Securities Act.............................................................2
Securityholders...........................................................12
Seller.....................................................................4
Servicer...................................................................4
Servicer Default..........................................................40
Servicing Fee.............................................................37
Servicing Fee Rate........................................................37
Short-Term Note...........................................................48
Simple Interest Receivables...............................................16
Spread....................................................................24
Spread Multiplier.........................................................24
Stock Index...............................................................28
Stock Indexed Securities..................................................28
Strip Certificates.........................................................6
Strip Notes................................................................5
Stripped Bond.............................................................52
Subsequent Transfer Date..................................................33
Terms and Conditions......................................................30
Total Servicing Fee.......................................................37
Transfer and Servicing Agreements.........................................33
Treasury Bills............................................................27
Treasury Rate.............................................................27
Treasury Rate Determination Date..........................................27
Treasury Rate Security....................................................24
Trust......................................................................4
Trust Accounts............................................................35
Trust Agreement............................................................4
Trustee....................................................................4
U.S. Person...............................................................64
Underwriter...............................................................58
<PAGE>
================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON. 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 TO ANYONE IN ANY JURISDICTION IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
----
Summary of Terms....................................S-
Risk Factors........................................S-
Formation of the Trust.............................S-
The Trust Property..................................S-
The Receivables Pool................................S-
The Servicer............................................
Weighted Average Life of the Securities.............S-
Use of Proceeds.....................................S-
Description of the Notes............................S-
Description of the Certificates.....................S-
Description of the Transfer and Servicing
Agreements........................................S-
Federal Income Tax Consequences.....................S-
State and Local Tax Consequences....................S-
ERISA Considerations................................S-
Underwriting........................................S-
Legal Matters.......................................S-
PROSPECTUS
Available Information.................................
Incorporation of Certain Documents by
Reference...........................................
Reports to Securityholders............................
Summary of Terms......................................
Risk Factors..........................................
The Trusts............................................
The Portfolio of Motor Vehicle Loans..................
The Receivables Pools.................................
Maturity and Prepayment Assumptions...................
Pool Factors and Trading Information..................
Use of Proceeds.......................................
The Depositor.........................................
The Servicer..........................................
Description of the Notes..............................
Description of the Certificates.......................
Certain Information Regarding the Securities..........
Description of the Transfer and Servicing
Agreements..........................................
Certain Legal Aspects of the Receivables..............
Federal Income Tax Consequences.......................
State and Local Tax Consequences.....................
ERISA Considerations..................................
Ratings...............................................
Method of Distribution................................
Legal Opinions........................................
Annex I...............................................
Index of Terms........................................
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================
===================================================
MELLON AUTO TRUST
199_-_
[FORM 1]
$___________
$___________
____% ASSET BACKED NOTES
$__________
____% ASSET BACKED
CERTIFICATES
MELLON BANK, N.A.
SERVICER
MELLON AUTO RECEIVABLES
CORPORATION
DEPOSITOR
__________________
PROSPECTUS SUPPLEMENT
__________________
Dated _______________
================================================================
<PAGE>
================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON. 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 TO ANYONE IN ANY JURISDICTION IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
----
Summary of Terms....................................S-
Risk Factors........................................S-
Formation of the Trust.............................S-
The Trust Property..................................S-
The Servicer..........................................
Weighted Average Life of the Certificates...........S-
The Receivables Pool................................S-
Use of Proceeds.....................................S-
Description of the Certificates.....................S-
Federal Income Tax Consequences.....................S-
State and Local Tax Consequences....................S-
ERISA Considerations................................S-
Underwriting........................................S-
Legal Matters.......................................S-
PROSPECTUS
Available Information.................................
Incorporation of Certain Documents by
Reference...........................................
Reports to Securityholders............................
Summary of Terms......................................
Risk Factors..........................................
The Trusts............................................
The Portfolio of Motor Vehicle Loans..................
The Receivables Pools.................................
Maturity and Prepayment Assumptions...................
Pool Factors and Trading Information..................
Use of Proceeds.......................................
The Depositor.........................................
The Servicer..........................................
Description of the Notes..............................
Description of the Certificates.......................
Certain Information Regarding the Securities..........
Description of the Transfer and Servicing
Agreements..........................................
Certain Legal Aspects of the Receivables..............
Federal Income Tax Consequences.......................
State and Local Tax Consequences.....................
ERISA Considerations..................................
Ratings...............................................
Method of Distribution................................
Legal Opinions........................................
Annex I...............................................
Index of Terms........................................
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================
===================================================
MELLON AUTO TRUST
199_-_
[FORM 2]
$___________
$___________
CLASS A ____% ASSET BACKED CERTIFICATES
$__________
CLASS B ____% ASSET BACKED CERTIFICATES
MELLON BANK, N.A.
SERVICER
MELLON AUTO RECEIVABLES
CORPORATION
DEPOSITOR
__________________
PROSPECTUS SUPPLEMENT
__________________
Dated _______________
================================================================
<PAGE>
[Alternate Page]
SUPPLEMENT
TO PROSPECTUS SUPPLEMENT DATED , 19
(To Prospectus dated , 199 )
Mellon Auto Trust 199__
Mellon Auto Receivables Corporation
Depositor
[Asset Backed Notes, Series __]
[Asset Backed Certificates, Series __]
This Supplement relates to the offering of the [Notes][Certificates] of the
Series referenced above. This Supplement does not contain complete information
about the offering of the [Notes][Certificates]. Additional information is
contained in the Prospectus Supplement dated , 199 (the "Prospectus Supplement")
prepared in connection with the offering of the [Notes][Certificates] of the
Series referenced above and in the Prospectus of the Depositor dated , 199 (the
"Prospectus"). Purchasers are encouraged to read this Supplement, the Prospectus
Supplement and the Prospectus in full.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED
UNDER "RISK FACTORS" BEGINNING ON PAGE __ OF THE PROSPECTUS
This Supplement is to be used by Mellon Financial Markets, Inc., an
affiliate of Mellon Auto Receivables Corporation, in connection with offers and
sales relating to market making transactions in the [Notes][Certificates] of the
above-referenced Series in which Mellon Financial Markets, Inc. acts as
principal. Mellon Financial Markets, Inc. may also act as agent in such
transactions. Sales will be made at prices related to the prevailing prices at
the time of sale.
THIS SUPPLEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND PROSPECTUS.
CERTAIN CAPITALIZED TERMS USED IN THIS SUPPLEMENT ARE DEFINED IN THE PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
THE RECEIVABLES POOL
Certain information regarding the Receivables as of June 30, 199_ (the
"Reference Date") is set forth in Exhibit I in tabular format. Other than with
respect to rates of interest, percentages (approximate) are stated in such
tables by principal balance of the Receivables of the Reference Date and have
been rounded in order to total 100.00%.
METHOD OF DISTRIBUTION
The Supplement is to be used by Mellon Financial Markets, Inc., an
affiliate of Mellon Auto Receivables Corporation, in connection with offers and
sales relating to market-making transactions in the [Notes][Certificates] of the
Series referred to on the cover page hereof in which Mellon Financial Markets,
Inc., acts as principal. Mellon Financial Markets, Inc. may also act as agent in
such transactions. Sales will be made at prices related to the prevailing prices
at the time of sale.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. MELLON AUTO RECEIVABLES CORPORATION (THE "DEPOSITOR") MAY NOT SELL THE
SECURITIES THAT ARE DESCRIBED IN THIS PROSPECTUS SUPPLEMENT UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES
AND IS NOT A REQUEST FOR ANY OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE
THE LAWS IN THAT STATE DO NOT PERMIT THE DEPOSITOR TO OFFER OR SELL THESE
SECURITIES.
Prospectus Supplement [Form 2]
(to Prospectus dated ____________)
$------------------
MELLON AUTO TRUST 199_-_
ISSUER
$_____________CLASS A ____% ASSET BACKED CERTIFICATES
$_____________CLASS B _____% ASSET BACKED CERTIFICATES
MELLON AUTO RECEIVABLES CORPORATION
DEPOSITOR
MELLON BANK, N.A.
SERVICER
The Depositor will form Mellon Auto Trust 199_-_ (the "Trust"), and the
Trust will issue $__________ aggregate principal balance of Class A ___% Asset
Backed Certificates (the "Class A Certificates") and $ aggregate principal
balance of Class B ___% Asset Backed Certificates (the "Class B Certificates").
The Class A Certificates and the Class B Certificates are collectively called
the "Certificates."
The assets of the Trust consist of a pool of motor vehicle retail
installment sale contracts and other motor vehicle installment chattel paper
(the "Receivables") secured by new and used automobiles, including passenger
cars, minivans, sport utility vehicles and light trucks.
The Certificates are obligations only of the Trust. Neither the
Certificates nor the Receivables are insured or guaranteed by any person. The
Certificates are not bank deposits and are NOT insured by the Federal Deposit
Insurance Corporation.
The Class B Certificates will involve more risks than the Class A
Certificates because distributions on the Class B Certificates will be made only
after payments are made on the Class A Certificates. THE CERTIFICATES INVOLVE
SIGNIFICANT RISKS. PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-__ IN THIS PROSPECTUS SUPPLEMENT AND
ON PAGE __ OF THE ATTACHED PROSPECTUS BEFORE MAKING A DECISION TO INVEST IN THE
CERTIFICATES.
---------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus Supplement or the attached Prospectus is accurate or complete. Making
any contrary representation is a criminal offense.
Subject to the satisfaction of certain conditions, the underwriter named
below (the "Underwriter") is offering the Class A Certificates and the Class B
Certificates at the price to public shown. The Certificates will be delivered in
book entry form only on or about ____________, 199_.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO THE
PRICE TO DISCOUNTS AND DEPOSITOR
PUBLIC COMMISSIONS (1)
<S> <C> <C> <C>
Per Class A Certificate............................. _______% _____% ______%
Per Class B Certificate............................. _______% _____% ______%
Total............................................... $____________ $__________ $____________
- --------------------
(1) Before deducting expenses, estimated to be $_________.
</TABLE>
[Underwriter]
The date of this Prospectus Supplement is __________, 199_.
<PAGE>
ADDITIONAL INFORMATION
In connection with this offering, the Underwriter may over-allot or effect
transactions which stabilize or maintain the market prices of the Certificates
at levels above those which might otherwise prevail in the open market, such
stabilizing, if commenced, may be discontinued at any time.
This Prospectus Supplement does not contain complete information about the
offering of the Certificates. Additional information is contained in the
attached Prospectus, and prospective investors are encouraged to read both this
Prospectus Supplement and the Prospectus in full. The Underwriter may not sell
the Certificates unless the Purchaser has received both this Prospectus
Supplement and the attached Prospectus.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
CAPTION PAGE
Prospectus
<PAGE>
SUMMARY OF TERMS
THIS SECTION GIVES A BRIEF SUMMARY OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT. THE SUMMARY DOES NOT INCLUDE ALL OF THE IMPORTANT
INFORMATION ABOUT THE CERTIFICATES. THE DEPOSITOR ENCOURAGES PROSPECTIVE
INVESTORS TO REVIEW CAREFULLY THE MORE DETAILED INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND IN THE ATTACHED PROSPECTUS.
ISSUER................................ Mellon Auto Trust 199__-__. (the "Trust"
or the "Issuer") is a Delaware business
trust. The Trust will be established
pursuant to a Pooling and Servicing
Agreement to be dated as of ___________,
199_ (the "Agreement") among the
Depositor, the Seller, the Servicer and
the Trustee.
DEPOSITOR............................. Mellon Auto Receivables Corporation (the
"Depositor") is a wholly-owned
subsidiary of Mellon Bank, N.A. See "The
Depositor" in the attached Prospectus
(the "Prospectus").
SERVICER.............................. Mellon Bank, N.A. (in such capacity, the
"Servicer"). See "The Servicer" herein
and in the Prospectus.
SELLER................................ Mellon Bank, N.A. (in such capacity, the
"Seller").
TRUSTEE AND COLLATERAL AGENT........... ______________________, a
_______________ _____________, not in
its individual capacity, but solely as
trustee for the Trust (the "Trustee")
and as collateral agent with respect to
the Reserve Fund (the "Collateral
Agent").
CLOSING DATE........................... On or about ________, 199_.
CUTOFF DATE............................ The [close] [opening] of business on
_____, 199__.
THE CERTIFICATES
GENERAL....................... The Trust will issue two classes of
Certificates (each, a "Class") with one
class of senior certificates (the "Class
A Certificates") and one class of
subordinated certificates (the "Class B
Certificates" and, together with the
Class A Certificates, the
"Certificates") pursuant to the
Agreement. The Class A Certificates will
be issued in an initial aggregate
principal amount of $________ (the
"Original Class A Principal Balance")
and will evidence in the aggregate an
ownership interest in approximately __%
of the Trust (the "Class A Percentage").
The Class B Certificates will be issued
in an initial aggregate principal amount
of $_________________ (the "Original
Class B Principal Balance") and will
evidence in the aggregate an ownership
interest in approximately ____% of the
Trust (the "Class B Percentage").
DISTRIBUTION DATES............ _______ day of each month or, if the ___
day is not a business day, the first
business day after the ___, beginning in
_________, 199_ (each, a "Distribution
Date").
RECORD DATE................... The "Record Date" for each Distribution
Date will be the last day of the
calendar month prior to the calendar
month that includes the applicable
Distribution Date.
MINIMUM DENOMINATIONS......... $25,000 and integral multiples of $1,000
in excess thereof.
REGISTRATION.................. The Certificates will be issued in book
entry form. Investors in the
Certificates will hold beneficial
interests in the Certificates through
the Depository Trust Company ("DTC") in
the United States or Cedel Bank, societe
anonyme ("Cedel") or the Euroclear
System ("Euroclear") in Europe. See
"Certain Information Regarding the
Securities" in the Prospectus.
CLASS A PASS-THROUGH RATE..... _____% per annum.
CLASS B PASS-THROUGH RATE..... ____ % per annum.
INTEREST PERIOD............... The "Interest Period" for each
Distribution Date will be the period
beginning on (and including) the prior
Distribution Date (or in the case of the
first Distribution Date, beginning on
(and including) the Closing Date) and
ending on (and including) the day before
the applicable Distribution Date.
INTEREST CALCULATIONS......... Interest due on each Class of
Certificates on a Distribution Date will
consist of (1) 30 days' interest at the
applicable Pass-Through Rate on the
amount of such Certificates on the day
before the applicable Distribution Date,
(2) any interest remaining unpaid on
such Certificates from prior
Distribution Dates and (3) 30 days'
interest at the applicable Pass-Through
Rate on any interest not paid on the
prior Distribution Date if permitted by
law.
No distributions of interest on the
Class B Certificates will be made on any
Distribution Date until the full amount
of interest on the Class A Certificates
payable on such Distribution Date has
been distributed.
PRINCIPAL..................... No distributions of principal of the
Class B Certificates will be made on any
Distribution Date until the full amount
of interest on and principal of the
Class A Certificates and interest on the
Class B Certificates payable on such
Distribution Date has been distributed.
The Class A Percentage will equal 100%
until the Class A Certificates have been
paid in full.
Principal distributions on the Class A
Certificates will be made on each
Distribution Date on the principal
balance of the Class A Certificates (the
"Class A Principal Balance") on the day
before the applicable Distribution Date
and will be comprised of the following:
o the Class A Percentage of amounts
remaining in the Collection Account
after the payment of interest
distributions on the Class A
Certificates and the Class B
Certificates and the Total
Servicing Fee
o the Class A Percentage of certain
losses incurred after the
liquidation of any Receivables
o principal not paid on the Class A
Certificates on any preceding
Distribution Date
Principal distributions on the Class B
Certificates will be made on each
Distribution Date on the principal
balance of the Class B Certificates (the
"Class B Principal Balance") on the day
before the applicable Distribution Date
and will be comprised of the following:
o the Class B Percentage of amounts
remaining in the Collection Account
after the payment of interest
distributions on the Class A
Certificates and the Class B
Certificates, principal of the
Class A Certificates and the Total
Servicing Fee
o the Class B Percentage of certain
losses incurred after the
liquidation of any Receivables
o principal not paid on the Class B
Certificates on any preceding
Distribution Date
PRIORITY OF DISTRIBUTIONS......On each Distribution Date, distributions
on the Certificates will be made in the
following order of priority:
o interest on the Class A
Certificates
o interest on the Class B
Certificates
o principal of the Class A
Certificates
o principal of the Class B
Certificates
Each payment of interest and principal
includes any such amounts remaining
unpaid from prior Distribution Dates.
FINAL SCHEDULED
DISTRIBUTION DATE............ The Distribution Date in _______, _____
with respect to the Class A Certificates
and the Distribution Date in ______,
_______ with respect to the Class B
Certificates. Any portion of a Class of
Certificates that has not been paid on
or prior to the related Final Scheduled
Distribution Date will be due and
payable at that time.
TRUST PROPERTY......................... The property of the Trust (the "Trust
Property") includes:
o the Receivables
o all amounts received under the
Receivables after the Cutoff Date
o the Collection Account, the Class A
Distribution Account, the Class B
Distribution Account and the
Payahead Account
o security interests in the motor
vehicles that secure the
Receivables (the "Financed
Vehicles")
o the rights of the Seller to receive
proceeds from claims under certain
insurance policies and refunds of
premiums from other insurance
policies
o the rights of the Seller under
agreements with the Dealers that
sold the Financed Vehicles
o rights with respect to any
repossessed Financed Vehicles
o any and all proceeds of the
foregoing
THE RECEIVABLES........................ The Receivables are amounts owed by
individuals under retail installment
sale contracts with motor vehicle
dealers (the "Dealers").
The Depositor expects that the
Receivables will have the following
characteristics as of the Cutoff Date:
Number of contracts __________
Principal Amount $__________
Annual Percentage
Rates (APR) _____% to _____%
Weighted Average APR _____%
Original term (months) _____ to _____
Weighted Average
original term _____
Remaining term (months) _____ to _____
Weighted Average
remaining term _____
New ( %) _____
Used (%) _____
States (%)
PA _____
NJ _____
Balloon Loans (%) _____
OPTIONAL TERMINATION
SERVICER PURCHASE............. The Servicer may purchase the
Receivables when the principal amount of
the Receivables is 5% or less than it
was on the Cutoff Date.
AUCTION SALE.................. If the Servicer does not exercise its
option, the Indenture Trustee will
auction off (subject to a required
minimum bid) the remaining Receivables
when the principal amount is 5% or less
than it was on the Cutoff Date.
DISTRIBUTIONS................. In either case, Certificateholders will
receive the unpaid principal amount of
their Certificates plus all accrued but
unpaid interest.
RESERVE FUND.......................... The Trustee will create a reserve fund
(the "Reserve Fund"). On the Closing
Date, the Depositor will deposit in the
Reserve Fund cash or Eligible
Investments having a value of $______
(the "Reserve Fund Initial Deposit"). On
each Distribution Date amounts remaining
after distribution of the Total
Servicing Fee and amounts to be paid to
Class A Certificateholders and Class B
Certificateholders will be deposited in
the Reserve Fund until the amount equals
the Specified Reserve Balance. The
"Specified Reserve Balance" with respect
to any Distribution Date generally will
be equal to the greater of (a) _____% of
the sum of the Class A Principal Balance
and the Class B Principal Balance (after
giving effect to all distributions on
the Certificates on such Distribution
Date) or (b) _____% of the sum of the
Original Class A Principal Balance and
the Original Class B Principal Balance.
On each Distribution Date, the Trustee
will withdraw funds from the Reserve
Fund and deposit them in the Collection
Account if the amounts in the Collection
Account are not sufficient to make
distributions of interest or principal
on the Certificates.
TAX STATUS............................. Stroock & Stroock & Lavan LLP, special
Federal tax counsel to the Trust, is of
the opinion that the Trust will be
classified for federal income tax
purposes as a grantor trust and not as
an association taxable as a corporation.
Certificateholders must report their
respective allocable shares of income
earned on Trust assets (excluding
certain amounts retained by the
Depositor as described herein) and,
subject to certain limitations
applicable to individuals, estates and
trusts, may deduct their respective
allocable shares of reasonable servicing
and other fees. See "Federal Income Tax
Consequences" herein and in the
Prospectus.
ERISA CONSIDERATIONS................... The Class A Certificates may be
purchased by or on behalf of an employee
benefit plan or other retirement
arrangement that is 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"),
as well as any entity whose source of
funds for the purchase of Class A
Certificates includes plan assets by
reason of a plan or account investing in
such entity (each, a "Plan"), subject to
the considerations described herein.
Because the Class B Certificates are
subordinated to the Class A
Certificates, no Class B Certificate may
be purchased by or on behalf of a Plan
other than an "insurance company general
account" as defined in, and which
complies with the provisions of,
Prohibited Transaction Exemption 95-60
which may be deemed to be holding Plan
assets. See "ERISA Considerations"
herein and in the Prospectus.
RATINGS................................ It is a condition to the issuance of the
Certificates that the Class A
Certificates be rated __________ and
that the Class B Certificates be rated
________________ by at least two
nationally recognized rating agencies.
See "Risk Factors--Withdrawal or
Downgrading of Initial Ratings Affects
Prices" herein.
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE CERTIFICATES INVOLVES SIGNIFICANT RISKS. BEFORE
PROSPECTIVE INVESTORS DECIDE TO INVEST, THEY SHOULD CONSIDER THE FOLLOWING RISK
FACTORS AND THE RISK FACTORS SPECIFIED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE __ OF THE PROSPECTUS.
THERE IS NO ESTABLISHED SECONDARY MARKET
The Certificates will not be listed on any securities exchange. As a
result, an investor in the Certificates that wished to sell those Certificates
must locate a purchaser that is willing to purchase those Certificates. The
Underwriter intends to make a secondary market for the Certificates. The
Underwriter will do so by offering to buy the Certificates from investors that
wish to sell. However, the Underwriter will not be obligated to make offers to
buy the Certificates and may stop making offers at any time. In addition, the
prices offered, if any, may not reflect prices that other potential purchasers,
were they to be given the opportunity, would be willing to pay. There have been
times in the past where there have been very few buyers of asset backed
securities (i.e., there has been a lack of liquidity), and there may be such
times in the future. As a result, an investor in the Certificates may not be
able to sell the investor's Certificates when the investor wishes to do so or
may not be able to obtain the price the investor wishes to receive.
[GEOGRAPHIC CONCENTRATION CREATES ADDITIONAL RISKS
Economic conditions in the states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables. As of the Cutoff Date, the billing addresses of the Obligors
with respect to approximately %, _____%, and _____% by principal balance of the
Receivables were located in __________, __________ and ________, respectively.
Economic conditions in any state or region may decline over time and from time
to time. Because of the concentration of the Obligors in certain states, any
adverse economic conditions in those states may have a greater effect on the
performance of the Certificates than if the concentration did not exist. See
"The Receivables Pool" herein.]
CLASS B CERTIFICATES INVOLVE MORE RISKS THAN CLASS A CERTIFICATES
The Class B Certificateholders will not receive any distribution of
interest until the full amount of interest on the Class A Certificates has been
deposited in the Class A Distribution Account on each Distribution Date. The
Class B Certificateholders will not receive any distributions of principal until
the full amount of principal of the Class A Certificates has been deposited in
the Class A Distribution Account and the Class A Certificates have been paid in
full. In addition, the Trust does not have, nor is it permitted or expected to
have, any significant assets or sources of funds other than the Receivables and
the Reserve Fund. Consequently, holders of the Certificates must rely for
repayment upon payments on the Receivables, and, if and to the extent available,
amounts on deposit in the Reserve Fund. Amounts on deposit in the Reserve Fund,
if any, will be available on any Distribution Date to cover shortfalls in
distributions of interest and principal on the Certificates in the same order of
priority as described in this Prospectus Supplement under "Summary of Terms--The
Certificates--Priority of Distributions" with distributions of principal of the
Class B Certificates having the lowest priority. If funds in the Reserve Fund
are exhausted, the Trust will depend solely on current distributions on the
Receivables to make payments on the Certificates. In addition, in such event,
delinquent payments on the Receivables may result in a shortfall in the
distributions on the Class B Certificates on any Distribution Date due to the
priority of distributions on the Class A Certificates.
BALLOON LOANS CREATE ADDITIONAL RISKS
As of the Cutoff Date, approximately _____% of the aggregate principal
balance of the Receivables, constituting _____% of the number of Receivables,
are Balloon Loans. "Balloon Loans" have a stated maturity of less than the
period of time of the corresponding amortization schedule. As a result, upon the
maturity of a Balloon Loan, the Obligor will be required to make a balloon
payment (a "Balloon Payment") which will be larger than such Obligor's other
scheduled monthly payments. The ability of such an Obligor to repay a Balloon
Loan at maturity frequently will depend on such Obligor's ability to refinance
the Receivable. See "Risk Factors--Balloon Loans" and "Maturity and Prepayment
Considerations--Balloon Loans" in the Prospectus.
FEDERAL INCOME TAXATION RISKS OF THE CLASS B CERTIFICATES
It is expected that, for federal income tax purposes, amounts otherwise
payable to the owners of the Class B Certificates that are paid to the owners of
the Class A Certificates in accordance with the provisions described above under
"--Class B Certificates Involve More Risks than Class A Certificates" will be
deemed to have been received by the owners of the Class B Certificates and then
paid by them to the owners of the Class A Certificates pursuant to a guaranty.
Accordingly, the owners of the Class B Certificate could be liable for taxes on
amounts not actually received. See "Federal Income Tax Consequences" herein and
"Federal Income Tax Consequences--Trusts Treated as Grantor Trusts" in the
Prospectus.
WITHDRAWAL OR DOWNGRADING OF INITIAL RATINGS AFFECTS PRICES
It is a condition to the issuance of the Class A Certificates that they be
rated _________ by at least two nationally recognized rating agencies (the
"Rating Agencies"). It is a condition to the issuance of the Class B
Certificates that they be rated at least "___" or its equivalent by the Rating
Agencies. A security rating is not a recommendation to buy, sell or hold
securities. Similar ratings on different types of securities do not necessarily
mean the same thing. Prospective investors are encourages to analyze the
significance of each rating independently of any other rating. Any Rating Agency
may change its rating of the Certificates after those Certificates are issued if
that Rating Agency believes that circumstances have changes. Any subsequent
change in a rating will likely affect the price that a subsequent purchaser will
be willing to pay for the Certificates.
FORMATION OF THE TRUST
Pursuant to the Agreement, the Depositor will establish the Trust by
selling and assigning the Receivables and the other Trust Property to the Trust
in exchange for the Certificates. The Depositor will sell the Certificates to
the Underwriter in exchange for cash. All references herein to sales,
assignments and transfers to the Trust refer to sales, assignments and transfers
to the Trustee on behalf of the Trust for the benefit of the Certificateholders.
Prior to such sale and assignment, the Trust will have no assets or obligations
or any operating history. Upon formation, the Trust will not engage in any
business activities other than acquiring and holding the Receivables, issuing
the Certificates and distributing payments thereon.
The Servicer will, directly or through subservicers, hold the Receivables
and the certificates of title or ownership or other documents evidencing the
notation of the Seller's lien on the certificates of title or ownership relating
to the Financed Vehicles as custodian for the Trustee. However, the Receivables
will not be marked or stamped to indicate that they have been sold to the Trust,
and the certificates of title for the Financed Vehicles will not be endorsed or
otherwise amended to identify the Trustee as the new secured party. Under the
foregoing circumstances and in certain jurisdictions, the Trust's interest in
the Receivables and the Financed Vehicles may be defeated. See "Risk
Factors--Failure to Note Transfer on Title Documents May Cause Losses" and
"Certain Legal Aspects of the Receivables" in the Prospectus.
The Trust will not acquire any contracts or assets other than the Trust
Property, and it is not anticipated that the Trust will have any need for
additional capital resources. Because the Trust will have no operating history
upon its establishment and will not engage in any business activity other than
acquiring and holding the Trust Property, issuing the Certificates and
distributing payments thereon, no historical or pro forma financial statements
or ratios of earnings to fixed charges with respect to the Trust have been
included herein.
THE TRUST PROPERTY
Each Certificate represents a fractional undivided interest in the Trust.
The Trust Property will include the Receivables, which were originated
indirectly by Dealers and purchased indirectly by the Seller pursuant to
agreements with Dealers ("Dealer Agreements"). On the Closing Date, the
Depositor will buy the Receivables from the Seller and the Depositor will sell
the Receivables to the Trust. The Servicer will, directly or through
subservicers, service the Receivables. The Trust Property also includes (i) all
monies received under the Receivables on and after the Cutoff Date and, with
respect to Receivables which are Actuarial Receivables, monies received
thereunder prior to the Cutoff Date that are due on or after the Cutoff Date,
(ii) such amounts as from time to time may be held in the Collection Account,
the Reserve Account, the Payahead Account, the Class A Distribution Account and
the Class B Distribution Account established and maintained by the Servicer
pursuant to the Agreement as described below, (iii) security interests in the
Financed Vehicles, (iv) the rights of the Seller to receive proceeds from claims
under certain insurance policies, (v) the rights of the Trust under the
Agreement, (vi) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or the retail purchasers of, or other persons owing payments on, the
Financed Vehicles (the "Obligors"), (vii) all right, title and interest of the
Seller (other than with respect to any Dealer commission) with respect to the
Receivables under the related Dealer Agreements, and (viii) rights with respect
to any repossessed Financed Vehicles, and (ix) all proceeds (within the meaning
of the UCC) of the foregoing.
The Reserve Fund will be maintained in the name of the Trustee for the
benefit of the Certificateholders, but will not be part of the Trust.
THE RECEIVABLES POOL
POOL COMPOSITION
The Receivables were selected from the Seller's portfolio by several
criteria, including, as of the Cutoff Date, the following: each Receivable has a
scheduled maturity of not later than either Final Scheduled Distribution Date;
each Receivable was originated in the United States of America; each Receivable
has an original term to maturity of not more than __ months and a remaining term
to maturity of __ months or less as of the Cutoff Date; approximately ___% of
the Initial Pool Balance was secured by new Financed Vehicles, and approximately
___% of the Initial Pool Balance was secured by used Financed Vehicles; each
Receivable provides for level monthly payments which fully amortize the amount
financed (except, in the case of Simple Interest Receivables, for the last
payment, which may be different from the level payment); each Receivable is not
more than __ days contractually past due as of the Cutoff Date and is not more
than _______ months paid ahead; each Receivable has an outstanding principal
balance between $ and $ ; and each Receivable has an APR of no less than _____%.
As of the Cutoff Date, no Obligor on any Receivable was noted in the related
records of the Servicer as being the subject of any pending bankruptcy or
insolvency proceeding. The latest scheduled maturity of any Receivable is not
later than _____. No selection procedures believed by the Depositor to be
adverse to Certificateholders were used in selecting the Receivables.
The composition, distribution by remaining term, distribution by APR,
geographic distribution and distribution by remaining principal of the
Receivables as of the Cutoff Date are set forth in the tables below. The
percentages in the following tables may not add to 100% due to rounding.
<TABLE>
<CAPTION>
COMPOSITION OF THE RECEIVABLES AS OF THE CUTOFF DATE
New Financed Used Financed
Vehicles Vehicles Total
<S> <C> <C> <C>
Aggregate Principal Balance..................... $ $ $
Number of Receivables...........................
Average Principal Balance....................... $ $ $
Average Original Balance........................ $ $ $
Weighted Average Contract Rate.................. % % %
Contract Rate (Range)........................... _____%-____% _____%-____% _____%-____%
Weighted Average Original Term.................. months months months
Original Term (Range)........................... months months months
Weighted Average Remaining Term................. months months months
Remaining Term (Range).......................... months months months
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING TERM OF THE RECEIVABLES AS OF THE CUTOFF DATE
Remaining Term Number of Aggregate Principal Percentage of Original
(RANGE) RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
Less than 30 months........................... $ %
30 to 35 months...............................
36 to 41 months...............................
42 to 47 months...............................
48 to 53 months...............................
54 to 59 months...............................
60 to 65 months...............................
66 to 71 months...............................
72 to 77 months...............................
78 t o 89 months..............................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE RECEIVABLES AS OF
THE CUTOFF DATE
Annual Percentage Number of Aggregate Principal Percentage of Original
RATE RAMGE RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
8.00% to below................................ $ %
8.00% to 8.99%..........................
9.00% to 9.99%..........................
10.00% to 10.99%........................
11.00% to 11.99%........................
12.00% to 12.99%........................
13.00% to 13.99%........................
14.00% to 14.99%........................
15.00% to 15.99%........................
16.00% to 16.99%........................
17.00% to 17.99%........................
18.00% to 18.99%........................
19.00% to 19.99%........................
20.00% to 20.99%........................
21.00% to 21.99%........................
22.00% and above........................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE
Number of Aggregate Principal Percentage of Original
STATE(1) RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
- ------------................................... $ %
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
- ------------.............................
Others (2)...............................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
(1) Based on billing addresses of the Obligors as of the Cutoff Date, which
may differ from the state of origination of the Receivable.
(2) Includes __ other states and ____________. (none of which have a
concentration of Receivables in excess of ____% of the aggregate
principal balance).
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE RECEIVABLES
AS OF THE CUTOFF DATE
Remaining Principal Number of Aggregate Principal Percentage of Original
BALANCE (RANGE) RECEIVABLES BALANCE POOL BALANCE
<S> <C> <C> <C>
$ 2,500 to $ 4,999............................ $ %
$ 5,000 to $ 7,499.....................
$ 7,500 to $ 9,999.....................
$10,000 to $12,499.....................
$12,500 to $14,999.....................
$15,000 to $17,499.....................
$17,500 to $19,999.....................
$20,000 to $22,499.....................
$22,500 to $24,999.....................
$25,000 to $27,499.....................
$27,500 to $29,999.....................
$30,000 to $32,499.....................
$32,500 to $34,999.....................
$35,000 to $37,499.....................
$37,500 to $39,999.....................
$40,000 to $41,499.....................
$42,500 to $44,999.....................
$45,000 to $47,499.....................
$47,500 to $49,999.....................
$50,000 to $52,499.....................
$52,500 to $54,999.....................
-------------- ------------ -------%
Total................................
$ 100.00%
============== ================= =======
</TABLE>
<PAGE>
As of the Cutoff Date, approximately __% of the aggregate principal balance
of the Receivables, constituting __% of the number of Receivables, were between
1 payment and __ payments paid-ahead.
As of the Cutoff Date, approximately ___% of the aggregate principal
balance of the Receivables, constituting __% of the number of Receivables, are
Actuarial Receivables. "Actuarial Receivables" are receivables that provide for
amortization of the amount financed over a series of fixed, level-payment
monthly installments. Each monthly installment, including the monthly
installment representing the final payment on the Receivable, consists of an
amount of interest equal to 1/12 of the Annual Percentage Rate ("APR") of the
amount financed multiplied by the unpaid principal balance of the amount
financed, and an amount of principal equal to the remainder of the monthly
payment.
As of the Cutoff Date, approximately ___% of the aggregate principal
balance of the Receivables, constituting ___% of the number of Receivables, are
Simple Interest Receivables. "Simple Interest Receivables" are receivables that
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 an Actuarial Receivable, each monthly payment includes 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 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.
If an Actuarial Receivable is prepaid in full, with minor variations based
upon state law, under the terms of the motor vehicle retail installment sale
contract or loan agreement, as the case may be, a "refund" or "rebate" will be
made to the borrower of the portion of the total amount of payments then due and
payable under such contract or agreement allocable to "unearned" interest,
calculated on the basis of a constant interest rate. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the borrower is required to
pay interest only to the date of prepayment. The amount of a rebate under an
Actuarial Receivable generally will be less than the remaining scheduled
payments of interest that would have been due under a Simple Interest Receivable
for which all payments were made on schedule.
The Servicer may accede to an Obligor's request to pay scheduled payments
in advance, in which event the Obligor will not be required to make another
regularly scheduled payment until the time a scheduled payment not paid in
advance is due. The amount of any payment (which are not amounts representing
Payaheads) made in advance will be treated as a principal prepayment and will be
distributed as part of the Principal Distribution Amount in the month following
the Collection Period in which the prepayment was made. See "Maturity and
Prepayment Considerations" in the Prospectus.
THE SERVICER
GENERAL
As of _________________, the Servicer serviced approximately [_____] retail
installments sale contracts, consisting primarily of new and used automobile
(including passenger car, minivan, sport/utility vehicles and light truck)
receivables, representing an outstanding balance of approximately [____]
million. As of ________________, the Servicer serviced approximately [_____]
automobile leases equaling approximately $_____ billion of automobile lease
receivables. See "The Servicer" in the Prospectus.
DELINQUENCIES AND LOSS
Set forth below is certain information concerning the historical
delinquency and loss experience of Mellon Bank, N.A. and its subsidiaries
pertaining to new and used automobile (including passenger car, minivan,
sport/utility vehicle and light truck) receivables originated directly or
indirectly by Mellon Bank, N.A. and its subsidiaries. There can be no assurance
that the delinquency and loss experience on the Receivables will be comparable
to that set forth below.
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
At
____________________________ ____________________________ ____________________________
199_
____________________________ ____________________________ ____________________________
Number Number Number
of of of
DOLLARS LOANS Percent DOLLARS LOANS Percent DOLLARS LOANS Percent
------- ----- ------- ------- ------- ------- ------- ----- -------
Principal Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding(1)....... $ $ $
Delinuencies(2)......
30-59 Days % % %
60-89 Days % % %
90 Days or more.... % % %
Total Delinquencies
as a Percentage
of the Total
Amount Outstanding... $ % $ % $ %
======== ==== ===== ======== ====== ===== ========= ======== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
____________________________ ____________________________
199_ 199_
____________________________ ____________________________
Number Number
of of
DOLLARS LOANS Percent DOLLARS LOANS Percent
------- ----- ------- ------- ------- -------
Principal Amount
<S> <C> <C> <C> <C> <C> <C>
Outstanding(1)....... $ $
Delinuencies(2)......
30-59 Days % %
60-89 Days % %
90 Days or more.... % %
Total Delinquencies
as a Percentage
of the Total
Amount Outstanding... $ % $ %
======== ==== ===== ======== ====== =====
(1) Principal Amount Outstanding is the aggregate remaining principal balance
of all Receivables serviced, net of unearned interest. (2) The period of
delinquency is based on the number of days scheduled payments are
contractually past due. Includes repossessions on hand which have not been
charged-off. A receivable is 30 days contractually past due if a scheduled
payment has not been received by the subsequent calendar month's scheduled
payment date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
For _____ Months Ended , For Year Ended December 31,
_______________ _______________ 199_ 199_ 199_
Period End Principal
<S> <C> <C> <C> <C> <C>
Amount Outstanding(1)...... $ $ $ $ $
Average Principal Amount
Outstanding(2).............. $ $ $ $ $
Number of Loans Outstanding
(as of period end).........
Average Number of Loans
Outstanding(2)..............
Number of Repossessions.....
Gross Losses(3)............. $ $ $ $ $
Recoveries (4)..............
Net Losses(5)...............
Net Losses as a Percent of
Principal Amount
Outstanding................. % % % % %
Net Losses as a Percentage of
Average Principal Amount
Outstanding................. % % % % %
- ------------------------------
(1) Principal Amount Outstanding is the aggregate remaining principal balance
of all Receivables serviced, net of unearned interest.
(2) Average of the month-end balances for each of the twelve months in the
applicable calendar year.
(3) Gross Losses is the aggregate remaining principal balance.
(4) Recoveries is any proceeds from the liquidation of the related vehicle and
post-disposition monies received on previously charged-off contracts
including proceeds of liquidation of the related vehicle after the related
charge-off.
(5) Net Losses is equal to Gross Losses less Recoveries.
</TABLE>
Delinquencies and Net Losses are affected by a number of social and
economic factors, including changes in interest rates and unemployment levels,
and there can be no assurance as to the level of future total delinquencies or
the severity of future net charge-offs. As a result, the delinquency and net
charge-off experience of the Receivables may differ from those shown in the
tables.
YEAR 2000 COMPLIANCE
The Servicer has made and will continue to make investments to identify,
modify or replace any computer systems which are not year 2000 compliant and to
address other related issues associated with the change of the millennium. In
the event that computer problems arise out of a failure of such efforts to be
completed on time, or in the event that the computer systems of the Servicer or
the Trustee are not fully year 2000 compliant, the resulting disruptions in the
collection or distribution of receipts on the Receivables could materially and
adversely affect the Certificateholders.
[WEIGHTED AVERAGE LIFE OF THE CERTIFICATES]
[Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus, the Absolute
Prepayment Model ("ABS"), represents an assumed rate of prepayment each month
relative to the original number of receivables in a pool of receivables. ABS
further assumes that all the receivables are the same size and amortize at the
same rate and that each receivable in each month of its life will either be paid
as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
As the rate of payment of principal of the Certificates will depend on the
rate of payment (including prepayments) of the principal balance of the
Receivables, the final distribution in respect of the Certificates could occur
significantly earlier than the Final Scheduled Distribution Date for the
Certificates. Reinvestment risk associated with early payment of the
Certificates will be borne exclusively by the Certificateholders.
The table captioned "Percent of Original Class A Principal Balance or
Original Class B Principal Balance at Various ABS Percentages" (the "ABS Table")
has been prepared on the basis of the characteristics of the Receivables. The
ABS Table assumes that (i) the Receivables prepay in full at the specified
constant percentage of ABS monthly, with no defaults, losses or repurchases,
(ii) each scheduled monthly payment on the Receivables is made on the last day
of each month and each month has 30 days, (iii) distributions on the
Certificates are made on each Distribution Date (and each such date is assumed
to be the ____ day of each applicable month), (iv) the balance in the Reserve on
each Distribution Date is equal to the Specified Reserve Balance, and (v) the
Servicer does not exercise its option to purchase the Receivables. The first two
pools have an assumed cutoff date of and the remaining pools have an assumed
cutoff date of . The ABS Table sets forth the percent of the Original Class A
Principal Balance and the percent of the Original Class B Principal Balance that
would be outstanding after each of the Distribution Dates shown and the
corresponding weighted average lives thereof at various constant ABS
percentages.
The ABS Table also assumes that the Receivables have been aggregated into
four hypothetical pools with all of the Receivables within each such pool having
the following characteristics and that the level scheduled monthly payment for
each of the four pools (which is based on its aggregate principal balance, APR,
original term to maturity as of the Cutoff Date) will be such that each pool
will fully amortize by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
Remaining Term WEIGHTED ORIGINAL TERM REMAINING TERM TO
to Maturity Aggregate AVERAGE TO MATURITY MATURITY
RANGE (IN MONTHS) PRINCIPAL BALANCE CONTRACT RATE (IN MONTHS) (IN MONTHS)
<S> <C> <C> <C> <C> <C>
1................................ $ %
2................................ $ %
3................................ $ %
4................................ $ %
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Table. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
four hypothetical pools could produce slower or faster principal distributions
than indicated in the ABS Table at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of the Class A Certificates and the Class B
Certificates.]
PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
Class A
Certificates
Assumed ABS Percentage
DISTRIBUTION DATES ____% ____% ____% ____%
Closing Date....................... 100 100 100 100
_________________..................
- -----------------..................
- -----------------..................
- -----------------..................
- ---------------
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
<PAGE>
PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
Class B
Certificates
Assumed ABS Percentage
DISTRIBUTION DATES ____% ____% ____% ____%
Closing Date....................... 100 100 100 100
_________________..................
- -----------------..................
- -----------------..................
- -----------------..................
- ---------------
The ABS Tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
Receivables which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be applied by the
Trust to the purchase of the Receivables and the other Trust Property from the
Depositor. The Depositor will use the net proceeds paid to it by the Trust to
acquire the Receivables from the Seller and to make the Reserve Fund Initial
Deposit.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement, substantially in
the form filed as an exhibit to the Registration Statement. The following
information summarizes all material provisions of the Certificates and the
Agreement. The summary is qualified in its entirety by reference to the
Certificates and the Agreement. The following summary supplements the
description of the general terms and provisions of the Certificates of any given
Series and the related Agreement set forth in the Prospectus, to which
description reference is hereby made.
GENERAL
The Certificates will evidence fractional undivided interests in the assets
of the Trust to be created pursuant to the Agreement. The Class A Certificates
will evidence in the aggregate an undivided ownership interest of __% of the
Trust and the Class B Certificates will evidence in the aggregate an undivided
ownership interest of __% of the Trust.
THE POOLING AND SERVICING AGREEMENT
SALE AND ASSIGNMENT OF THE RECEIVABLES
Certain information regarding the conveyance of the Receivables by the
Seller to the Depositor and by the Depositor to the Trust on the Closing Date
pursuant to the Agreement is set forth in the Prospectus under "Description of
the Transfer and Servicing Agreements--Sale and Assignment of Receivables."
ACCOUNTS
[The assets of the Trust will not include a Pre-Funding Account.] All other
Accounts referred to under "Description of the Transfer and Servicing
Agreements--Accounts" in the Prospectus, will be established by the Servicer and
maintained with the Trustee in the name of the Trustee on behalf of the
Certificateholders. The Reserve Fund will be established by the Servicer as a
segregated account with the Collateral Agent on behalf of the
Certificateholders.
SERVICING COMPENSATION
The Servicer will be entitled to receive a fee (the "Servicing Fee") for
each Collection Period in an amount equal to the product of one-twelfth of ___%
per annum for as long as Mellon Bank, N.A. or an affiliate thereof is the
Servicer, and ___% per annum if Mellon Bank, N.A. or an affiliate thereof is no
longer the Servicer (the "Servicing Fee Rate") and the Pool Balance as of the
first day of the Collection Period. The "Servicing Fee" will also include
amounts to be paid to the Servicer as described in the Prospectus. The Servicing
Fee, together with any portion of the Servicing Fee that remains unpaid from
prior Distribution Dates (the "Total Servicing Fee"), will be paid from the
Total Distribution Amount. The Total Servicing Fee will be paid prior to the
distribution of any portion of the Interest Distribution Amount to the
Certificateholders. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" in the Prospectus.
DISTRIBUTIONS ON CERTIFICATES
DEPOSITS TO COLLECTION ACCOUNT. On or before the earlier of the eighth
Business Day of the month in which a Distribution Date occurs and the fourth
Business Day preceding such Distribution Date (the "Determination Date"), the
Servicer will provide the Trustee with certain information with respect to the
preceding Collection Period, including the amount of aggregate Collections on
the Receivables, the aggregate amount of Liquidated Receivables, the Advances,
if any, to be made by the Servicer of interest and principal due on the
Actuarial Receivables, the amount, if any, to be withdrawn from the Payahead
Account and deposited in the Collection Account, the amount, if any, to be
withdrawn from the Reserve Fund and deposited in the Collection Account, the
amount, if any, to be withdrawn from the Reserve Fund and paid to the Depositor,
in each case, with respect to such Distribution Date and the aggregate Purchase
Amount of Receivables to be repurchased by the Seller or to be purchased by the
Servicer, in each case with respect to such Distribution Date.
On or before each Distribution Date, the Servicer will cause the Trustee to
withdraw from the Payahead Account and (i) deposit into the Collection Account
in immediately available funds, the portion of Payaheads constituting scheduled
payments on Actuarial Receivables or that are to be applied to prepay Actuarial
Receivables in full and (ii) distribute to the Depositor, in immediately
available funds, all investment earnings on funds in the Payahead Account with
respect to the preceding Collection Period. On or before each Distribution Date
the Servicer will deposit any Advances for such Distribution Date into the
Collection Account. On or before the Business Day preceding each Distribution
Date, the Servicer will cause the Interest Collections and the Principal
Collections for such Distribution Date to be deposited into the Collection
Account.
"Collections" for any Distribution Date will equal the sum of Interest
Collections and Principal Collections for the related Distribution Date.
"Interest Collections" for any Distribution Date will equal the sum of the
following amounts with respect to any Distribution Date, computed, with respect
to Simple Interest Receivables, in accordance with the simple interest method,
and with respect to Actuarial Receivables, in accordance with the actuarial
method: (i) that portion of all collections on the Receivables allocable to
interest in respect of the preceding Collection Period (including, with respect
to Actuarial Receivables, amounts withdrawn from (the Payahead Account and
allocable to interest and excluding amounts deposited into the Payahead Account
and allocable to interest, in each case, in respect of the preceding Collection
Period): (ii) all proceeds (other than any proceeds from any Dealer commission)
of the liquidation of Liquidated Receivables, net of expenses incurred by the
Servicer in connection with such liquidation and any amounts required by law to
be remitted to the Obligor on such Liquidated Receivables ("Liquidation
Proceeds"), to the extent attributable to interest due thereon, which became
Liquidated Receivables during such Collection Period in accordance with the
Servicer's customary servicing procedures, (iii) all Advances made by the
Servicer of interest due on the Actuarial Receivables in respect of the
preceding Collection Period; (iv) the Purchase Amount of each Receivable that
was repurchased by the Seller or purchased by the Servicer during such
Collection Period, to the extent attributable to accrued interest thereon; (v)
all monies collected, from whatever source (other than any proceeds from any
Dealer commission), in respect of Liquidated Receivables during any Collection
Period following the Collection Period in which such Receivable was written off,
net of the sum of any amounts expended by the Servicer for the account of the
Obligor and any amounts required by law to be remitted to the Obligor
("Recoveries") and (vi) Investment Earnings for such Distribution Date;
provided, however, that in calculating the Interest Collections, all payments
and proceeds (including Liquidation Proceeds) of any Receivables (i) repurchased
by the Seller or purchased by the Servicer, the Purchase Amount of which has
been included in the Interest Collections on a prior Distribution Date and (ii)
received on Actuarial Receivables and distributed to the Servicer, with respect
to such Distribution Date, as reimbursement for any unreimbursed Advances in
accordance with the Agreement, shall all be excluded.
"Principal Collections" for any Distribution Date will equal the sum of the
following amounts with respect to any Distribution Date, computed, with respect
to Simple Interest Receivables, in accordance with the simple interest method,
and with respect to Actuarial Receivables, in accordance with the actuarial
method: (i) that portion of all collections on the Receivables allocable to
principal in respect of the preceding Collection Period (including, with respect
to Actuarial Receivables, amounts withdrawn from the Payahead Account and
allocable to interest and excluding amounts deposited into the Payahead Account
and allocable to interest, in each case, in respect of the preceding Collection
Period); (ii) Liquidation Proceeds attributable to the principal amount of
Receivables which became Liquidated Receivables during the preceding Collection
Period in accordance with the Servicer's customary servicing procedures, with
respect to such Liquidated Receivables; (iii) all Advances made by the Servicer
or interest due on the Actuarial Receivables in respect to the preceding
Collection Period; (iv) the Purchase Amount of each Receivable repurchased by
the Seller or purchased by the Servicer during such Collection Period to the
extent attributable to principal; and (v) partial prepayments on Receivables in
respect of such Collection Period relating to refunds of extended service
contracts, or of physical damage, credit life, credit accident or health
insurance premium, disability insurance policy premium, but only if such costs
or premiums were financed by the respective Obligor and only to the extent not
included in clause (i) above, but only if such costs or premiums were financed
by the respective Obligor and only to the extent not included in clause (i)
above; provided, however, that in calculating the Principal Collections, all
payments and proceeds (including Liquidation Proceeds) of any Receivables (i)
repurchased by the Seller or purchased by the Servicer the Purchase Amount of
which has been included in the Principal Collections on a prior Distribution
Date, and (ii) received on Actuarial Receivables and distributed to the
Servicer, with respect to such Distribution Date, as reimbursement for any
unreimbursed Advances in accordance with the Agreement, shall all be excluded.
The "Principal Distribution Amount" for a Distribution Date shall be the
sum of the following amounts with respect to the preceding Collection Period:
(i) (a) with respect to Simple Interest Receivables, that portion of all
collections on the Receivable allocable to principal in respect of the preceding
Collection Period and (b) with respect to Actuarial Receivables the sum of (x)
the amount of all scheduled payments allocable to principal due during the
preceding Collection Period and (y) the portion of all prepayments in full
allocable to principal received during the preceding Collection Period, in the
case of both (a) and (b) without regard to any extensions or modifications
thereof effected alter the Cutoff Date, other than with respect to any
extensions or modifications in connection with Cram Down Losses during such
Collection Period; (ii) the principal balance of each Receivable that was
repurchased by the Seller or purchased by the Servicer in each case during the
preceding Collection Period (except to the extent included in (i) above); (iii)
the principal balance of each Liquidated Receivable which became such during the
preceding Collection Period (except to the extent included in (i) above); (iv)
partial prepayments on Receivables in respect of the preceding Collection Period
relating to refunds of extended service contracts, or of physical damage, credit
life, credit accident or health insurance premium, disability insurance policy
premiums, but only if such costs or premiums were financed by the respective
Obligor and only to the extent not included in clause (i) above; and (v) the
aggregate amount of Cram Down Losses during such Collection Period.
Interest Collections and Principal Collections on any Distribution Date
shall exclude all payments and proceeds (including Liquidation Proceeds) of any
Receivables the Purchase Amount of which has been included in Collections in a
prior Collection Period.
MONTHLY WITHDRAWALS FROM THE COLLECTION ACCOUNT. On each Distribution Date,
the Servicer shall instruct the Trustee to withdraw from the Collection Account
and deposit in the Payahead Account in immediately available funds, the
aggregate Payaheads collected during the preceding Collection Period. On each
Distribution Date, the Servicer shall instruct the Trustee to make the following
deposits and distributions, to the extent of Interest Collections (and, in the
case of shortfalls occurring under clause (ii) below in the Class A Interest
Distribution, the Class B Percentage of Principal Collections to the extent of
such shortfalls):
(i) to the Servicer, the Servicing Fee and all unpaid Servicing Fees from
prior Collection Periods (to the extent not retained by the Servicer as
described under "--Net Deposits" below);
(ii) to the Class A Distribution Account, after the application of clause
(i), the Class A Interest Distribution; and
(iii) to the Class B Distribution Account, after the application of clauses
(i) and (ii), the Class B Interest Distribution.
On each Distribution Date, the Servicer shall instruct the Trustee to make
the following deposits and distributions, to the extent of Principal Collections
and Interest Collections remaining after the application of clauses (i), (ii)
and (iii) above:
(iv) to the Class A Distribution Account, the Class A Principal
Distribution;
(v) to the Class B Distribution Account, after the application of clause
(iv), the Class B Principal Distribution; and
(vi) to the Reserve Fund, any amounts remaining after the application of
clauses (i) through (v).
To the extent necessary to satisfy the distributions described above, the
Servicer shall instruct the Trustee to withdraw from the Reserve Fund and
deposit in the Class A Distribution Account or the Class B Distribution Account
as described below in the following order of priority on each Distribution Date:
(i) an amount equal to the excess of the Class A Interest Distribution over
the sum of Interest Collections and the Class B Percentage of Principal
Collections will be deposited into the Class A Distribution Account:
(ii) an amount equal to the excess of the Class B Interest Distribution
over the portion of Interest Collections remaining after the distribution
of the Class A Interest Distribution will be deposited into the Class B
Distribution Account;
(iii) an amount equal to the excess of the Class A Principal Distribution
over the portion of Principal Collections and Interest Collections
remaining after the distribution of the Class A Interest Distribution and
the Class B Interest Distribution will be deposited into the Class A
Distribution Account; and
(iv) an amount equal to the excess of the Class B Principal Distribution
over the portion of Principal Collections and Interest Collections
remaining after the distribution of the Class A Interest Distribution, the
Class B Interest Distribution and the Class A Principal Distribution will
be deposited into the Class B Distribution Account.
On each Distribution Date, all amounts on deposit in the Class A
Distribution Account will be distributed to the Class A Certificateholders and
all amounts on deposit in the Class B Distribution Account will be distributed
to the Class B Certificateholders.
RELATED DEFINITIONS
For purposes hereof, the following terms have the following meanings:
"Collection Period" means, with respect to a Distribution Date, (i) in the
case of the initial Distribution Date, the period from and including the Cutoff
Date through and including _______ ___, ________ and (ii) thereafter, the
calendar month preceding the related Distribution Date.
"Cram Down Loss" means, with respect to a Receivable if a court of
appropriate jurisdiction in a bankruptcy or insolvency proceeding shall have
issued an order reducing the amount owed on such Receivable or otherwise
modifying or restructuring the scheduled payments to be made on such Receivable,
an amount equal to (i) the excess of the principal balance of such Receivable
immediately prior to such order over the principal balance of such Receivable as
so reduced and/or (ii) if such court shall have issued an order reducing the
effective rate of interest on such Receivable, the net present value (using as
the discount rate the higher 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.
"Class A Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of Class A Monthly Interest for the preceding
Distribution Date and any outstanding Class A Interest Carryover Shortfall on
such preceding Distribution Date, over the amount in respect of interest that is
actually deposited in the Class A Distribution Account on such preceding
Distribution Date, plus 30 days of interest on such excess, to the extent
permitted by law, at the Class A Pass-Through Rate.
"Class A Interest Distribution" means, with respect to any Distribution
Date, the sum of Class A Monthly Interest for such Distribution Date and the
Class A Interest Carryover Shortfall for such Distribution Date.
"Class A Monthly Interest" means, with respect to any Distribution Date,
the product of (i) one-twelfth (or, in the case of the first Distribution Date a
fraction, the numerator of which is equal to __ and the denominator of which is
360) of the Class A Pass-Through Rate and (ii) the Class A Principal Balance as
of the Distribution Date occurring in the preceding Collection Period (after
giving effect to any payments made on such Distribution Date) or, in the case of
the first Distribution Date, the Original Class A Principal Balance.
"Class A Monthly Principal" means, with respect to any Distribution Date,
the Class A Percentage of the Principal Distribution Amount for such
Distribution Date plus the Class A Percentage of Realized Losses with respect to
Receivables which became Liquidated Receivables during the related Collection
Period.
"Class A Principal Balance" equals the Original Class A Principal Balance,
as reduced by all amounts allocable to principal on the Class A Certificates
previously distributed to Class A Certificateholders.
"Class A Principal Carryover Shortfall" means, with respect to any
Distribution Date, the excess of Class A Monthly Principal for the preceding
Distribution Date and any outstanding Class A Principal Carryover Shortfall on
such preceding Distribution Date over the amount in respect of principal that is
actually deposited in the Class A Distribution Account on such preceding
Distribution Date.
"Class A Principal Distribution" means, with respect to any Distribution
Date, the sum of Class A Monthly Principal for such Distribution Date and the
Class A Principal Carryover Shortfall for such Distribution Date; provided,
however, that the Class A Principal Distribution shall not exceed the Class A
Principal Balance immediately prior to such Distribution Date. In addition, on
the Final Scheduled Distribution Date, the principal required to be deposited in
the Class A Distribution Account will include the lesser of (a) any principal
due and remaining unpaid on each Receivable in the Trust as of the Final
Scheduled Maturity Date or (b) the portion of the amount required to be
deposited under clause (a) above that is necessary (after giving effect to the
other amounts to be deposited in the Class A Distribution Account on such
Distribution Date and allocable to principal) to reduce the Class A Principal
Balance to zero.
"Class B Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of Class B Monthly Interest for the preceding
Distribution Date and any outstanding Class B Interest Carryover Shortfall on
such preceding Distribution Date, over the amount in respect of interest that is
actually deposited in the Class B Distribution Account on such preceding
Distribution Date, plus 30 days of interest on such excess, to the extent
permitted by law, at the Class B Pass-Through Rate.
"Class B Interest Distribution" means, with respect to any Distribution
Date, the sum of Class B Monthly Interest for such Distribution Date and the
Class B Interest Carryover Shortfall for such Distribution Date.
"Class B Monthly Interest" means, with respect to any Distribution Date,
the product of (i) one-twelfth (or, in the case of the first Distribution Date a
fraction, the numerator of which is equal to __ and the denominator of which is
360) of the Class B Pass-Through Rate and (ii) the Class B Principal Balance as
of the Distribution Date occurring in the preceding Collection Period (after
giving effect to any payments made on such Distribution Date) or, in the case of
the first Distribution Date, the Original Class B Principal Balance.
"Class B Monthly Principal" means, with respect to any Distribution Date,
the Class B Percentage of the Principal Distribution Amount for such
Distribution Date plus the Class B Percentage of Realized Losses with respect to
Receivables which became Liquidated Receivables during the related Collection
Period.
"Class B Principal Balance" equals the Original Class B Principal Balance,
as reduced by all amounts allocable to principal on the Class B Certificates
previously distributed to Class B Certificateholders.
"Class B Principal Carryover Shortfall" means, with respect to any
Distribution Date, the excess of Class B Monthly Principal for the preceding
Distribution Date and any outstanding Class B Principal Carryover Shortfall on
such preceding Distribution Date over the amount in respect of principal that is
actually deposited in the Class B Distribution Account on such preceding
Distribution Date.
"Class B Principal Distribution" means, with respect to any Distribution
Date, the sum of Class B Monthly Principal for such Distribution Date and the
Class B Principal Carryover Shortfall for such Distribution Date; provided,
however, that the Class B Principal Distribution shall not exceed the Class B
Principal Balance immediately prior to such Distribution Date. In addition, on
the Final Scheduled Distribution Date, the principal required to be distributed
to Class B Certificateholders will include the lesser of (a) any principal due
and remaining unpaid on each Receivable in the Trust as of the Final Scheduled
Maturity Date or (b) the portion of the amount required to be deposited under
clause (a) above that is necessary (after giving effect to the other amounts to
be deposited in the Class B Distribution Account on such Distribution Date and
allocable to principal) to reduce the Class B Principal Balance to zero, and, in
the case of clauses (a) and (b), remaining after any required distribution of
the amount described in clause (a) to the Class A Distribution Account.
"Liquidated Receivables" means, Receivables (i) which have been liquidated
by the Servicer through the sale of the related Financed Vehicle, (ii) as to
which all or a portion representing 10% or more of a scheduled payment due is
150 or more days delinquent or (iii) with respect to which proceeds have been
received which, in the Servicer's judgment, constitute the final amounts
recoverable in respect of such Receivable.
The "Pool Balance" at any time will represent the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments (other than Payaheads) received from Obligors,
Purchase Amounts and Advances to be remitted by the Depositor, the Servicer and
the Seller, as the case may be, all for such Collection Period, all losses
realized on Receivables that became Liquidated Receivables during such
Collection Period and all Cram Down Losses for such Collection Period.
"Realized Losses" means, for any period, the excess of the principal
balance of a Liquidated Receivable over Liquidation Proceeds to the extent
allocable to principal.
CREDIT ENHANCEMENT
SUBORDINATION OF THE CLASS B CERTIFICATES. The rights of the Class B
Certificateholders to receive distributions with respect to the Receivables will
be subordinated to the rights of the Class A Certificateholders to the extent
described below. This subordination is intended to enhance the likelihood of
timely receipt by Class A Certificateholders of the full amount of interest and
principal required to be paid to them, and to afford such Class A
Certificateholders limited protection against losses in respect of the
Receivables.
No interest distribution will be made to the Class B Certificateholders on
any Distribution Date in respect of interest until the full amount of interest
on the Class A Certificates payable on such Distribution Date has been
distributed to the Class A Certificateholders. No principal distribution will be
made to the Class B Certificateholders on any Distribution Date in respect of
principal until the full amount of interest on and principal of the Class A
Certificates and interest on the Class B Certificates payable on such
Distribution Date has been distributed to the Class A Certificateholders and the
Class B Certificateholders, respectively. Distributions of interest on the Class
B Certificates, however, to the extent of collections on or in respect of the
Receivables allocable to interest and certain available amounts on deposit in
the Reserve Fund, will not be subordinated to the payment of principal of the
Class A Certificates.
RESERVE FUND. In the event of delinquencies or losses on the Receivables,
the protection afforded to the Class A Certificateholders will be effected both
by the preferential right of the Class A Certificateholders to receive current
distributions with respect to the Receivables, to the extent described above
under "--Subordination of the Class B Certificates," prior to any distribution
being made on a Distribution Date to the Class B Certificateholders, and to
receive amounts on deposit in the Reserve Fund. Amounts on deposit in the
Reserve Fund will also be generally available to cover shortfalls in required
distributions to the Class B Certificateholders, in respect of interest, after
payment of interest on the Class A Certificates and, in respect of principal,
after payment of interest on and principal of the Class A Certificates and
interest on the Class B Certificates. The Reserve Fund will not be a part of or
otherwise includible in the Trust and will be a segregated trust account held by
the Collateral Agent for the benefit of the Certificateholders.
Pursuant to the Agreement, the Reserve Fund will be created with an initial
deposit by the Depositor on the Closing Date in the amount of $_______ (___% of
the Initial Pool Balance) (the "Reserve Fund Initial Deposit"), and will be
augmented on each Distribution Date by deposit therein of Collections remaining
after distribution of the Servicing Fee and amounts to be paid to Class A
Certificateholders and Class B Certificateholders as described above under
"--Distributions on Certificates." Amounts on deposit in the Reserve Fund will
be released to the Depositor on each Distribution Date to the extent that the
amount on deposit in the Reserve Fund exceeds the Specified Reserve Balance.
Upon any such release to the Depositor of amounts from the Reserve Fund, neither
the Class A Certificateholders nor the Class B Certificateholders will have any
further rights in, or claims to, such amounts.
"Specified Reserve Balance" with respect to any Distribution Date generally
means the greater of (a) ___% of the sum of the Class A Principal Balance and
Class B Principal Balance on such Distribution Date (after giving effect to all
distributions with respect to the Certificates to be made on such Distribution
Date), or (b) ___% of the sum of the Original Class A Principal Balance and
Original Class B Principal Balance. In no circumstances will the Depositor be
required to deposit any amounts in the Reserve Fund other than the Reserve Fund
Initial Deposit to be made on the Closing Date.
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of the Certificateholders and may be invested in Eligible
Investments. Any loss on such investment will be charged to the Reserve Fund.
Any investment earnings (net of losses) will be paid to the Depositor.
The time necessary for the Reserve Fund to reach and maintain the Specified
Reserve Balance at any time after the date of issuance of the Certificates will
be affected by the delinquency, credit loss and repossession and prepayment
experience of the Receivables and, therefore, cannot be accurately predicted.
If on any Distribution Date the protection afforded the Class A
Certificates by the Class B Certificates and by the Reserve Fund is exhausted,
the Class A Certificateholders will directly bear the risks associated with
ownership of the Receivables. If on any Distribution Date amounts on deposit in
the Reserve Fund have been depleted, the protection afforded the Class B
Certificates by the Reserve Fund will be exhausted and the Class B
Certificateholders will directly bear the risks associated with ownership of the
Receivables.
None of the Class B Certificateholders, the Trustee, the Servicer, the
Seller or the Depositor will be required to refund any amounts properly
distributed or paid to them, whether or not there are sufficient funds on any
subsequent Distribution Date to make full distributions to the Class A
Certificateholders.
TERMINATION
The Servicer will be permitted, at its option, in the event that the Pool
Balance as of the first day of a Collection Period has declined to 5% or less of
the Initial Pool Balance, to purchase from the Trust, on any Distribution Date
occurring in a subsequent Collection Period, all remaining Receivables in the
Trust at a purchase price equal to the sum of the Class A Principal Balance and
the Class B Principal Balance plus accrued and unpaid interest thereon at the
applicable Pass-Through Rates. The exercise of this right will effect an early
retirement of the Certificates. See "Description of the Transfer and Servicing
Agreements--Termination" in the Prospectus.
AUCTION SALE
In the event of an Auction Sale, the Certificates will be redeemed at a
redemption price equal to the sum of the Class A Principal Balance and the Class
B Principal Balance plus accrued and unpaid interest thereon at the applicable
Pass-Through Rates. See "Description of the Transfer and Servicing Agreements-
Termination" in the Prospectus.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the execution and authentication
of the Certificates), the Receivables or any related documents, and will not be
accountable for the use or application by the Depositor or the Servicer of any
funds paid to the Depositor or the Servicer in respect of the Certificates or
the Receivables, or the investment of any monies by the Servicer before such
monies are deposited into the Collection Account. The Trustee will not
independently verify the Receivables. If no Event of Servicing Termination has
occurred and is continuing, the Trustee will be required to perform only those
duties specifically required of it under the Agreement. Generally, those duties
are limited to the receipt of the various certificates, reports or other
instruments required to be furnished to the Trustee under the Agreement, in
which case it will only be required to examine them to determine whether they
conform to the requirements of the Agreement. The Trustee will not be charged
with knowledge of a failure by the Servicer to perform its duties under the
Agreement which failure constitutes an Event of Servicing Termination unless a
responsible officer of the Trustee obtains actual knowledge of such failure as
specified in the Agreement.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to make any investigation of matters
arising thereunder or to institute, conduct or defend any litigation thereunder
or in relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered the Trustee
reasonable security or indemnity satisfactory to it against the costs, expenses
and liabilities which may be incurred therein or thereby. No Class A
Certificateholder or Class B Certificateholder will have any right under the
Agreement to institute any proceeding with respect to the Agreement, unless such
holder has given the Trustee written notice of default and unless, with respect
to the Class A Certificates, the holders of Class A Certificates evidencing not
less than a majority of the aggregate outstanding principal balance of the Class
A Certificates or, with respect to the Class B Certificates, the holders of
Class B Certificates evidencing not less than a majority of the aggregate
outstanding principal balance of the Class B Certificates, have made a written
request to the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 30 days has neglected or refused to institute any such proceedings.
THE TRUSTEE
___________________, a ___________________, will act as Trustee under the
Agreement. The Trustee, in its individual capacity or otherwise, and any of its
affiliates, may hold Certificates in their own names or as pledgee. In addition,
for the purpose of meeting the legal requirements of certain jurisdictions, the
Servicer and the Trustee, acting jointly (or in some instances, the Trustee,
acting alone), will have the power to appoint co-trustees or separate trustees
of all or any part of the Trust. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
Agreement will be conferred or imposed upon the Trustee and such co-trustee or
separate trustee jointly, or, in any jurisdiction where the Trustee is
incompetent or unqualified to perform certain acts, singly upon such co-trustee
or separate trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to serve, becomes legally unable to
act, is adjudged insolvent or is placed in receivership or similar proceedings.
In such circumstances, the Servicer will be obligated to appoint a successor
trustee. However, any such resignation or removal of the Trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
The Agreement will provide that the Servicer will pay the Trustee's fees.
The Agreement will also provide that the Trustee will be entitled to
indemnification by the Depositor for, and will be held harmless against, any
loss, liability or expense incurred by the Trustee not resulting from the
Trustee's own willful misfeasance, bad faith or negligence. Indemnification will
be unavailable to the Trustee to the extent that any such loss, liability or
expense results from a breach of any of the Trustee's representations or
warranties set forth in the Agreement, and for any tax, other than those for
which the Depositor or the Servicer is required to indemnify the Trustee.
The Trustee's Corporate Trust Office is located at
_________________________. The Depositor, the Servicer, the Seller and their
respective affiliates may have other banking relationships with the Trustee and
its affiliates in the ordinary course of their business.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Stroock & Stroock & Lavan LLP, special tax counsel, the
Trust will be classified as a grantor trust and not as an association taxable as
a corporation for federal income tax purposes. Accordingly, each Certificate
Owner will be subject to federal income taxation as if it owned directly its
interest in each asset owned by the Trust and paid directly its share of
reasonable expenses paid by the Trust. Each Certificate Owner therefore must
report on its federal income tax return the gross income from the portion of the
assets of the Trust that is allocable to such Certificate and may deduct the
portion of the expenses incurred or accrued by the Trust that is allocable to
such Certificate, at the same time and to the same extent as such items would be
reported by such Certificate Owner if it had purchased and held directly an
interest in such assets and received or accrued directly its share of the
payments with respect to such assets and incurred or accrued directly its share
of expenses incurred or accrued by the Trust when those amounts are received,
incurred or accrued by the Trust.
If the Class B Certificate Owners receive distributions of less than their
share of the Trust's receipts of principal or interest (the "Shortfall Amount")
because of the subordination of their Certificates, it is believed that such
Class B Certificate Owners would probably be treated for federal income tax
purposes as if they had (1) received as distributions their full share of such
receipts, (2) paid over to the Class A Certificate Owners an amount equal to
such Shortfall Amount, and (3) retained the right to reimbursement of such
amounts from certain funds in the Reserve Account. Under this treatment, Class B
Certificate Owners would be required to accrue as current income any interest,
original issue discount income, or (to the extent paid on the Trust's assets)
accrued market discount of the Trust that was a component of the Shortfall
Amount, even though such amount was in fact paid to the Class A Certificate
Owners, (2) a loss would only be allowed to the Class B Certificate Owners when
their right to receive reimbursement of such Shortfall Amount became worthless,
and (3) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to a Class B Certificate Owner because
such amount was previously included in income. Those results should not
significantly affect the inclusion of income for Class B Certificate Owners on
the accrual method of accounting, but could accelerate inclusion of income to
Class B Certificate Owners on the cash method of accounting by, in effect,
placing them on the accrual method. All Class B Certificate Owners are
encouraged to consult their tax advisors regarding the character and timing of
loss deductions.
Each Certificate Owner should see "Federal Income Tax Consequences" in the
Prospectus for a more detailed discussion of the material federal income tax
consequences of the purchase, ownership and disposition of the Certificates.
STATE AND LOCAL TAX CONSEQUENCES
The discussion above does not address the tax consequences of purchase,
ownership or disposition of the Certificates under any state or local tax law.
Investors are encouraged to consult their own tax advisors regarding state and
local tax consequences.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of ERISA, should consider the fiduciary
standards under ERISA in the context of the plan's particular circumstances
before authorizing an investment of a portion of such plan's assets in the
Certificates. Accordingly, pursuant to Section 404 of ERISA, such fiduciary
should consider among other factors: (i) whether the investment is for the
exclusive benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the applicable diversification requirements; (iii) whether
the investment is in accordance with the documents and instruments governing the
plan; and (iv) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of plans also should consider ERISA's prohibition on
improper delegation of control over, or responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as individual
retirement accounts or certain types of Keogh plans not subject to ERISA but
subject to Section 4975 of the Code and any entity whose source of funds for the
purchase of Certificates includes plan assets by reason of a plan or account
investing in such entity (each, a "Plan"), are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code.
An investment in Certificates by a Plan might result in the assets of the
Trust being deemed to constitute Plan assets, which in turn might mean that
certain aspects of such investment, including the operation of the Trust, might
be prohibited transactions under ERISA and the Code. Neither ERISA nor the Code
defines the term "plan assets." Under Section 2510.3-101 of the United States
Department of Labor ("DOL") regulations (the "Regulation"), a Plan's assets may
include an interest in the underlying assets of an entity (such as a trust) for
certain purposes, including the prohibited transaction provisions of ERISA and
the Code, if the Plan acquires an "equity interest" in such entity, unless
certain exceptions apply. The Depositor believes that the Certificates will give
Certificateholders an equity interest in the Trust for purposes of the
Regulation and can give no assurance that the Certificates will qualify for any
of the exceptions under the Regulation. As a result, the assets of the Trust may
be considered the assets of any Plan which acquires a Certificate.
The DOL has issued an individual exemption, Prohibited Transaction
Exemption ("PTE") _________________________________________________________,
___________, Exemption Application No. D-_______________, to ___________ (the
"Exemption"). The Exemption generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions pursuant to Section 4975(a) and (b) of
the Code and Section 502(i) of ERISA certain transactions relating to the
initial purchase, holding and subsequent resale by Plans of certificates in
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements set forth in the
Exemption. The receivables covered by the Exemption include motor vehicle
installment obligations such as the Receivables. The Depositor believes that the
Exemption will apply to the acquisition, holding and resale of the Class A
Certificates by a Plan and that all conditions of the Exemption other than those
within the control of the investors have been or will be met.
The Exemption sets forth six general conditions that must be satisfied for
a transaction involving the acquisition of the Class A Certificates by a Plan to
be eligible for the exemptive relief thereunder:
(1) the acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) the rights and interests evidenced by the Class A Certificates acquired
by a Plan are not subordinated to the rights and interest evidenced by
other certificates of the Trust;
(3) the Class A Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from any one of four rating entities;
(4) the Trustee is not an affiliate of any other member of the "Restricted
Group", which consists of the Underwriters, the Depositor, the Trustee, the
Servicer, each subservicer, each insurer and any Obligor with respect to
the Receivables included in the Trust constituting more than 5% of the
aggregate unamortized principal balance of the assets of the Trust as of
the date of initial issuance of the Class A Certificates, and any affiliate
of such parties.
(5) the sum of all payments made to and retained by the Underwriters in
connection with the offering of the Class A Certificates represents not
more than reasonable compensation for placing the Class A Certificates. The
sum of all payments made to and retained by the Servicer represents not
more than the reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith; and
(6) the Plan investing in the Class A Certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission (the "Commission") under the Securities Act.
Because the rights and interests evidenced by the Class A Certificates
acquired by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Class A Certificates that
they be rated in the highest rating category by a nationally recognized rating
agency and thus the third general condition should be satisfied. The Depositor
and the Servicer expect that the fourth general condition set forth above will
be satisfied with respect to the Class A Certificates. A fiduciary of a Plan
contemplating purchasing a Class A certificate must make its own determination
that the first, fifth and sixth general conditions set forth above will be
satisfied with respect to the Class A Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide relief from the restrictions imposed by Sections 406(a) and 407(a) of
ERISA as well as the excise taxes imposed by Section 4975(a) and (b) of the Code
by reason of Section 4975(c)(1)(A) through (D) of the Code, in connection with
the direct or indirect sale, exchange, transfer or holding of the Class A
Certificates by a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of a Class A Certificate on behalf of an "Excluded Plan" by any person
who has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates an
Excluded Plan is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide relief from the restrictions imposed by Sections 406(b)(l)
and (b)(2) and 407(a) of ERISA and the taxes imposed by Section 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
the direct or indirect sale, exchange, transfer or holding of Class A
Certificates in the initial issuance of Class A Certificates between the
Depositor or the Underwriters and a Plan other than an Excluded Plan when the
person who has discretionary authority or renders investment advice with respect
to the investment of Plan assets in the Class A Certificates is (a) an Obligor
with respect to 5% or less of the fair market value of the Receivables or (b) an
affiliate of such person.
The Exemption also may provide relief from the restriction imposed by
Sections 406(a) and 407(a) of ERISA and the taxes imposed by Section
4975(c)(1)(A) through (D) of the Code if such restrictions are deemed to
otherwise apply merely because a person is deemed to be a party in interest or a
disqualified person with respect to an investing Plan by virtue of providing
services to a Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of such Plan's ownership of Class A
Certificates.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm (a) that the Class A Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific conditions set forth in
Section II of the Exemption and the other requirements set forth in the
Exemption will be satisfied.
Any Plan fiduciary considering whether to purchase a Class A Certificate on
behalf of a Plan are encouraged to consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
Because the Class B Certificates are subordinate interests, the Exemption
will not be available for Class B Certificates. Accordingly, no Class B
Certificate may be purchased by or otherwise transferred to a Plan other than an
"insurance company general account" as defined in, and which complies with the
provisions of, PTE 95-60 which may be deemed to be holding Plan assets.
Furthermore, each purchaser of Class B Certificates will be deemed to have
represented that it is not acquiring Class B Certificates, directly or
indirectly, for or on behalf of a Plan other than an "insurance company general
account" as defined in, and which complies with the provisions of, PTE 95-60. If
Definitive Certificates are issued, each transferee of a Class B Certificate
will be required to deliver to the Trustee a certificate to such effect. Any
purchaser whose source of funds for the purchase of Class B Certificates
includes such assets of an insurance company general account should itself
confirm that all applicable requirements set forth in PTE 95-60 will be
satisfied, particularly the requirement (set forth in Section IV(c) of PTE
95-60) that neither the insurance company nor an affiliate thereof will be a
party in interest or disqualified person in connection with the purchase and
holding of Class B Certificates or the servicing, management and operation of
the Trust.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
relating to the Certificates (the "Underwriting Agreement"), the Depositor has
agreed to sell to________ (the "Underwriter"), and the Underwriter has agreed to
purchase, the Certificates, subject to the satisfaction of certain conditions
precedent.
The Depositor has been advised by the Underwriter that it proposes to offer
the Certificates to the public initially at the public offering prices set forth
on the cover page of this Prospectus, and to certain dealers at such prices less
a concession of _____% per Class A Certificate and _____% per Class B
Certificate; that the Underwriter and such dealers may allow a discount of
_____% per Class A Certificate and _____% per Class B Certificate on the sale to
certain other dealers; and that after the initial public offering of the
Certificates, the public offering prices and the concessions and discounts to
dealers may be changed by the Underwriter.
The Depositor has 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. In
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and, may, therefore, be unenforceable.
The Trustee or the Collateral Agent, as applicable, may, from time to time,
invest the funds in the Accounts in Eligible Investments acquired from the
Underwriter.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor by Carl Krasik, Esq., Associate General Counsel of Mellon Bank
Corporation (the "Corporation"). Mr. Krasik is also a shareholder of the
Corporation and one of its subsidiaries and holds options to purchase additional
shares of the Corporation's Common Stock. Certain legal matters with respect to
the Certificates will be passed upon for the Underwriter by Stroock & Stroock &
Lavan LLP, New York, New York. Stroock & Stroock & Lavan LLP also will pass upon
the material federal income tax consequences related to the Certificates.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC Registration Fee.............................. $295.00
Printing and Engraving............................ *
Trustee's Fees.................................... *
Legal Fees and Expenses........................... *
Blue Sky Fees and Expenses........................ *
Accountant's Fees and Expenses *
Rating Agency Fees................................ *
Miscellaneous Fees and Expenses *
Total Expenses........................... *
- -------------
*To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides for indemnification of
directors and officers of the Registrant to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law provides, in substance, that
Delaware corporations shall have the power, under specified circumstances, to
indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding. The Delaware General Corporation Law also provides
that the Registrant may purchase insurance on behalf of any such director,
officer, employee or agent.
ITEM 16. EXHIBITS
1.1. Form of Underwriting Agreement*
3.1. Certificate of Incorporation of the Registrant*
3.2. By-laws of the Registrant*
4.1. Form of Pooling and Servicing Agreement*
4.2. Form of Certificate (included as part of Exhibit 4.1)*
4.3 Form of Indenture*
4.4 Form of Trust Agreement*
5.1. Opinion of Stroock & Stroock & Lavan LLP with respect to
legality
8.1. Opinion of Stroock & Stroock & Lavan LLP with respect to
federal income tax matters (contained in Exhibit 5.1)
10.1 Form of Sale and Servicing Agreement*
23.1. Consent of Stroock & Stroock & Lavan LLP (contained in
Exhibit 5.1)
24.1. Powers of Attorney (included as part of signature page) 25.1 Statement
of Eligibility and Qualification of Indenture Trustee (Form T-1)*
- -------------------------
*To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted
from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the 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, 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 the
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) For purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") 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.
(5) To provide to the Underwriters at the closing specified in the
underwriting agreements, securities in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(6) 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;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; 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 to such information in the
registration statement.
(7) That, for the purpose of determining any liability under the
Securities Act, 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.
(8) 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.
<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 of Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in ________ on the _____ day of October 1998.
MELLON AUTO RECEIVABLES CORPORATION
By: /S/ STEPHEN COBAIN
Name: Stephen Cobain
Title: Chairman and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Stephen Cobain, Jeffrey S. Gearhart and David
R. Lovejoy, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on October __, 1998.
SIGNATURE Title
/S/ STEPHEN COBAIN Chairman of the Board, President and Director
Stephen Cobain (principal executive officer)
/S/ JEFFREY S. GEARHART Treasurer
Jeffrey S. Gearhart (principal financial and accounting officer)
/S/ DAVID R. LOVEJOY Director
David R. Lovejoy
/S/ PAUL H. DIMMICK Director
Paul H. Dimmick
/S/ PHILIP K. HAMM Director
Philip K. Hamm
/S/ WILLIAM R. BAIREL Director
William R. Bairel
/S/ WILLIAM E. NUMRICH Director
William E. Numrich
<PAGE>
INDEX TO EXHIBITS
Exhibit
NUMBER EXHIBIT PAGE
1.1. Form of Underwriting Agreement*
3.1. Certificate of Incorporation of the
Registrant*
3.2. By-laws of the Registrant*
4.1. Form of Pooling and Servicing Agreement*
4.2. Form of Certificate (included as part of
Exhibit 4.1)*
4.3. Form of Indenture*
4.4 Form of Trust Agreement*
5.1. Opinion of Stroock & Stroock & Lavan LLP with respect
to legality
8.1 Opinion of Stroock & Stroock & Lavan LLP
with respect to federal income tax
matters (contained in Exhibit 5.1)
10.1 Form of Sale and Servicing Agreement*
23.1. Consent of Stroock & Stroock & Lavan LLP
(contained in Exhibit 5.1)
24.1. Powers of Attorney (included as part of
signature page)
25.1. Statement of Eligibility and
Qualification of Indenture Trustee (Form
T-1)*
- ---------------------
*To be filed by amendment.
EXHIBIT 5.1
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038-4982
October 2, 1998
Mellon Auto Receivables Corporation
One Mellon Bank Center
Fourth Floor
Pittsburgh, Pennsylvania 15758
Ladies and Gentlemen:
We have acted as counsel to Mellon Auto Receivables Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-3 (No. 333-26675) (the "Registration
Statement") relating to the proposed offering from time to time in one or more
series (each, a "Series") by one or more trusts of asset backed notes (the
"Notes") and asset backed certificates (the "Certificates," and, together with
the Notes, the "Securities"). The Registration Statement has been filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). As set forth in the Registration Statement,
each Series of Securities is to be issued under and pursuant to the terms of a
separate pooling and servicing agreement, or sale and servicing agreement, trust
agreement and indenture (each, an "Agreement") among two or more of the Company,
Mellon Bank, N.A. as servicer (the "Servicer"), the seller(s) identified therein
(each, a "Seller"), and one or more independent trustees (each, a "Trustee") to
be identified in the prospectus supplement for such Series of Securities.
As such counsel, we have examined copies of the Certificate of Incorporation and
By-Laws of the Company, the Registration Statement, the base Prospectus and
forms of Prospectus Supplement included therein, the form of each Agreement, and
originals or copies of such other corporate minutes, records, agreements and
other instruments of the Company, certificates of public officials and other
documents and have made such examinations of law, as we have deemed necessary to
form the basis for the opinions hereinafter expressed. In our examination of
such materials, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to such opinion, we have relied, to the extent we deemed
appropriate, upon representations, statements and certificates of officers and
representatives of the Company and others.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not express any opinion herein concerning
any law other than the federal laws of the United States of America, the laws of
the State of New York and the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes have
been authorized by all necessary corporate action of the Company in accordance
with the provisions of the related Agreement or Agreements, and when such Notes
have been duly executed and delivered, authenticated by the Trustee and sold as
described in the Registration Statement, such Notes will constitute valid and
binding obligations of the issuer thereof in accordance with their terms and the
terms of such Agreement or Agreements. This opinion is subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and we express no opinion with respect to the application of
equitable principles or remedies in any proceeding, whether at law or in equity.
2. When the issuance, execution and delivery of each Series of Certificates
have been authorized by all necessary corporate action of the Company in
accordance with the provisions of the related Agreement or Agreements, and when
such Certificates have been duly executed and delivered, authenticated by the
Trustee and sold as described in the Registration Statement, such Certificates
will be legally issued, fully paid and non-assessable.
3. We hereby confirm the opinions set forth in the Prospectus under the heading
"Federal Income Tax Consequences," to the extent they constitute matters of law
or legal conclusions with respect thereto.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the captions
"Federal Income Tax Consequences" and "Legal Matters" in the Prospectus which
forms a part of the Registration Statement. In giving such consent, we do not
admit hereby that we come within the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
