As filed with the Securities and Exchange Commission on June 21, 2000
Registration No. 333-86525
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
A.I. RECEIVABLES TRANSFER CORP.
(Depositor to the Trust described herein)
(Exact name of registrant as specified in its charter)
DELAWARE 22-3674608
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
160 WATER STREET
NEW YORK, NEW YORK 10038
(212) 428-5400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
SCOTT B. ROSE, ESQ.
A.I. RECEIVABLES TRANSFER CORP.
160 WATER STREET
NEW YORK, NEW YORK 10038
(212) 428-5400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
DANIEL METTE, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(212) 310-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of the Registration Statement.
If only the 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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
<TABLE>
<CAPTION>
==================================================== ============== ========================== ==================== ===============
AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM
REGISTERED AGGREGATE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF (1)(2) PER UNIT (2)(3) PRICE (3)(4) REGISTRATION
SECURITIES TO BE REGISTERED FEE (5)
---------------------------------------------------- -------------- -------------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Asset-Backed Notes............................... $100,000,000 ------ $100,000,000 $26,136
==================================================== ============== ========================== ==================== ===============
</TABLE>
(1) If any registered securities are issued at an original issue discount,
then such greater principal amount as shall result in an aggregate initial
offering price of $100,000,000. In no event will the aggregate initial
offering price of securities registered hereunder exceed $100,000,000 or
the equivalent thereof in one or more foreign currencies or composite
currencies, including the euro.
(2) Not specified as to each class of securities to be registered pursuant to
General Instruction II.D of Form S-3 under the Securities Act of 1933.
(3) The proposed maximum offering price per unit or share will be determined
from time to time by the Registrant in connection with, and at the time of,
the issuance by the Registrant of the securities registered hereunder.
(4) Estimate solely for the purposes of computing the registration fee pursuant
to Rule 457(o) of the Rules and Regulations of the Securities and Exchange
Commission under the Securities Act of 1933.
(5) Calculated in accordance with Rule 457(o) of the Securities Act of 1933,
including $278.00 which has previously been paid.
THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
THE PROVISIONS SECTION 8(A) OF THE SECURITIES ACT OF 1933.
<PAGE>
INTRODUCTORY NOTE
This Registration Statement contains (i) the Prospectus relating to the
offering of series of Asset Backed Notes by A.I. Receivables Transfer Corp. (the
"Registrant") and (ii) a form of Prospectus Supplement relating to the offering
by the Registrant of the particular series of Asset Backed Notes described
therein. The form of Prospectus Supplement relates only to the securities
described therein and is a form which, among others, may be used by the
Registrant to offer Asset Backed Notes under this Registration Statement.
<PAGE>
Prospectus
AIG CREDIT PREMIUM FINANCE MASTER TRUST
Issuer
A.I. RECEIVABLES TRANSFER CORP.
Seller
ASSET BACKED NOTES
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CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7 IN THIS PROSPECTUS.
Neither the notes nor the underlying loans, deferred payment obligations nor
receivables are insured or guaranteed by any governmental agency.
The notes will represent interests in the trust only and will not represent
interests in or obligations of the Issuer, Seller or any affiliate of either.
This prospectus may be used to offer and sell any series of notes only if
accompanied by the prospectus supplement for that series.
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THE TRUST--
o may periodically issue asset backed term notes in one or more series
with one or more classes; and
o may also issue one or more series of asset backed variable funding
notes, which will not be sold under this prospectus; and
o will own--
o the entire beneficial interest in loans to insureds to finance
commercial property and casualty insurance premiums;
o if specified in an accompanying prospectus supplement, the
rights to receive deferred payments to become due from
insureds of premiums for commercial property and casualty
insurance;
o payments due and to become due, and collections and recoveries
on those loans and deferred payment obligations, if any;
o proceeds of certain collateral security securing the loans and
deferred payment obligations, if any;
o other property described in this prospectus and in the
accompanying prospectus supplement; and
o if specified in an accompanying prospectus supplement, the
ownership interest in one or more trusts whose assets will be
substantially similar to the loans and/or deferred payment
obligations.
THE NOTES--
o will represent obligations of the trust and will be secured by and paid
only from a partial, undivided interest in the trust assets;
o offered by this prospectus will be rated in one of the four highest
rating categories by at least one nationally recognized rating
organization;
o may have one or more forms of enhancement; and
o will be issued as part of a designated series which may include one or
more classes of notes and enhancement.
THE NOTEHOLDERS--
o will receive interest and principal payments from a varying percentage
of collections on receivables related to loans and deferred payment
obligations.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE NOTES OR DETERMINED THAT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is
June 21, 2000
NY2:\758559\24
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the Notes in two separate documents
that progressively provide more detail: (a) this Prospectus, which provides
general information, some of which may not apply to a particular Series of
Notes, including your Series, and (b) the accompanying Prospectus Supplement,
which will describe the specific terms of your Series of Notes, including:
o the timing of interest and principal payments;
o financial and other information about the Receivables and
other Trust Assets;
o information about enhancement for each Class;
o the ratings for each Class;
o the method for selling the Notes; and
o if they are redeemable.
IF THE TERMS OF A PARTICULAR SERIES OF NOTES VARY BETWEEN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this Prospectus and
the accompanying Prospectus Supplement including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the Notes in any state where the offer is not
permitted. We do not claim the accuracy of the information in this Prospectus or
the accompanying Prospectus Supplement as of any date other than the dates
stated on their respective covers.
We include cross-references in this Prospectus and in the accompanying
Prospectus Supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
included in the accompanying Prospectus Supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in
this Prospectus are defined under the caption "Index of Terms for Prospectus"
beginning on page 72 in this Prospectus.
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<PAGE>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY.................................1
THE TRUST AND THE TRUSTEE..........................1
OFFERED AND OTHER SECURITIES.......................1
THE INDENTURE AND INDENTURE TRUSTEE................1
TRUST ASSETS.......................................1
INFORMATION ABOUT THE RECEIVABLES..................2
COLLECTIONS BY THE SERVICER........................2
ALLOCATION OF TRUST ASSETS
AND SECURITY FOR THE NOTES ........................2
INTEREST PAYMENTS ON THE NOTES.....................3
PRINCIPAL PAYMENTS ON THE NOTES....................3
Revolving Period...................................3
Controlled Accumulation Period.....................4
Controlled Amortization Period.....................4
Principal Amortization Period......................4
Rapid Accumulation Period..........................4
Rapid Amortization Period..........................5
Pay Out Events.....................................5
SHARED EXCESS FINANCE CHARGE COLLECTIONS...........5
SHARED PRINCIPAL COLLECTIONS.......................5
CREDIT ENHANCEMENT.................................5
OPTIONAL REFINANCING...............................6
OPTIONAL PREPAYMENT................................6
TAX STATUS.........................................6
NOTE RATINGS.......................................6
INDEMNIFICATION FOR RECEIVABLE CONCENTRATIONS......6
RISK FACTORS.......................................7
Limited Ability to Resell Notes....................7
Potential Priority of Certain Liens................7
i
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Credit and Related Risks of Premium
Finance Loans......................................7
Credit and Related Risks of Deferred
Payment Obligations ...............................7
Possible Effects of Bankruptcy or
Insolvency of Insureds ............................8
Possible Effects of Insolvency
of Insurer With Respect to
Deferred Payment Obligations.......................8
Possible Effect of Retention of
Legal Title of Premium Finance
Loans by the Originators ..........................8
Possible Effects of Insolvency
or Bankruptcy of the Originators
or the Seller .....................................9
Effects of State Regulation of
Premium Finance Lending and
Deferred Payment Obligations
on Noteholders....................................11
Effect of Dependence on the
Originators' Business.............................12
Effect of Subordination on
Subordinated Noteholders..........................12
Risks Relating to Defaulted
Obligations.......................................12
Effects on Noteholders of
Issuance of Additional Series
by the Trust .....................................13
Possible Effect of Noteholder
Control Limitations...............................13
Possible Effect of Decline in
Quality of Additional Receivables ................13
Possible Effect of Insufficiency
of Additional Receivables.........................13
Possible Effect of Limitations on
Note Rating, Risk of Downgrade....................14
THE TRUST.........................................15
Trust Assets......................................15
The Owner Trustee.................................15
BUSINESS OF A.I. RECEIVABLES
TRANSFER CORP. AND THE ORIGINATORS ...............16
General...........................................16
Premium Finance Obligations.......................17
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Loans.............................................17
Deferred Payment Obligations......................18
Premium Finance Loan Origination;
Collection Policy.................................18
Deferred Payment Obligation
Origination; Collection Policy ...................19
Premium Finance Loan Purchase
Policies..........................................20
Premium Finance Obligations
Underwriting Procedures...........................20
State Regulation of Premium
Finance Lending Activities .......................21
As Servicer.......................................21
THE RECEIVABLES...................................22
MATURITY ASSUMPTIONS..............................23
USE OF PROCEEDS...................................24
DESCRIPTION OF THE NOTES..........................24
General .........................................24
Interest Payments.................................25
Principal Payments................................26
Variable Funding Notes............................26
The Indenture.....................................26
Modification of Indenture
without Noteholder Consent........................26
Modification of Indenture
with Noteholder Consent...........................27
Events of Default; Rights
Upon Event of Default.............................29
Certain Covenants.................................30
New Issuances.....................................31
Annual Compliance Statement.......................33
Indenture Trustee's Annual Report.................33
Satisfaction and Discharge of Indenture...........33
Trust Indenture Act...............................33
The Indenture Trustee.............................33
Reports to Noteholders............................33
iii
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TABLE OF CONTENTS
(continued)
Page
----
CERTAIN INFORMATION REGARDING
THE SECURITIES....................................35
Book-Entry Registration...........................35
Definitive Notes..................................37
DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS..........................38
Transfer and Assignment of Receivables............38
Representations and Warranties....................39
Addition of Trust Assets..........................41
Removal of Receivables............................42
Collection and Other Servicing Procedures.........43
Discount Option...................................43
Trust Accounts....................................43
Funding Period....................................44
Investor Percentage and Trust Percentage..........45
Application of Collections........................45
Shared Excess Finance Charge Collections..........47
Shared Principal Collections......................47
Defaulted Receivables; Investor Charge-Offs.......47
Defeasance........................................48
Refinancing.......................................49
Final Payment of Principal;
Termination.......................................49
Pay Out Events....................................49
Servicing Compensation and
Payment of Expenses...............................50
Certain Matters Regarding the Seller
and the Servicer .................................51
Support Agreement.................................52
Servicer Default..................................53
Evidence as to Compliance.........................54
iv
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Amendments........................................55
List of Noteholders...............................55
The Indenture Trustee.............................55
The Trust Administrator...........................56
Noteholders Have Limited Control of Actions.......56
ENHANCEMENT.......................................56
General .........................................56
Subordination.....................................57
Letter of Credit..................................57
Cash Collateral Guaranty or Account...............57
Collateral Interest...............................58
Insurance Policy or Surety Bond...................58
Spread Account....................................58
Reserve Account...................................58
Yield Enhancement Account.........................59
NOTE RATINGS......................................59
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES..........59
Transfer of Receivables...........................59
v
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES ..................60
Treatment of the Notes as Debt....................60
Possible Alternative Characterization.............61
Interest Income to Noteholders....................62
Sale or Exchange of Notes.........................62
Non-U.S. Note Owners..............................62
Information Reporting and Backup Withholding......63
State and Local Taxation..........................64
ERISA CONSIDERATIONS..............................64
PLAN OF DISTRIBUTION..............................66
LEGAL MATTERS.....................................66
REPORTS TO NOTEHOLDERS............................66
WHERE YOU CAN FIND MORE INFORMATION...............67
ANNEX I GLOBAL CLEARANCE,
SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES........................................68
INDEX OF TERMS FOR PROSPECTUS.....................72
vi
<PAGE>
PROSPECTUS SUMMARY
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND
DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN
MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF AN
OFFERING OF THE NOTES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
o THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS
AND OTHER INFORMATION TO AID YOUR UNDERSTANDING AND IS QUALIFIED BY THE
FULL DESCRIPTION OF THESE CALCULATIONS, CASH FLOWS AND OTHER
INFORMATION IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT.
THE TRUST AND THE TRUSTEE
AIG Credit Premium Finance Master Trust (the "Trust") was formed on November 5,
1999, under an agreement between A.I. Receivables Transfer Corp. ("ART"), as
depositor and Chase Manhattan Bank Delaware, as "Owner Trustee" (the "Master
Trust Agreement"). The Trust may engage only in the following activities:
o acquiring and holding specified assets;
o issuing and making payments on the asset backed notes and other
securities and interests in the Trust; and
o engaging in related activities.
OFFERED AND OTHER SECURITIES
The Trust may issue one or more series of asset-backed term notes with a fixed
principal amount (the "Term Notes") and one or more series of notes with a
fluctuating principal amount (the "Variable Funding Notes", together with the
Term Notes, the "Notes") ), each with one or more classes (the "Classes", each a
"Class"). The Variable Funding Notes will not be offered or sold under this
Prospectus. Any Class or Series of Term Notes may be offered other than by this
Prospectus; for example, they may be offered in a private placement.
THE INDENTURE AND INDENTURE TRUSTEE
The Trust is a master trust which will issue each Series of Notes through a
supplement (each a "Series Supplement") to an Indenture (the "Indenture")
between the Trust and Bank One, National Association (the "Indenture Trustee").
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<PAGE>
TRUST ASSETS
One or more of A.I. Credit Corp. ("AIC"), AICCO, Inc. ("AICCO"), Imperial
Premium Finance, Inc. ("IP Finance I"), a Delaware corporation, Imperial Premium
Finance, Inc. ("IP Finance II"), a California corporation and Imperial Premium
Funding, Inc. ("IP Funding") (collectively, the "Originators") will transfer to
ART, which in turn will transfer to the Trust,
o their entire beneficial interest in certain loans to insureds to finance
the premiums on property and casualty insurance polices, funded, or with a
firm commitment for funding by the Originators (the "Loans"),
o if so specified in the accompanying Prospectus Supplement of all of their
interest in certain deferred payments of premiums to become due from
insureds for commercial property and casualty insurance policies purchased,
or with a firm commitment for purchase by the Originators ("Deferred
Payment Obligations", and together with the Loans, "Premium Finance
Obligations"), and
o all amounts due and to become due in respect of such Loans and Deferred
Payment Obligations, including recoveries of amounts thereon.
(the interests described above are referred to as the "Receivables") under an
agreement among the Originators and ART (the "Purchase Agreement").
ART will subsequently transfer the Receivables to the Trust under an agreement
among AIC, AICCO, IP Finance I, IP Finance II and IP Funding, each as servicer,
the Trust, the Indenture Trustee and ART, as seller (the "Seller") (the "Sale
and Servicing Agreement"). It is expected that new Receivables generated by the
Originators will be transferred to ART, which in turn will transfer them to the
Trust. The total amount of Receivables in the Trust will fluctuate daily as new
<PAGE>
Receivables are generated and payments are received on existing Premium Finance
Obligations. See "The Receivables" and "Description of the Transfer and
Servicing Agreements--Addition of Trust Assets" in this Prospectus.
The Trust assets also include payments due on the Receivables and other proceeds
of the Receivables.
The Trust assets will not include amounts collected on Receivables in excess of
the amounts currently due and owing and previously accrued and unpaid.
Additional Trust assets may include:
o Participations in Premium Finance Obligations;
o interest in other trusts (including the ownership interest of A.I.
Receivables Corp. in the AIC Premium Finance Loan Master Trust);
o monies deposited in certain of the Trust's bank accounts and
investments of those monies; and
o "Enhancements," including any Credit Enhancement, guaranteed rate
agreement, maturity liquidity facility, interest rate cap agreement,
interest rate swap agreement, currency swap agreement, or other similar
arrangement.
The Seller may remove, subject to certain limitations and conditions,
Receivables that it transferred to the Trust. See "Description of the Transfer
and Servicing Agreements--Removal of Receivables" in this Prospectus.
INFORMATION ABOUT THE RECEIVABLES
The Receivables arise from Premium Finance Obligations that satisfy the
eligibility criteria established in the Sale and Servicing Agreement and applied
on the date of their selection.
The Receivables consist of both Principal Receivables and Finance Charge
Receivables.
"Principal Receivables" are, generally, (a) with respect to Loans, amounts
borrowed by insureds to pay premiums for property and casualty insurance and (b)
with respect to Deferred Payment Obligations, the portion of the deferred
payments equal to the purchase price paid by the Originators for the rights to
receive such deferred payments.
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<PAGE>
"Finance Charge Receivables" are, generally, (a) with respect to Loans, the
related finance charges and certain fees and (b) with respect to Deferred
Payment Obligations, the portion of the deferred payments in excess of the
purchase price of the payments, which excess is deemed finance charges and fees.
See "Business of A. I. Receivables Transfer Corp. and the Originators" in this
Prospectus.
COLLECTIONS BY THE SERVICER
AIC, AICCO, IP Finance I, IP Finance II and IP Funding each service the
Receivables that they originate in accordance with servicing standards
established by AIC under the Sale and Servicing Agreement. In limited cases, any
one or all of the servicers may resign or be removed and either the Indenture
Trustee or a third party may be appointed as the new servicer. AIC, AICCO, IP
Finance I, IP Finance II and IP Funding, or any new servicer, is called the
"Servicer." The Servicer may receive a servicing fee from the Trust for each
Series. See "Business of A.I. Receivables Transfer Corp. and the Originators" in
this Prospectus.
The Servicer receives collections on the Receivables, deposits those collections
in an account and keeps track of those collections as Finance Charge Receivables
and Principal Receivables. The Servicer then allocates those collections as
summarized below.
ALLOCATION OF TRUST ASSETS AND SECURITY FOR THE NOTES
The Notes of each Series will be secured by and paid only from a partial,
undivided interest in the assets of the Trust designated the "Investor
Interest")Collections on the Trust assets will be allocated to the holders of
Notes and other interests of each Series and to the Trust Interest. The "Trust
Interest" represents the remaining undivided interest in the assets of the Trust
not securing the Notes or any other obligations of the Trust. The Trust Interest
will not be pledged to secure the Notes and, on any date, is equal to the
2
<PAGE>
aggregate amount of Principal Receivables in the Trust not allocated to each
outstanding Series of Notes and any other obligations of the Trust.
The Servicer will allocate (a) collections of Finance Charge Receivables and
Principal Receivables and (b) certain defaulted Receivables to each Series based
on a varying percentage, called the "Investor Percentage," as described in the
accompanying Prospectus Supplement. To the extent described in the accompanying
Prospectus Supplement, the allocation of defaulted Receivables to a Series may
result in the write-down of the outstanding principal balance of one or more
Classes of Notes of such Series.
If so specified in an accompanying Prospectus Supplement for any Series, certain
defaulted Receivables, representing specified concentrations related to
specified Receivable characteristics may not be allocated to the Investor
Interest of such Series.
The aggregate amount of Principal Receivables, amounts in any Pre-Funding
Account and amounts in any Principal Funding Account (as defined in any Series
Supplement) allocated to a Series establish that Series' "Investor Interest."
Noteholders are only entitled to amounts allocated to their Series equal to the
interest and principal payments due on their Notes. See "Description of the
Notes--General" and "Description of the Transfer and Servicing
Agreements--Investor Percentage and Trust Percentage" in this Prospectus.
INTEREST PAYMENTS ON THE NOTES
Each Note of a Series will represent the right to receive payments of interest
as described in the accompanying Prospectus Supplement. If a Series of Notes
consists of one or more Classes, each Class may differ in, among other things,
priority of payments, payment dates, interest rates, method for computing
interest, method for computing outstanding balance and rights to Enhancement.
Each Class of Notes will have the interest rate specified in the accompanying
Prospectus Supplement, which may be fixed, floating or any other type of
interest rate specified. Generally, interest will be paid monthly, quarterly,
semi-annually or on other scheduled dates over the life of the Notes, each
called a "Payment Date."
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<PAGE>
Under certain conditions described in the accompanying Prospectus Supplement,
collections of Finance Charge Receivables may be deposited monthly in one or
more trust accounts and invested under guidelines established by the Rating
Agencies until paid to Noteholders. Interest payments for any Series of Notes
will be funded from collections of Finance Charge Receivables allocated to the
Series, any applicable Enhancement and, if and to the extent specified in the
accompanying Prospectus Supplement, monies earned while collections were
invested pending payment to Noteholders. See "Description of the Transfer and
Servicing Agreements" "--Shared Excess Finance Charge Collections" and "Credit
Enhancement" in this Prospectus.
PRINCIPAL PAYMENTS ON THE NOTES
Each Note of a Series will represent the right to receive payments of principal
as described in the accompanying Prospectus Supplement. If a Series of Notes
consists of one or more Classes, each Class may differ in, among other things,
the amounts allocated for principal payments, priority of payments, payment
dates, principal balance, maturity and rights to Enhancement.
REVOLVING PERIOD
Each Class of Notes will begin with a period called a "Revolving Period" during
which the Trust will not pay or accumulate principal for the related
Noteholders. Available principal collections will be released to the Trust but
may be used to pay amounts due to holders of Notes of other Series. The
Revolving Period for a Class starts on the date that Class is issued and ends at
the start of an amortization period or an accumulation period or upon a
refinancing. Following the Revolving Period, each Class of Notes will have one
or a combination of the following periods in which:
o principal is accumulated in specified amounts and paid on a scheduled
date (a "Controlled Accumulation Period");
o principal is paid in fixed amounts at scheduled intervals (a
"Controlled Amortization Period");
3
<PAGE>
o principal is paid in varying amounts at scheduled intervals (a
"Principal Amortization Period");
o principal is accumulated in varying amounts following certain adverse
events and paid on a scheduled date (a "Rapid Accumulation Period");
o principal is paid in varying amounts each month following certain
adverse events (a "Rapid Amortization Period"); or
o The commencement of each of the foregoing periods may be modified as in
the accompanying Prospectus Supplements.
CONTROLLED ACCUMULATION PERIOD
If a Class of Notes has a Controlled Accumulation Period, the Trust is expected
to pay available principal to those Noteholders on a specific date specified in
the accompanying Prospectus Supplement called the "Scheduled Payment Date." If
the Series has more than one Class, each Class may have a different priority for
payment. For a period of time prior to the Scheduled Payment Date, the Trust is
scheduled to deposit available principal in a trust account in specified amounts
plus any specified amounts not previously deposited. If amounts sufficient to
pay the outstanding principal balance for a Class have not been accumulated by
the Scheduled Payment Date for that Class, a Pay Out Event will occur and the
Rapid Amortization Period will begin. The Controlled Accumulation Period for a
Class starts on a date specified in the accompanying Prospectus Supplement and
ends when any one of the following occurs:
o on the Scheduled Payment Date; when the outstanding principal balance
for the Class is paid in full;
o a Principal Amortization Period, if it applies, starts;
o a Rapid Amortization Period or, if it applies, a Rapid Accumulation
Period starts; or
o the latest date by which principal and interest for the Series of Notes
can be paid, called the "Series Termination Date".
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CONTROLLED AMORTIZATION PERIOD
If a Class of Notes has a Controlled Amortization Period, the Trust will pay
available principal to those Noteholders on each Payment Date during the
Controlled Amortization Period in a fixed amount plus any amounts not previously
paid. If the Series has more than one Class, each Class may have a different
priority for payment. The Controlled Amortization Period for a Class starts on
the date specified in the accompanying Prospectus Supplement and ends when any
one of the following occurs:
o the outstanding principal balance for the Class is paid in full;
o a Principal; Amortization Period, if it applies, starts;
o a Rapid Amortization Period starts; or
o the Series Termination Date.
PRINCIPAL AMORTIZATION PERIOD
If a Class of Notes has a Principal Amortization Period, the Trust will pay
available principal to those Noteholders on each Payment Date during the
Principal Amortization Period. If a Series has more than one Class, each Class
may have a different priority for payment. The Principal Amortization Period for
a Class starts on the date specified in the accompanying Prospectus Supplement
and ends when any one of the following occurs:
o the outstanding principal balance for the Class is paid in full;
o a Rapid Amortization Period starts; or
o the Series Termination Date.
RAPID ACCUMULATION PERIOD
If a Class of Notes has a Controlled Accumulation Period, it may also have a
Rapid Accumulation Period. During a Rapid Accumulation Period, the Trust will
periodically deposit available principal in a trust account prior to the
Scheduled Payment Date. The Rapid Accumulation Period for a Class starts as
specified in the accompanying Prospectus Supplement on a day on or after a
designated Pay Out Event has occurred, but in no event later than the Scheduled
Payment Date, and ends when any one of the following occurs:
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o the outstanding principal balance for the Class is paid in full;
o a Rapid Amortization Period starts; or
o the Scheduled Payment Date.
RAPID AMORTIZATION PERIOD
If a Class of Notes is in a Rapid Amortization Period, the Trust will pay
available principal to those Noteholders on each Payment Date. If the Series has
more than one Class, each Class may have a different priority for payment. For a
Class without a Rapid Accumulation Period, the Rapid Amortization Period starts
on the day a Pay Out Event occurs. For a Class with a Rapid Accumulation Period,
the Rapid Amortization Period starts as specified in the accompanying Prospectus
Supplement on a day on or after a Pay Out Event occurs, but in no event later
than the Scheduled Payment Date for that Class. The Rapid Amortization Period
ends when any of the following occurs:
o the outstanding principal balance for the Class is paid in full;
o the Series Termination Date; or
o the Trust Termination Date.
PAY OUT EVENTS
A "Pay Out Event" for any Series of Notes will include certain adverse events
described in the accompanying Prospectus Supplement, including the following:
o Certain events of insolvency or bankruptcy relating to any Originator,
the Servicer or the Seller;
o The Seller is unable to transfer Receivables to the Trust as required
under the Sale and Servicing Agreement;
o The Trust or the Seller becomes an "investment company" under the
Investment Company Act of 1940; or
o AIG fails to meet its obligations under the AIG Support Agreement or
the AIG Support Agreement is modified, amended or terminated other than
as permitted in the AIG Support Agreement.
See "Description of the Transfer and Servicing Agreements--Pay Out Events" in
this Prospectus.
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SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any Series may be included in a Group of Series. If specified in the
accompanying Prospectus Supplement, to the extent that collections of Finance
Charge Receivables allocated to any Series are not needed for that Series, those
collections may be applied to certain shortfalls of another Series in the same
Group. See "Description of the Transfer and Servicing Agreements--Shared Excess
Finance Charge Collections," "--Application of Collections" and"--Defaulted
Receivables; Investor Charge-Offs" in this Prospectus.
SHARED PRINCIPAL COLLECTIONS
If specified in the accompanying Prospectus Supplement, to the extent that
collections of Principal Receivables and certain other amounts that are
allocated to the Investor Interest for any Series are not needed for that
Series, those collections may be applied to cover principal payments for another
Series in the same Group. Any reallocation for this purpose will not reduce the
Investor Interest for the Series to which those collections were initially
allocated. See "Description of the Transfer and Servicing Agreements--Shared
Principal Collections" in this Prospectus.
CREDIT ENHANCEMENT
Each Class of a Series may be entitled to Credit Enhancement. Credit Enhancement
provides additional payment protection to investors in each Class of Notes that
has Credit Enhancement.
"Credit Enhancement" for the Notes of any Class may take the form of one or more
of the following:
o Subordination
o over-collateralization
o insurance policy
o cash collateral guaranty or account
o collateral interest
o letter of credit
o surety bond
o spread account
o reserve account
o yield enhancement account
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The type, characteristics and amount of any Credit Enhancement will be:
o based on several factors, including the characteristics of the
Receivables and the Premium Finance Obligations at the time a Series of
Notes is issued, and
o established based on the requirements of each Rating Agency rating one
or more Classes of the Notes of that Series.
See "Credit Enhancement" and "Note Ratings" in this Prospectus.
OPTIONAL REFINANCING
If specified in the Prospectus Supplement, the Seller may have the option to
cause the refinancing and redemption of any Series on such additional terms
specified in the Prospectus Supplement. See "Description of the Transfer and
Servicing Agreements--Final Payment of Principal; Termination" and "--
Refinancing" in this Prospectus.
OPTIONAL PREPAYMENT
If specified in the Prospectus Supplement, the Seller or the Servicer may have
the option to prepay or cause the prepayment of any Series of Notes once the
Investor Interest for the Series is reduced to 10% or less of the initial
Investor Interest or such other percent as set forth in the related Series
Supplement. See "Description of the Transfer and Servicing Agreements--Final
Payment of Principal; Termination" in this Prospectus.
TAX STATUS
For information concerning the application of the federal income tax laws to the
Trust and an investment in the Notes, including whether the Notes will be
characterized as debt for federal income tax purposes, see "Certain United
States Federal Income Tax Consequences" in this Prospectus and "Summary of
Terms--Tax Status" in the accompanying Prospectus Supplement.
NOTE RATINGS
Any Note offered under this Prospectus and the accompanying Prospectus
Supplement will be rated in one of the four highest rating categories by at
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least one nationally recognized rating organization. Any nationally recognized
rating organization selected by the Seller to rate any Series is a "Rating
Agency."
A rating is not a recommendation to buy, sell or hold securities and may be
revised or withdrawn at any time by the assigning Rating Agency. Each rating
should be evaluated independently of any other rating. See "Note Ratings" in
this Prospectus.
INDEMNIFICATION FOR RECEIVABLE CONCENTRATIONS
If so specified in the accompanying Prospectus Supplement, AIG or another entity
may agree to indemnify the Trust against all losses related to certain
concentrations of Receivables. See "The Receivables-AIC Trust Interest" in the
Prospectus Supplement.
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RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the Notes.
LIMITED ABILITY TO RESELL NOTES
The underwriters may assist in resales of the Notes but they are not required to
do so. A secondary market for any Notes may not develop. If a secondary market
does develop, it might not continue or it might not be sufficiently liquid to
allow you to resell any of your Notes.
POTENTIAL PRIORITY OF CERTAIN LIENS
The Originators will transfer their entire beneficial interest in the
Receivables to the Seller, who in turn will transfer its entire beneficial
interest in the Receivables to the Trust. However, a court could conclude that
either the Originators or the Seller still owns the Receivables subject to a
security interest in favor of the Trust in the Receivables. Each of the
Originators and the Seller has taken steps to give the Trustee a "first priority
perfected security interest" in the beneficial interest in the Receivables in
the event a court concludes either the Originators or the Seller still owns the
Receivables. If a court concludes that the transfer to the Trust is only a grant
by either the Originators or the Seller of a security interest in the beneficial
interest in the Receivables, a tax or government lien (or other lien imposed
under applicable state or federal law without the consent of either the
Originators or the Seller) on either the Originators' or the Seller's property
arising before new Receivables come into existence may be senior to the Trust's
interest in the beneficial interest in the Receivables. Also, if either the
Originators or the Seller becomes insolvent, the cost of the appointment of a
bankruptcy trustee of either the Originators or the Seller and other costs of
the estate related to the Receivables might be paid from the Receivables before
the Trust received any payments on the Receivables. See "Certain Legal Aspects
of the Receivables--Transfer of Receivables" and "Description of the Transfer
and Servicing Agreements--Representations and Warranties" in this Prospectus.
CREDIT AND RELATED RISKS OF PREMIUM FINANCE LOANS
Commercial premium finance loans involve several potential credit and related
risks. These risks include:
o the creditworthiness of the insured (the "Insured");
o the creditworthiness of the insurance company issuing the policy, and
its ability to honor its obligation to return the unearned premiums, to
the extent available, that serve as collateral for the Loan; and
o the capabilities and operating procedures of the insurance agent or
broker that sells the insurance policy, provides significant
information about the loan and may be responsible for paying out loan
proceeds and collecting unearned premiums.
CREDIT AND RELATED RISKS OF DEFERRED PAYMENT OBLIGATIONS
Deferred Payment Obligations entail several potential credit and related risks.
These risks include:
o the creditworthiness of the Insured and the recourse to the Insured,
the extent of which may be limited in the case of early cancellation of
the policy to the value of insurance coverage actually provided to the
Insured rather than the value of insurance coverage initially
purchased; and
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o the sufficiency and realization of the right, if any, to receive a
return of the unamortized purchase price of cancelled policies, which
depends upon the creditworthiness of the insurance company, and the
sufficiency and realization of any alternative collateral provided in
addition to or in lieu of the right to receive a return of unamortized
purchase price.
POSSIBLE EFFECTS OF BANKRUPTCY OR INSOLVENCY OF INSUREDS
If federal and state bankruptcy, debtor relief or insolvency laws were applied
to an insolvent Insured, insurance company or insurance agent or broker involved
with a Receivable it could affect the Noteholders' security interest in the
beneficial interest in the related Receivables. The application of such laws
would affect Noteholders if it resulted in any Receivable being written off as
uncollectible or prevented the cancellation of the Insureds' insurance or the
collection of the related unearned premium, if any, which may serve as
collateral for the Insureds' Premium Finance Obligations.
POSSIBLE EFFECTS OF INSOLVENCY OF INSURER WITH RESPECT TO DEFERRED PAYMENT
OBLIGATIONS
In the event of an insolvency of an insurer that transferred to an Originator
the premium payment rights underlying a Deferred Payment Obligations, it is
possible that the receiver or liquidator of such insurer might argue that the
Trust as holder of the Deferred Payment Obligations should be viewed as a
creditor of the insurer, secured by a lien on the right to receive the related
premium payments. In such event, the Trust might suffer delays or losses in
collecting amounts due from the insured with respect to the related Deferred
Payment Obligations. In the event of cancellation of a policy underlying a
Deferred Payment Obligation related to an insolvent insurer, any right of the
Trust to a return of the unamortized purchase price of the Deferred Payment
Obligation might be (i) unsecured and (ii) subordinated to the rights of
insureds against such insurer. In such cases delays and losses may be
substantial. In addition, the fact that the insurer has sold its rights to
premiums may reduce the likelihood that other, solvent insurers would assume the
related policies. Policies that are not acquired by solvent insurers may be more
likely to be cancelled by the insureds.
POSSIBLE EFFECT OF RETENTION OF LEGAL TITLE OF PREMIUM FINANCE LOANS BY THE
ORIGINATORS
The Seller will transfer to the Trust the entire beneficial interest in the
Loans underwritten by the Originators to Insureds to finance premiums on
property and casualty insurance policies, including the right to receive
payments on the Loans and proceeds of related collateral security. Only the
beneficial interest in the Loans will be transferred to the Trust. It is our
intention that each Originator will hold legal title to the Loans that they each
originate for state regulatory purposes and in order to service and collect the
Loans, but that otherwise the Originators will be acting as nominal title holder
only. The Trust's rights to the Loans will therefore be derivative through the
Seller and the Originators. Neither the Seller nor the Trust will have direct
contact with the Insureds and will not:
o make Loans directly to any Insured;
o directly purchase any Loans from Third Party Originators;
o have any direct contractual relationship with any Insured; or
o have any direct security interest in, or rights to, any assets or
rights pledged by the Insureds as collateral for the Loans.
This means that the Trust may not have the ability to exercise remedies against
the Insureds directly and may need the assistance or cooperation of the
Originators or the Seller.
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The Seller represents and warrants in the Sale and Servicing Agreement that the
Receivables will be validly transferred to the Trust. The Seller also warrants
and covenants that each Receivable will be transferred free and clear of any
adverse claim and that, except for transfers permitted under the Sale and
Servicing Agreement, it will not sell, pledge, assign, transfer or grant any
adverse claim on any Receivable, any interest in a Receivable or any other Trust
asset. The Originators will each make similar representations, warranties and
covenants with respect to the Receivables transferred under the Purchase
Agreement.
POSSIBLE EFFECTS OF INSOLVENCY OR BANKRUPTCY OF THE ORIGINATORS OR THE SELLER
Under Section 541(d) of the United States Bankruptcy Reform Act of 1978, as
amended (the "Bankruptcy Code"), in a bankruptcy proceeding where a debtor has
retained only legal title to property to service the property, but has not
retained an equitable interest in such property, a debtor's bankruptcy estate
will be limited to that legal title interest only. Since there is uncertainty as
to the application of Section 541(d) to the Loans and since ART will be
retaining an equitable interest in the Receivables through the Trust Interest
and through the possible ownership of Notes issued by the Trust, a court could
find that the Receivables had not been sold and removed from the estate of the
Originators or ART, but remained part of any such entity's estate in the case of
bankruptcy.
In light of the preceding paragraph, a creditor or trustee-in-bankruptcy of any
Originator or ART could attempt to take the position that the transfer of the
beneficial interest under either the Purchase Agreement or the Sale and
Servicing Agreement was not a sale. Such transfers could be recharacterized as
an assignment of collateral as security for the benefit of the Seller or the
Noteholders. If the transfer to the Seller or the Trust were deemed to be a
grant to the Seller or the Trust of a security interest in the Receivables, the
Trustee may have an unperfected security interest in the Receivables that would
not have priority over other unsecured creditors and would be subordinate to
secured creditors of the Originators or the Seller.
In addition, if it were determined that the Trust or the Seller had only a
security interest in the Receivables, payments to the Trust made within one year
of a bankruptcy proceeding of the Originators or the Seller could be subject to
recapture as an asset of the affected entity's bankruptcy estate pursuant to the
power of a bankruptcy trustee to recover preferential transfers. If the
Originators or the Seller were to be involved in a bankruptcy proceeding, and
the foregoing recharacterization and recapture occurred, Noteholders could
experience delays in payment of principal and interest, or possible losses on
their investment.
American International Group, Inc. ("AIG") has agreed for the benefit of the
Trust and the Noteholders of all outstanding Series in the AIG Support Agreement
described in this Prospectus to cause each of ART, AIC, AICCO, IP Finance I, IP
Finance II and IP Funding to have a minimum net worth of at least $1 and, if any
of ART, AIC, AICCO, IP Finance I, IP Finance II and IP Funding has insufficient
funds, to:
o meet any of its obligations under the Sale and Servicing Agreement; or
o pay any of its obligations when due (except obligations subject to a
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bona fide dispute), which if not paid could be the basis of filing of
an involuntary case against either ART, AIC, AICCO, IP Finance I, IP
Finance II or IP Funding; or to provide ART, AIC, AICCO, IP Finance I,
IP Finance II or IP Funding, as the case may be, funds on a timely
basis to cause such obligations to be satisfied when due.
The AIG Support Agreement is intended to reduce the risk that the Originators or
the Seller might be subject to a bankruptcy proceeding or have unpaid creditors
who might take the position that the transfer of the Receivables was not a sale.
If a bankruptcy proceeding were commenced with respect to any of the
Originators, the Servicer, or the Seller, then a Pay Out Event could occur on
all outstanding Series. Under the terms of the Indenture, if a bankruptcy
proceeding were commenced with respect to the Seller or the Trust Interest were
transferred other than as specified in the Indenture, new Receivables would not
be transferred to the Trust. Under the Indenture, the Trustee would sell the
Receivables and other assets of the Trust unless holders of more than 50% of the
outstanding principal balance of each Class of each outstanding Series of Notes
(voting together), and anyone else authorized to vote on those matters in a
Series Supplement, gave the Trustee other instructions. The Trust would then
terminate earlier than planned and you could have a loss if the sale of the
Receivables and such other assets and amounts available from certain Credit
Enhancement produced insufficient net proceeds to pay you in full. However, the
bankruptcy trustee may have the power:
o regardless of the terms of the Indenture, (a) to prevent the beginning
of a Rapid Amortization Period (or, if applicable, Rapid Accumulation
Period), (b) to prevent the early sale of the Receivables and
termination of the Trust or (c) to require new Principal Receivables to
continue being transferred to the Trust; or
o regardless of the instructions of those authorized to direct the
Indenture Trustee's actions under the Indenture, (a) to require the
early sale of the Receivables, (b) to require termination of the Trust
and retirement of the Notes, (c) to prohibit the continued transfer of
new Receivables to the Trust or (d) the early retirement of any Series.
If there should be an early retirement of any Series, Noteholders of such Series
are likely to be paid principal earlier than anticipated, which would affect the
anticipated average life of such Series and would affect their yield if their
Notes were purchased at a premium and could result in reinvestment risk with
respect to such earlier payments.
In addition, if a bankruptcy proceeding were commenced with respect to the
Servicer, the bankruptcy trustee might have the power to prevent either the
Indenture Trustee or the Noteholders from appointing a new Servicer under the
Sale and Servicing Agreement. See "Description of the Transfer and Servicing
Agreements--Servicer Default" in this Prospectus.
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EFFECTS OF STATE REGULATION OF PREMIUM FINANCE LENDING AND DEFERRED PAYMENT
OBLIGATIONS ON NOTEHOLDERS
Numerous state laws regulate the creation, purchasing, transfer, servicing and
enforcement of insurance premium loans. The states could further regulate the
insurance premium finance industry in ways that make it more difficult for the
Servicer to collect payments on the Receivables or that reduce the finance
charges and other fees that the Originators can charge on insurance premium
finance obligations. Such laws, including any new laws or rulings which may be
adopted, may adversely effect the Servicer's ability to maintain the required
level of finance charges and other fees and charges as well as the ability of
the Trust to retain a successor Servicer in the event that any of the
Originators cease to continue as Servicer. For example, if the Originators were
required to reduce their finance charges and other fees, resulting in a
corresponding decrease in the obligations' effective yield, a Pay Out Event
could occur, resulting in the payment of principal sooner than expected. See
"Description of the Transfer and Servicing Agreements--Pay Out Events" in this
Prospectus. The Originators believe that neither the Trust nor the Seller is
required to be licensed under any state premium finance licensing laws, since
neither the Trust nor the Seller makes or services premium finance loans and has
not acquired title to any such loans. The Originators believe that no license is
required for deferred payment obligation financing.
Subject to certain conditions described under "Description of the Transfer and
Servicing Agreements--Representations and Warranties," the Originators under the
Purchase Agreement and the Seller under the Sale and Servicing Agreement must
accept reassignment of each Receivable that does not comply with certain
representations and warranties, including representations concerning compliance
with applicable state laws and regulations, if as a result of such
noncompliance, the related Premium Finance Obligation becomes a Defaulted
Obligation, the Trust shall not have a first priority perfected security
interest in the related Premium Finance Obligation or such breach has a material
adverse effect on Noteholders as specified in the Sale and Servicing Agreement.
However, we do not anticipate that the Indenture Trustee will make any
examination of the Receivables or the related records for the purpose of
determining the presence or absence of defects, compliance with representations
and warranties, or for any other purpose. The only remedy if any such
representation or warranty is violated, and the violation continues beyond the
period of time the related Originator or the Seller has to correct the violation
and the related Premium Finance Obligation becomes a Defaulted Obligation due to
such breach, is that the Seller must accept reassignment of the Receivables
affected by the violation and, in turn, the Seller will reassign the affected
Receivables to the applicable Originator of the Receivables, who must accept
reassignment of the affected Receivables (subject to certain conditions
described under "Description of the Transfer and Servicing
Agreements--Representations and Warranties" in this Prospectus).
The business of acquiring deferred payment obligations from insurance companies
at present is subject to less regulation than the business of originating
insurance premium loans. However, there can be no assurance that acquisition of
deferred payment obligations will not be subject to regulation in the future or
that such regulation would not make it more difficult for the Originators to
acquire deferred payment obligations at prices that they find attractive or
prohibit the acquisition of deferred payment obligations altogether.
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EFFECT OF DEPENDENCE ON THE ORIGINATORS' BUSINESS
The premium finance industry is very competitive. The Originators compete with
banks, insurance companies and other premium finance lending companies on the
basis of loan pricing and terms, underwriting criteria and servicing quality. If
commercial insurance consumers choose to use competing sources of credit, the
amount of Premium Finance Obligations underwritten by the Originators could be
reduced. This is more likely with respect to the financing of Deferred Payment
Obligations where the lack of licensing requirements makes entrance into the
market easier. We cannot assure the creation of Additional Receivables in the
Premium Finance Obligations. The commencement and continuation of a Revolving
Period, a Controlled Amortization Period, a Principal Amortization Period or a
Controlled Accumulation Period for a Series or Class of that Series depend upon
the continued generation of new Receivables to be conveyed to the Trust. A
significant decline in the amount of Receivables generated by the Originators
could result in the reduction of the sale of Additional Receivables to the
Trust. If the amount of Additional Receivables generated declines to such an
extent that the Seller is unable to maintain the Minimum Trust Interest, a Pay
Out Event would occur for one or more Series and the Rapid Amortization Period
would commence or, if applicable, the Rapid Accumulation Period for each of
those Series would commence. If a Pay Out Event occurs, you could receive
payment of principal sooner than expected. The Originators' ability to compete
in the current industry environment will affect their ability to generate new
Receivables. See "Maturity Assumptions" in this Prospectus.
EFFECT OF SUBORDINATION ON SUBORDINATED NOTEHOLDERS
Where one or more Classes in a Series are subordinated, principal payments on
the subordinated Class or Classes generally will not begin until the senior
Class or Classes are repaid. Additionally, if collections of Finance Charge
Receivables allocated to a Series are insufficient to cover amounts due for that
Series' senior Notes, the Investor Interest for the subordinated Notes might be
reduced and the outstanding principal balance of such subordinated Notes might
be written off to the extent of such reduction. This would reduce the amount of
the collections of Finance Charge Receivables available to the subordinated
Notes in future periods and could cause a possible delay or reduction in
principal and interest payments on the subordinated Notes. If Receivables had to
be sold, the net proceeds of that sale to the extent of the Investor Percentage
available to pay principal would be paid first to senior Noteholders and any
remaining net proceeds would be paid to the subordinated Noteholders.
RISKS RELATING TO DEFAULTED OBLIGATIONS
Each Class of Notes will be allocated a portion of the Receivables written off
as uncollectible, except in certain circumstances related to certain
concentrated receivables. See "Description of Series Provisions--Allocation
Percentages" and "--Defaulted Receivables; Investor Charge-Offs" in the
accompanying Prospectus Supplement. If the written off amounts allocated to any
Notes exceed the amounts available to cover them, which could occur if the
limited amount of Credit Enhancement is reduced to zero, the outstanding
principal balance of those Notes may be written down, and those Noteholders may
not receive the full amount of principal and interest due to them. See
"Description of Series Provisions--Reallocation of Cash Flows," "--Application
of Collections" and "--Defaulted Receivables; Investor Charge-Offs" in the
accompanying Prospectus Supplement.
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EFFECTS ON NOTEHOLDERS OF ISSUANCE OF ADDITIONAL SERIES BY THE TRUST
The Trust, as a master trust, is expected to issue additional Series of Notes
from time to time. The Trust may issue additional Series of Notes with terms
that are different from your Series without the prior review or consent of any
Noteholders. It is a condition to the issuance of each new Series that either:
o each Rating Agency that has rated an outstanding Series confirm in
writing that the issuance of the new Series will not result in a
reduction or withdrawal of its rating; or
o if at the time of issuance of a new Series there is no outstanding
rated Series, a nationally recognized investment bank or commercial
bank delivers a certificate confirming that the new issuance will not
adversely affect the payments to other Series.
However, the terms of a new Series could affect the timing and amounts of
payments on any other outstanding Series.
POSSIBLE EFFECT OF NOTEHOLDER CONTROL LIMITATIONS
The consent or approval of a specified percentage of the aggregate outstanding
principal balance of all outstanding Notes of all Series and all classes within
a Series voting together will be required to take or direct certain actions,
including requiring the appointment of a successor Servicer following a Servicer
Default, amending the Indenture in certain circumstances and directing a
repurchase by the Seller of some or all outstanding Receivables upon the breach
of certain representations and warranties. In such instances, your interests may
not be aligned with the interests of the holders of Notes of other Series or of
the holders of Notes of other Classes of your Series.
POSSIBLE EFFECT OF DECLINE IN QUALITY OF ADDITIONAL RECEIVABLES
The Originators will be obligated to transfer to ART the Additional Receivables
that ART elects or is obligated to transfer to the Trust. Such Additional
Receivables may have been originated using criteria different from those which
were applied to the Receivables in the Trust on the Initial Closing Date.
Consequently, there can be no assurance that Additional Receivables will be of
the same credit quality as previously designated Receivables. Except for those
criteria described under "The Receivables," there are no required
characteristics of Additional Receivables. Following the transfer of Additional
Receivables to the Trust, the aggregate characteristics of the pool of
Receivables in the Trust may vary from those of the Receivables in the Trust on
the Initial Closing Date. See "The Receivables."
POSSIBLE EFFECT OF INSUFFICIENCY OF ADDITIONAL RECEIVABLES
There is no assurance that there will be at any time after the Initial Closing
Date sufficient Additional Receivables available for transfer to the Trust to
avoid a Pay Out Event. A significant decline in the amount of Receivables
generated could lead to a Pay Out Event which would cause the early retirement
of your Notes and result in reinvestment risks. See "Maturity Assumptions" and
"Description of the Transfer and Servicing Agreements--Pay Out Events."
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POSSIBLE EFFECT OF LIMITATIONS ON NOTE RATING, RISK OF DOWNGRADE
Any rating assigned to your class of Notes by Standard & Poor's or Moody's
(individually, a "Rating Agency" and collectively, the "Rating Agencies") will
reflect such Rating Agency's assessment of the likelihood that you will receive
the payments of interest and principal required to be made under the Indenture
and will be based on the collectability of the Receivables in the Trust, the
terms, including the subordination terms, of other classes, the availability of
amounts from any other credit enhancements, the loss allocation method and the
terms of the AIG Support Agreement. The rating addresses the likelihood of full
payment of principal and interest of your Notes by such Series termination date.
Any such rating will not address the possibility of the occurrence of a Pay Out
Event or the possibility of the imposition of United States withholding tax with
respect to non-U.S. Holders of the Offered Notes. A rating is not a
recommendation to purchase, hold or sell notes of such class, and such rating
will not comment as to the marketability of such Offered Notes, any market price
or suitability for a particular investor. There is no assurance that any rating
will remain for any given period of time or that any rating will not be lowered
or withdrawn entirely by a Rating Agency if in such Rating Agency's judgment
future circumstances relating to the basis of the rating, such as adverse
changes in the collectability of the Receivables or a lowering of AIG's
long-term debt rating, so warrant.
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THE TRUST
AIG Credit Premium Finance Master Trust (the "Trust") was formed in
accordance with the laws of the State of Delaware on November 5, 1999, pursuant
to the master trust agreement (as amended from time to time, the "Master Trust
Agreement") between ART and the Owner Trustee. The Trust is wholly owned by ART.
Prior to its formation the Trust had no assets or obligations. The Trust was
created for the sole and limited purpose of purchasing Receivables relating to
Premium Finance Obligations underwritten in compliance with AIC's underwriting
criteria by the Originators. The Trust will not engage in any business activity
other than acquiring and holding Receivables Participations, interests in other
trusts and related assets, issuing Series (each, a "Series") of Notes supported
by the payments on those Receivables, Participations, interests in other trusts
and related assets and making payments thereon and engaging in related
activities (including, with respect to any Series, obtaining any Enhancement and
entering into related Enhancement agreements). As a consequence, the Trust is
not expected to have any need for additional capital resources other than the
assets of the Trust. The principal executive offices of the Trust are located at
1201 Market Street, Wilmington, Delaware 19801, telephone number (302) 428-3372.
The Trust, AIC, the Seller and the Indenture Trustee have entered into
an administration agreement, dated as of November 5, 1999 (the "Administration
Agreement"), under which AIC as Trust Administrator has agreed to provide
certain administrative services to the Trust in connection with the Trust's
obligations under the Indenture and the Sale and Servicing Agreement.
TRUST ASSETS
Each Note will represent an obligation of the Trust.
The property of the Trust may include:
o the beneficial interest in loans to Insureds to finance
premiums for commercial property and casualty insurance
policies;
o if specified in an accompanying Prospectus Supplement, the
rights to receive deferred payments to become due from
Insureds to pay premiums for property and casualty insurance
policies;
o payments due and to become due, and collections and recoveries
on those Loans and Deferred Payment Obligations, if any;
o any other property transferred to the Trust described in this
Prospectus and any accompanying Prospectus Supplement; and
o an ownership interest in one or more other finance trusts
whose assets will be substantially similar to the Loans and
Deferred Payment Obligations of the Trust.
As specified in the prospectus supplement, in addition to the
Receivables, the assets of the Trust may also include (a) all monies on deposit
in certain bank accounts of the Trust, (b) all monies on deposit in certain bank
accounts established and maintained for the benefit of Noteholders of any Series
and (c) any Enhancement issued with respect to any Series.
THE OWNER TRUSTEE
The trustee for the Trust will be Chase Manhattan Bank Delaware (the
"Owner Trustee"). The Owner Trustee's liability in connection with the issuance
and sale of the Notes will be limited solely to the express obligations of the
Owner Trustee set forth in the Master Trust Agreement. The Owner Trustee may
resign at any time, in which event the Seller or its successors will be
obligated to appoint a successor trustee which is eligible under the related
Master Trust Agreement. The Seller also may remove the Owner Trustee if the
Owner Trustee ceases to be eligible to continue as Owner Trustee under the
Master Trust Agreement or if the Owner Trustee becomes insolvent. In such
circumstances, the Seller will be obligated to appoint a successor trustee
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eligible under the Master Trust Agreement. Any resignation or removal of the
Owner Trustee and appointment of a successor trustee will be subject to any
conditions or approvals specified in this Prospectus and will not become
effective until acceptance of the appointment by the successor trustee.
BUSINESS OF A.I. RECEIVABLES TRANSFER CORP. AND THE ORIGINATORS
GENERAL
With respect to each Series of Notes, the Receivables conveyed or to be
conveyed to ART by the Originators and subsequently transferred to the Trust by
ART pursuant to a sale and servicing agreement as amended from time to time (the
"Sale and Servicing Agreement"), among ART, as seller (the "Seller") and AIC,
AICCO, IP Finance I, IP Finance II and AP Funding, each as servicer
(collectively, the "Servicer"), the Indenture Trustee and the Trust, have been
or will be generated or purchased by the Originators:
o from Loans to Insureds to finance commercial property and
casualty insurance premiums funded by the Originators or Third
Party Originators (or with a firm commitment to be funded by
the Originators within 30 days of transfer to the Trust) (the
"Loan Portfolio"); and
o from installments of premium payments to become due from
Insureds for commercial property and casualty insurance (the
"Deferred Payment Obligations") purchased from insurance
companies by the Originators (or with a firm commitment to
purchase within 30 days of transfer to the Trust).
The Servicer currently services the Loan Portfolio and will service any
future portfolio of Deferred Payment Obligations in the manner described in an
accompanying Prospectus Supplement.
AIC was incorporated in New Hampshire in 1973 and is a wholly-owned
subsidiary of AIG Credit Corp., a Delaware corporation ("AIGCC"), which in turn
is a wholly-owned subsidiary of AIG, a Delaware corporation. AIG is a holding
company which through its subsidiaries is primarily engaged in a broad range of
insurance and insurance related activities in the United States and abroad. The
principal business of A.I. Credit Corp. consists primarily of the financing of
loans and deferred payment obligations to commercial insureds ("Insureds") to
finance property and casualty insurance premiums throughout the United States,
other than in California, and including the Commonwealth of Puerto Rico. AICCO,
a wholly-owned subsidiary of AIGCC that was incorporated in California in 1974,
conducts the same premium finance lending activities in California. IP Finance I
was incorporated in Delaware in 1994 and is a wholly-owned subsidiary of AIGCC.
IP Finance I conducts the same premium finance lending activities as AIC
throughout the United States, other than California. IP Finance II, presently a
wholly-owned subsidiary of AIGCC that was incorporated in California in 1994,
conducts the same premium finance lending activities in California as AICCO. IP
Funding was incorporated in Delaware in 1995 and is a wholly-owned subsidiary of
AIGCC that conducts similar premium financing lending activities in certain
States. IP Finance I, IP Finance II and IP Funding were until January 1999,
subsidiaries of Sun America Corp. which was acquired by AIG in January 1999.
As used in this "Business of A.I. Receivables Transfer Corp. and the
Originators" section (unless otherwise indicated), "AIGC" refers to AIC, AICCO,
IP Finance I, IP Finance II and IP Funding, collectively. AIGC finances premiums
for most lines of property and casualty insurance. AIGC believes that it is the
largest insurance premium finance company in the United States. The principal
executive office of AIC is located at 160 Water Street, New York, New York
10038, telephone number (212) 428-5400, of AICCO is located at 777 South
Figueroa Street, Los Angeles, California 90017, telephone number (213) 689-3600,
of IP Finance I, is located at 160 Water Street, New York, New York 10038,
telephone number (212) 428-5400, of IP Finance II is located at 15303 Ventura
Blvd., Suite 1600, Sherman Oaks, California 91403, telephone number (818)
906-1200 and of IP Funding is located at 160 Water Street, New York, New York
10038, telephone number (212) 428-5400. In addition to loans funded and deferred
payment obligation underwritten by AIGC, AIGC also purchases loans funded by
Third Party Originators.
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PREMIUM FINANCE OBLIGATIONS
LOANS
A commercial premium finance loan typically is an installment loan made
to a commercial insurance buyer, the proceeds of which pay premiums that are due
to the insurance company. Financed commercial insurance policies commonly (a)
are for a term of one year or less, (b) require the full premium to be paid at
inception and (c) provide upon early cancellation for a return of unearned
premium to the insured. Insureds generally make fixed scheduled payments on the
loans which include a finance charge based on a spread over the estimated yield
at the date of origination of the loan of money market investments with a
maturity comparable to the loan. The finance charges on premium finance loans
funded by AIGC may vary considerably, depending on the term and amount of the
loan, the insured's credit payment history, the size of the premium down
payment, other collateral securing the loan and other considerations.
AIGC utilizes standardized premium finance loan agreements for Loans
that give AIGC a limited power of attorney, allowing it to cancel the insurance
coverage upon non-payment of a loan installment by the Insured and to collect
from the insurance company any unearned premium that may secure the loan.
Depending on the terms of the loan and of the related insurance policy, the
return of premium may or may not be sufficient to pay off the outstanding
balance of the loan, after the cancellation of the related policy. AIGC also has
a right to recover any unpaid loan balance directly from the Insured.
A common premium finance loan structure may include a 20% down payment
on the premium paid by the Insured with the remaining 80% funded by a loan from
the insurance premium finance company to be repaid to AIGC by the Insured in
nine equal monthly installments. AIGC's premium finance loans generally have
terms that range from 6 to 12 monthly installments with higher or lower down
payment percentages depending upon AIGC's applicable credit and underwriting
policies. Certain loans do not have level repayment requirements, usually to
accommodate an Insured's cash flow. Given the relatively short duration of most
premium finance loans, such loans are generally not prepaid prior to the
scheduled payment dates although the loan terms do not prohibit prepayments or
provide for penalties in the event of prepayment.
Financed commercial insurance policies usually require that the full
insurance premium be paid at the commencement of the policy period. The
insurance company customarily earns the right to the full premium over the
course of the policy period. If the insured cancels the policy prior to the end
of the policy period, the insured is commonly entitled to a repayment of the
portion of premium payment that is unearned by the insurance company at the time
of cancellation. Depending on the type of insurance coverage and the terms of
the particular insurance policy, the amount of unearned premium available upon
cancellation will vary in light of relevant factors such as (a) the applicable
method for measuring unearned premium which may be by proration over the policy
term or, as required by some states, by an accelerated method under which more
premium is earned in the earlier portion of the policy period, (b) the extent of
the policy period that has expired at the time of cancellation, (c) the loss
experience under the policy prior to cancellation and (d) variations after the
commencement of the policy period in the scope of the risks covered. The
insurance company may, depending on the terms of the policy, be entitled to
retroactively review and evaluate factors (c) and (d) above after cancellation
which may result in a reduction of the amount, and affect the timing, of
repayment of any unearned premiums. Also, in certain cases the insurance company
may earn the entire premium at inception of the policy or upon the occurrence of
an insured loss under the policy, in either of which cases there would be no
unearned premium to be returned.
Premium finance lending activities are regulated by most states. Among
other matters, many states regulate various terms of the premium finance loans
such as refund policies and rates of interest and late charges that may be
charged an insured. Premium finance loans are funded by AIGC on standardized
loan forms, the provisions and format of which are also usually subject to state
regulation or approval.
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DEFERRED PAYMENT OBLIGATIONS
AIGC also provides premium financing by acquiring from insurance
companies rights to receive payments that become due from Insureds of premiums
for commercial property and casualty insurance. AIGC currently expects to
execute a purchase agreement with each insurance company from whom it purchases
Deferred Payment Obligations. With respect to Deferred Payment Obligations, the
commercial insurance policy does not require that the full insurance premium be
paid at the commencement of the policy period. Instead, the Insured pays regular
installments of premiums to the insurance company during the term of the
insurance policy. In the event of a default by the Insured, the insurance
company generally has the right to cancel the policy coverage. In the event of a
cancellation, the remaining amount the Insured is obligated to pay is typically
reduced to reflect the shortened policy period. AIGC's right to recover from the
Insured any unpaid Deferred Payment Obligation balance is limited to the amount
the Insured is obligated to pay under the insurance policy and is likely to be
less than the remaining unamortized purchase price on the Deferred Payment
Obligation.
AIGC generally will purchase from insurance companies the Insured's
obligation at a discount based on a spread over the estimated yield of money
market investments with a maturity comparable to the Deferred Payment
Obligation. The amount of the discount on a Deferred Payment Obligation
represents the finance charge and the purchase price represents the principal
balance. The finance charges on Deferred Payment Obligations funded by AIGC may
vary considerably, depending on the term and the amount of the Deferred Payment
Obligation, the Insured's credit payment history, the insurance company's credit
rating, the size of the premium down payment, other collateral, if any, securing
the Deferred Payment Obligation and other considerations.
The insurance policies related to Deferred Payment Obligations are
regulated by most states; however, assignments of Deferred Payment Obligations
generally are not regulated. AIGC intends to use standardized assignment
agreements for its purchase of Deferred Payment Obligations.
PREMIUM FINANCE LOAN ORIGINATION; COLLECTION POLICY
AIGC generally locates Insureds for premium finance loan transactions
through independent insurance agents and brokers that are licensed under state
laws, who offer premium loan programs to enable their commercial customers to
purchase the full amount of insurance coverage needed and spread out the cost of
premium payments over time. Thus, loan origination is usually dependent on
relationships with insurance brokers and agents and knowledge of the insurance
marketplace. The funding by AIGC of insurance premium finance loans is commonly
commenced by an agent or broker contacting AIGC to initiate the premium loan
process and outlining to AIGC the proposed loan transaction, including Insured
and insurance company information and coverage types and amounts. AIGC then
reviews the information submitted by such agent or broker in light of its
underwriting procedures. See "--Premium Finance Obligations Underwriting
Procedures" below. After AIGC approval, the Insured executes a standard premium
finance loan agreement, which contains a promise to repay the loan, a limited
power of attorney giving AIGC the authority in the event of default on the loan
to contact the insurance company directly and cancel coverage, and a collateral
assignment to AIGC of the unearned insurance premium, if any, returnable
following such cancellation and may, in some cases, include an assignment of
additional collateral (for example, a letter of credit or a surety bond) to
secure the loan.
Following receipt and acceptance of the signed premium finance loan
agreement, AIGC either sends the loan proceeds to the insurance company to pay
the premium balance due or releases funds to the insurance agent or broker who
then pays the insurance company. AIGC bills the Insured directly on a monthly
basis. Each Insured is directed to remit payments to the appropriate regional
lockbox account maintained by AIGC.
Since the insurance company generally earns a portion of the premium
each day, thereby reducing unearned premium amounts for loans secured by such
collateral, prompt action on loan defaults is important. On defaulted loans,
most states allow premium finance companies such as AIGC to issue a notice of
"intent to cancel" the related insurance policy within five or ten days after
the premium loan installment due date on which the Insured defaulted. A "notice
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of cancellation" can then be issued generally ten days after an "intent to
cancel" notice has been mailed. Once a cancellation notice has been issued, AIGC
will customarily proceed to take steps to collect any unearned premium available
from the insurance company and, if applicable, realize on any collateral and
apply it to the loan balance. If the returned premium and amounts realized from
collateral, if any, do not retire the loan balance due, AIGC will customarily
seek payment from the Insured pursuant to the terms of the premium finance loan
agreement. AIGC's policy is to (a) seek to collect past due loan payments prior
to policy cancellation and (b) if a cancellation occurs, attempt to both collect
the delinquent loan payments and obtain reinstatement of the insurance coverage.
Since Insureds usually need to maintain insurance (and to reinstate cancelled
policies) to meet their business objectives, collections often continue even
after policy cancellation and cancelled policies are often reinstated.
Generally, the policy cancellation date occurs within one month of the
related loan payment default. The current policy of AIGC is to charge off as a
loss the unpaid defaulted loan balance one year after the cancellation of the
related policy. Following cancellation, AIGC will process the collection of any
unearned premium with the appropriate insurance company, will realize on any
additional collateral, if any, or may pursue collection against the Insured if
sufficient unearned premium is unavailable and amounts realized on any
additional collateral prove insufficient. If during this period AIGC determines
the unpaid loan is not likely to be collected, AIGC may charge off the loan
prior to such first anniversary. See "The Receivables."
DEFERRED PAYMENT OBLIGATION ORIGINATION; COLLECTION POLICY
AIGC expects to locate deferred payment obligations through its
contacts with insurance companies and thereby develop a relationship to obtain
access to portfolios of deferred payment obligations originated by insurance
companies affiliated with AIG or unaffiliated third party insurance companies.
AIGC expects to use its credit underwriting procedures now used in evaluating
the credit risk of Loan Insureds to evaluate the credit risk of Insureds
relating to Deferred Payment Obligations it intends to purchase. AIGC will also
evaluate the credit risk with respect to the insurance company that issued the
underlying policy and that will be selling the obligations to AIGC. See "The
AIGC Premium Finance Portfolios--The Originators Premium Finance Portfolio
"and"--Premium Finance Obligation Origination; Collection Policy" in the
accompanying Prospectus Supplement.
After AIGC's approval of an insurance company as a seller of deferred
payment obligations, the insurance company will execute an assignment agreement.
Rather than a power of attorney allowing AIGC to cancel the policy, the
assignment will contain either an obligation by the insurance company to cancel
the insurance policy on AIGC's request and/or require the insurer to provide
AIGC with additional collateral. Following approval of each particular
transaction, AIGC will send the purchase price to the insurance company. AIGC
will either bill each Insured directly for the premiums on the scheduled basis
or the insurer will continue to collect the premiums and will be required under
the assignment agreement to remit them to AIGC. Each Insured or the insurer, as
the case may be, will be directed to remit payments to the appropriate lockbox
account maintained by AIGC.
In cases where the insurer has agreed to return all or some of the
unamortized purchase price representing unearned premiums following cancellation
of a policy, it is important that AIGC immediately notify the insurance company
upon a non-payment of premiums.
Upon a receipt of notice from AIGC of non payment of premiums, the
insurance company may be required by the assignment agreement to send out the
equivalent of an "intent to cancel" notice to the Insured regarding the related
insurance policy in accordance with state law, generally, within five or ten
days after the due date for a premium payment. The equivalent of a "notice of
cancellation" can then be issued, generally, ten days thereafter. In cases where
the insurance company has agreed to return all or some of the unamortized
purchase price representing unearned premiums upon cancellation, AIGC will then
take steps to collect from the insurance company from which it purchased the
Deferred Payment Obligations and, if that fails or is otherwise insufficient or
unavailable, to realize on any collateral securing the insurance company's
repayment obligation. Depending on the terms of the Deferred Payment Obligation
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and the related insurance policy, AIGC's recourse, if any, against an insurance
company may or may not be sufficient to pay off outstanding balance of the
Deferred Payment Obligation after cancellation of the related insurance policy.
Generally, the policy cancellation date occurs within one month of the
related payment default. The current policy of AIGC is to charge off as a loss
the unpaid defaulted deferred payment balance one year after cancellability of
the related policy. Following such date, AIGC will process the collection of any
unearned premium with the appropriate insurance company and/or will realize on
any additional collateral, if any. If during this period AIGC determines the
unpaid deferred payment obligation is not likely to be collected, AIGC may
charge off the obligation prior to such first anniversary. Under the terms of
the Sale and Servicing Agreement, any recoveries with respect to Deferred
Payment Obligations that have been written off will be included in the assets of
the Trust and considered Finance Charge Receivables. See "The Receivables."
AIGC believes that any amounts owing to it by an insolvent insurance
company in respect of the unamortized purchase price of a Deferred Payment
Obligation would not be covered by state insurance guarantee funds.
PREMIUM FINANCE LOAN PURCHASE POLICIES
In addition to directly originating premium finance loans, AIGC has
entered into purchase agreements whereby AIGC purchases premium finance loans
("Purchased Loans") from third party premium finance loan originators ("Third
Party Originators") immediately upon their origination by such Third Party
Originators. The terms "fund," "funded" and "funding," when used herein with
respect to Loans, refer both to the making of such Loans directly by the
Originators to Insureds and to the purchase of such Loans by the Originators
from Third Party Originators immediately upon the origination of such Loans by
Third Party Originators, unless the context otherwise requires. Third Party
Originators are commonly affiliated with insurance agents and/or brokers.
Purchased Loans are originated on substantially similar terms as, and pursuant
to the same credit standards, policies and procedures applied to, loans directly
originated by AIGC. The beneficial interest and rights in and to the Purchased
Loans acquired by AIGC as purchaser are substantially similar to those in loans
which are directly originated by AIGC, including, but not limited to, the
limited power of attorney allowing it to cancel the insurance coverage upon
non-payment of a loan installment by the Insured and to collect from the
insurance company any unearned premium that may secure the loan. AIGC has made
identical representations and warranties with respect to Receivables sold to the
Seller pursuant to the Purchase Agreement relating to Purchased Loans, as are
made with respect to Receivables relating to Loans directly originated by AIGC.
PREMIUM FINANCE OBLIGATIONS UNDERWRITING PROCEDURES
AIGC considers and evaluates a variety of risks in evaluating each
instance of funding an insurance Premium Finance Obligation. These include (a)
the transaction structure (term, the amount of down payment and the availability
of unearned premium as collateral), (b) the creditworthiness of the Insured, (c)
the creditworthiness of the insurance company, in those cases where AIGC relies
on the right to unearned premiums, (d) in the case of Loans, the capabilities
and operating procedures of the insurance agent or broker that (i) places the
insurance policy, (ii) serves as a source of significant information regarding
the Loan transaction, and (iii) may disburse the Loan proceeds or collect
unearned premium funds for AIGC, (e) in the case of Deferred Payment
Obligations, the creditworthiness and operating capabilities of the insurance
company that serve as a source of Insured information and (f) the availability
of any additional collateral. These factors may be given different weight in the
case of any particular obligation. If there is any question as to the financial
responsibility of any Insured, it is the policy of AIGC to ensure that any
obligation of any such Insured is properly collateralized.
All applications from Insureds for obligations to be funded by AIGC are
reviewed for completeness and creditworthiness based on the obligation
underwriting criteria established by AIGC. Under AIGC's current underwriting
policies, obligation applications are first reviewed by a branch office and a
determination is made as to whether the obligation may be approved by the branch
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office, or be subject to further evaluation and approval by the corporate credit
department of AIGC's head office. Such determination is based primarily upon the
size of the premium (and corresponding obligation) to be financed and the
associated risk related to the amount of any unsecured credit exposure. A
prospective obligation with a risk assessment exceeding a certain threshold
receives a formal credit review performed by the credit department of AIGC's
head office. Such risk threshold can vary depending upon the amount of
downpayment made by the prospective Insured, the amount of unearned premium
collateral, the related insurance carrier, the agent/broker involved in the
transaction, if any, and the availability of any additional collateral. In
making funding decisions, the corporate credit department uses Dun & Bradstreet
reports, financial statements, payment histories, agent/broker and AIGC local
office input, and its extensive experience. For prospective obligations with
risk assessments below an applicable threshold, AIGC relies primarily on the
inherent diversification of risk, and approval is granted by the branch office
without additional action. Premium Finance Obligations that have special
factors, such as large principal amounts, low down payments or the absence of
unearned premium collateral, are also subject to evaluation and approval by the
head office.
AIGC's general guideline for approval of an insurance company is a
rating of at least B+ by A.M. Best Company. Based upon AIGC's own credit
determination, it may finance insurance premiums on policies issued by insurance
companies that have a lower rating or, in the case of foreign insurers and
certain domestic insurers that meet AIGC credit requirements, that are unrated.
While Receivables may relate to Premium Finance Obligations made to finance
premiums payable to such unrated or lower rated foreign or domestic insurers,
AIGC believes that each of such insurers is subject to state insurance law
requirements relating to the repayment of unearned insurance premiums upon
cancellation of the related policy. With respect to agents and brokers, AIGC
monitors loans in its portfolio originated by particular agents and brokers to
assist in assessing their capabilities and performance as agents or brokers. The
accompanying Prospectus Supplement will describe the percentage of obligations
in the Trust Portfolio that represent obligations to finance insurance policies
issued by affiliates of AIG.
STATE REGULATION OF PREMIUM FINANCE LENDING ACTIVITIES
The making, purchasing, enforcement and collection of insurance premium
loans is subject to extensive regulation by many states' laws. Such laws vary
widely by state, but often (i) require that premium finance lenders be licensed
by the state, (ii) restrict the content of premium finance loan agreements, and
impose certain disclosure requirements on such agreements, (iii) limit the
amount of finance charges that may be lawfully imposed, (iv) regulate the amount
of refunds due an Insured who prepays the premium finance loan prior to
maturity, (v) regulate the amount of late fees, if any, and finance charges that
may be charged upon a premium finance loan becoming overdue, (vi) regulate the
manner and method of canceling an insurance policy upon non-payment of the
premium finance loan, including a requirement that the premium finance lender
provide the Insured with appropriate notice prior to such cancellation, and
(vii) allow imposition of penalties, which may be significant, upon premium
finance lenders for violations of the state's premium finance laws. See "Risk
Factors--Effects of State Regulation of Premium Finance Lending and Deferred
Payment Obligations on Noteholders."
Assignments of deferred payment obligations are not subject to state
regulations. However, there can be no guarantee that deferred payment
obligations may not be subject to state regulation in the future.
AS SERVICER
AIC, AICCO, IP Finance I, IP Finance II and IP Funding will act as the
Servicer for the Premium Finance Obligations giving rise to Receivables in
accordance with the Sale and Servicing Agreement, the Indenture and each
supplement thereto. In certain limited circumstances, AIC, AICCO, IP Finance I,
IP Finance II and IP Funding may resign or be removed as Servicer, in which case
a third party may be appointed as its successor. See "Risk Factors--Effects of
State Regulation of Premium Finance Lending and Deferred Payment Obligations on
Noteholders," "Description of the Transfer and Servicing Agreements--Collection
and Other Servicing Procedures," "--Certain Matters Regarding the Seller and the
Servicer," and "--Servicer Default."
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THE RECEIVABLES
The assets conveyed to the Trust (a) include the entire beneficial
interest in certain Loans transferred to the Trust after October 31, 1999 (the
"Initial Cut-Off Date") including (1) all amounts due and to become due and all
collections and recoveries on the Loans and (2) the proceeds of certain
collateral securing the Loans, (b) may include the entire interest in certain
Deferred Payment Obligations to be transferred to the Trust, including (1) all
amounts due and to become due and all collections and recoveries on the Deferred
Payment Obligations and (2) the proceeds of any collateral securing the Deferred
Payment Obligations, (c) may include the ownership interest in one or more
trusts whose assets are substantially similar to the Loans in the Trust, (d) may
include certain Participations in Premium Finance Obligations, and (e) any other
related property described in an accompanying Prospectus Supplement. The
interests described above are referred to hereafter as "Receivables". The Trust
assets will not include, as of any date of determination, (a) with respect to
any Receivable arising under a Premium Finance Obligation which is not a
Defaulted Obligation, any collections received by the Servicer on such Premium
Finance Obligation in excess of the sum of (1) the amounts due and payable on
such Premium Finance Obligation during the month in which such date occurs and
(2) all accrued and unpaid amounts, if any, on such Premium Finance Obligation
in respect of any month or months prior to the month in which such date occurs
or (b) with respect to any Receivable arising under a Defaulted Obligation, any
collections received by the Servicer on such Defaulted Obligation in excess of
all amounts due thereon (each, a "Credit Balance").
Each Loan will have been funded and each Deferred Payment Obligation
will be financed by the Originators to finance commercial insurance premiums
within 30 days of being transferred to the Trust. Neither the Premium Finance
Obligations nor the Receivables are guaranteed by ART, AIC, AICCO, AIGCC, AIG,
IP Finance I, IP Finance II, IP Funding or any affiliate thereof, and the Trust,
as holder of the Receivables, has no recourse against ART, AIC, AICCO, AIGCC,
AIG, IP Finance I, IP Finance II, IP Funding or any affiliate thereof for the
non-collectability of the Receivables, except that, under certain limited
circumstances, the Seller will be required to repurchase certain Receivables
from the Trust in certain cases and AIG may provide indemnification to the Trust
under certain circumstances. See "Description of the Transfer and Servicing
Agreements--Certain Matters Regarding the Seller and the Servicer." Each
Originator will act as Servicer with respect to the Receivables relating to
Premium Finance Obligations it financed and which it transferred to the ART for
transfer to the Trust in accordance with the servicing procedures established by
AIC. As set forth in the Sale and Servicing Agreement, each Receivable to be
transferred to the Trust must satisfy certain eligibility criteria. See
"Description of the Transfer and Servicing Agreements--Representations and
Warranties."
The Receivables conveyed to the Trust (the "Trust Portfolio") will
arise from Premium Finance Obligations selected from the Loan Portfolio and any
future portfolio of Deferred Payment Obligations on the basis of criteria set
forth in the Sale and Servicing Agreement specified in the accompanying
Prospectus Supplement and, with respect to Additional Receivables, as of the
date of their conveyance. The Seller will have the right (subject to certain
limitations and conditions set forth therein), and in some circumstances will be
obligated, to convey from time to time additional eligible Premium Finance
Obligations to be included as Receivables (the "Additional Receivables") and to
transfer to the Trust the entire beneficial interest in all such Additional
Receivables, whether such Receivables are then existing or thereafter created.
Any Additional Receivables conveyed pursuant to the Sale and Servicing Agreement
must be Eligible Receivables as of the date of their conveyance. Furthermore,
pursuant to the Sale and Servicing Agreement, the Seller has the right (subject
to certain limitations and conditions), and in some circumstances the
obligation, to designate certain Receivables and to require the Trustee to
reconvey those Receivables (the "Removed Receivables") to the Seller, whether
such Receivables are then existing or thereafter created. Throughout the term of
the Trust, the Trust Portfolio will be comprised of Receivables designated by
the Seller on the Initial Cut-Off Date plus any Additional Receivables minus any
Removed Receivables. With respect to each Series of Notes, the Seller will
represent and warrant to the Trust that, as of the date of issuance of the first
Series (the "Initial Closing Date"), the date Receivables are conveyed to the
Trust (each an "Addition Date") and the date of increase of any Variable Funding
Notes, such Receivables meet certain eligibility requirements. See "Description
of the Transfer and Servicing Agreements--Representations and Warranties" in
this Prospectus.
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Certain information regarding the performance and composition of the
Trust Portfolio will be described in the accompanying Prospectus Supplement as
of a date specified in the supplement. The Originators will transfer and expect
hereafter to transfer to ART the Eligible Receivables resulting from all Premium
Finance Obligations financed by them from the Initial Cut-Off Date pursuant to
the Purchase Agreement for transfer to the Trust pursuant to the Sale and
Servicing Agreement (other than loans and related receivables transferred and
required to be transferred by AIC and AICCO to AIC Premium Finance Loan Master
Trust).
There can be no assurance that the performance experience of the
Receivables transferred to the Trust will be comparable to that set forth in the
accompanying Prospectus Supplement. In addition, there are many legal, economic
and competitive factors that could adversely affect the amount and
collectability of the Premium Finance Obligation related to the Receivables,
including insureds' or insurance companies' decisions to use new sources of
credit, which would affect the ability of the Originators to generate Additional
Receivables, and changes in usage of credit, payment patterns and general
economic conditions. Because the impact of these and other factors (including
the composition of the Receivables and the interest rates, fees and charges
assessed thereon) may change in the future.
The Prospectus Supplement relating to each Series of Notes will provide
certain information about the Originators' portfolio of premium finance
obligations as of the date specified. Such information will include, but will
not be limited to, the premium finance obligation account balance, (total,
average and range thereof), remaining term (average and range thereof),
geographic distribution and the historical delinquency and loss statistics
relating to the premium finance obligations.
MATURITY ASSUMPTIONS
Unless otherwise specified in the accompanying Prospectus Supplement,
for each Series, following the Revolving Period, collections of Principal
Receivables are expected to be distributed to holders of each Class of Notes
(the "Noteholders") of such Series or any specified class (each a "Class")
thereof on each specified Payment Date during the Controlled Amortization Period
or the Principal Amortization Period, or are expected to be accumulated for
payment to Noteholders of such Series or any specified Class thereof during a
Controlled Accumulation Period and, under certain limited circumstances if so
specified in the accompanying Prospectus Supplement, a Rapid Accumulation Period
(each, an "Accumulation Period") and distributed on a Scheduled Payment Date;
provided, however, that, if the Rapid Amortization Period commences, collections
of Principal Receivables will be paid to Noteholders in the manner described in
this Prospectus and in the accompanying Prospectus Supplement. The accompanying
Prospectus Supplement will specify when the Controlled Amortization Period, the
Principal Amortization Period or an Accumulation Period, as applicable, will
commence, the principal payments expected or available to be received or
accumulated during such Controlled Amortization Period, Principal Amortization
Period or Accumulation Period, or on the Scheduled Payment Date, as applicable,
the manner and priority of principal accumulations and payments among the
Classes of a Series of Notes, the payment rate assumptions on which such
expected principal accumulations and payments are based and the Pay Out Events
which, if any were to occur, would lead to the commencement of a Rapid
Amortization Period or, if so specified in the accompanying Prospectus
Supplement, a Rapid Accumulation Period.
No assurance can be given, however, that the Principal Receivables
allocated to be paid to Noteholders or the holders of any specified Class
thereof will be available for distribution or accumulation for payment to
Noteholders on each Payment Date during the Controlled Amortization Period, the
Principal Amortization Period or an Accumulation Period, or on the Scheduled
Payment Date, as applicable. In addition, the Seller can give no assurance that
the payment rate assumptions for any Series will prove to be correct. The
accompanying Prospectus Supplement will provide certain historical data relating
to payments by Insureds, charge-offs and other related information relating to
the Originators' Portfolio of premium finance obligations. There can be no
assurance that future events will be consistent with such historical data.
There can be no assurance that collections of Principal Receivables
with respect to the Trust Portfolio, and thus the rate at which the related
Noteholders could expect to receive or accumulate payments of principal on their
Notes during an Amortization Period or Accumulation Period, or on any Scheduled
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Payment Date, as applicable, will be similar to any historical experience set
forth in the accompanying Prospectus Supplement. If a Pay Out Event occurs and
the Rapid Amortization Period commences, the average life and maturity of such
Series of Notes could be significantly reduced.
Because, for any Series of Notes, there may be a slowdown in the
payment rate below the payment rate used to determine the amount of collections
of Principal Receivables scheduled or available to be distributed or accumulated
for later payment to Noteholders or any specified Class thereof during a
Controlled Amortization Period, a Principal Amortization Period or a Rapid
Amortization Period (each, an "Amortization Period") or an Accumulation Period
or on any Scheduled Payment Date, as applicable, or a Pay Out Event may occur
which could initiate the Rapid Amortization Period, there can be no assurance
that the actual number of months elapsed from the date of issuance of such
Series of Notes to the final Payment Date with respect to the Notes will equal
the expected number of months.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Notes offered hereby
will be paid to the Seller. The Seller will use such proceeds to purchase
Receivables from the Originator.
DESCRIPTION OF THE NOTES
The Notes will be issued in Series. Each Series will represent a debt
obligation of the Trust secured by a partial undivided interest in the assets of
the Trust. Each Series will be issued pursuant to an indenture (the "Indenture")
entered into between the Trust and Bank One, National Association, as indenture
trustee (the "Indenture Trustee") and a supplement to the Indenture (a "Series
Supplement"), a copy of the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Prospectus
Supplement for each Series will describe any provisions of the Series Supplement
relating to such Series which may differ materially from the Series Supplement
filed as an exhibit to the Registration Statement. The following summaries
describe certain provisions common to each Series of Notes. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Indenture and the related Series
Supplement.
GENERAL
The Notes of each Series will be secured by a partial undivided
interest in the assets of the Trust (the "Investor Interest"), including the
right to the applicable Investor Percentage of all payments on the Receivables
in the Trust. For each Series of Notes, unless otherwise specified in the
accompanying Prospectus Supplement, the Investor Interest on any date will be
equal to the sum of the initial Investor Interest as of the date of issuance of
the related Series (the "Closing Date") for such Series (increased by the
principal balance of any Notes of such Series issued after the Closing Date for
such Series or increases in principal balance related to funding of Variable
Funding Notes) minus the amount of principal paid to the related Noteholders
prior to such date. If so specified in the Prospectus Supplement relating to any
Series of Notes, under certain circumstances the Investor Interest may be
further adjusted by the amount of principal allocated to Noteholders, the funds
on deposit in any specified account, and any other amounts specified in the
accompanying Prospectus Supplement.
Each Series of Notes may consist of one or more Classes, one or more of
which may be senior Notes ("Senior Notes") and one or more of which may be
subordinated Notes ("Subordinated Notes"). Each Class of a Series will evidence
the right to receive a percentage of each distribution of principal or interest
or both. The Investor Interest with respect to a Series with more than one Class
will be allocated among the Classes as described in the accompanying Prospectus
Supplement. The Notes of a Class may differ from Notes of other Classes of the
same Series in, among other things, the percentage amounts allocated to
principal payments, maturity date, annual interest rate (the "Note Rate") and
the availability of Enhancement.
For each Series of Notes, payments and deposits of interest and
principal will be made on Payment Dates to Noteholders in whose names the Notes
were registered on the record dates specified in the accompanying Prospectus
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Supplement. Interest will be distributed to Noteholders in the amounts, for the
periods and on the dates specified in the accompanying Prospectus Supplement.
Unless otherwise specified in the accompanying Prospectus Supplement,
with respect to each Series of Term Notes, during the Revolving Period, the
amount of the Investor Interest in the Trust will remain constant except under
certain limited circumstances. See "Description of the Transfer and Servicing
Agreements--Defaulted Receivables; Investor Charge-Offs" in this Prospectus.
With respect to each Series of Variable Funding Notes, the Investor Interest of
such notes may increase or decrease along with the principal balance of such
notes, subject to certain limitations as the amount of Principal Receivables in
the Trust may vary from time to time as new Principal Receivables are added and
others are paid. When a Series is amortizing, the Investor Interest of such
Series will decline as payments of Principal Receivables are collected and
distributed to or accumulated for distribution to the Noteholders. See "--New
Issuances" in this Prospectus.
Unless otherwise specified in the accompanying Prospectus Supplement,
Notes of each Series initially will be represented by notes registered in the
name of the nominee of The Depository Trust Company ("DTC") (together with any
successor depositary selected by the Seller, the "Depositary") except as set
forth below. Unless otherwise specified in the accompanying Prospectus
Supplement, with respect to each Series of Notes, beneficial interests in the
Notes will be available for purchase in minimum denominations of $1,000 and
integral multiples thereof in book-entry form only. The Seller has been informed
by DTC that DTC's nominee will be Cede & Co. ("Cede"). Accordingly, Cede is
expected to be the holder of record of each Series of Notes offered hereby. No
owner of beneficial interests in the Notes (a "Note Owner") acquiring an
interest in the Notes offered hereby will be entitled to receive a note
representing such person's interest in the Notes. Unless and until Definitive
Notes are issued for any Series offered hereby under the limited circumstances
described in this Prospectus, all references in this Prospectus to actions by
such Noteholders shall refer to actions taken by DTC upon instructions from its
Participants (as defined below). In addition, unless and until Notes in fully
registered, certificate form ("Definitive Notes") are issued for any Series
offered hereby, the Trustee will not consider a Note Owner to be a Noteholder
(as that term is used in the Indenture) and all references in this Prospectus to
distributions, notices, reports and statements to Noteholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Notes offered hereby, as the case may be, for distribution to Note
Owners in accordance with DTC procedures. Therefore, until such time, a Note
Owner will only be able to exercise its rights as Noteholders indirectly through
DTC, Clearstream, societe anonyme ("Clearstream") or the Euroclear System and
their participating organizations. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "-- Definitive Notes" in this
Prospectus.
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Notes of such Series, or all or a portion
of any Class thereof, on the Luxembourg Stock Exchange or any other specified
exchange.
INTEREST PAYMENTS
For each Series of Notes and Class thereof, interest will accrue from
the relevant Closing Date on the applicable Investor Interest at the applicable
Note Rate, which may be a fixed, floating or other type of rate as specified in
the accompanying Prospectus Supplement. Interest will be distributed or
deposited with respect to Noteholders on the Payment Dates. Interest payments or
deposits on any Payment Date will be funded from collections of Finance Charge
Receivables allocated to the Investor Interest during the preceding monthly
period or periods (each, a "Monthly Period") or such other period as may be
specified in the related Series Supplement and may be funded from certain
investment earnings on funds held in accounts of the Trust and, from any
applicable Credit Enhancement, if necessary, or certain other amounts as
specified in the accompanying Prospectus Supplement. The Prospectus Supplement
relating to each Series of Notes and each Class thereof will describe the
amounts and sources of interest payments to be made, the Note Rate, and, for a
Series or Class thereof bearing interest at a floating Note Rate, the initial
Note Rate, the dates and the manner for determining subsequent Note Rates, and
the formula, index or other method by which such Note Rates are determined.
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PRINCIPAL PAYMENTS
Unless otherwise specified in the accompanying Prospectus Supplement,
during the Revolving Period for each Series of Notes (which begins on the
Closing Date relating to such Series and ends on the day before an Amortization
Period or Accumulation Period begins), no principal payments will be made to the
Noteholders of such Series (except with respect to Variable Funding Notes).
During the Controlled Amortization Period or Principal Amortization Period, as
applicable, which will be scheduled to begin on the date specified in, or
determined in the manner specified in, the accompanying Prospectus Supplement,
and during the Rapid Amortization Period, which will begin upon the occurrence
of a Pay Out Event or, if so specified in the accompanying Prospectus
Supplement, the Rapid Accumulation Period, principal will be paid to the
Noteholders in the amounts and on the dates specified in the accompanying
Prospectus Supplement. During an Accumulation Period, principal will be
accumulated in a trust account established for the benefit of such Noteholders
(a "Principal Funding Account") for later distribution to Noteholders on the
Scheduled Payment Date in the amounts specified in the accompanying Prospectus
Supplement. Principal payments for any Series or Class thereof will be funded
from collections of Principal Receivables received during the related Monthly
Period or Periods as specified in the accompanying Prospectus Supplement and
allocated to such Series or Class and from certain other sources specified in
the accompanying Prospectus Supplement. In the case of a Series with more than
one Class of Notes, the Noteholders of one or more Classes may receive payments
of principal at different times. The accompanying Prospectus Supplement will
describe the manner, timing and priority of payments of principal to Noteholders
of each Class.
Funds on deposit in any Principal Funding Account applicable to a
Series may be subject to a guaranteed rate agreement or guaranteed investment
contract or other arrangement specified in the accompanying Prospectus
Supplement intended to assure a minimum rate of return on the investment of such
funds. In order to enhance the likelihood of the payment in full of the
principal amount of a Series of Notes or Class thereof at the end of an
Accumulation Period, such Series of Notes or Class thereof may be subject to a
principal guaranty or other similar arrangement specified in the accompanying
Prospectus Supplement.
VARIABLE FUNDING NOTES
The Trust may issue a Series of Notes ("Variable Funding Notes") that
bear a fixed or floating rate of interest and have an outstanding principal
amount which may be increased or decreased during the Revolving Period for such
Series. Variable Funding Notes will not be offered under this Prospectus. See
"Summary of Terms--Other Interests in the Trust--Other Series of Notes" in the
accompanying Prospectus Supplement.
THE INDENTURE
A copy of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The Seller will
provide a copy of the Indenture and the related Series Supplement upon request
of any Noteholder.
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
The Indenture and any Series Supplement may be amended in writing by
the Trust and the Indenture Trustee, without the consent of the Noteholders and,
if provided in the Prospectus Supplement, with the consent of any third party
Credit Enhancement Provider, if any (provided no Credit Enhancement Provider
Default (as defined in the related Prospectus Supplement) has occurred and is
continuing), and with prior written notice to the Rating Agencies by the Trust,
unless otherwise provided in the Prospectus Supplement for the following
purposes:
(1) to create a new Series of Notes;
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(2) to correct or amplify the description of the collateral, or better
assure, convey or confirm the lien on the collateral or add additional
collateral;
(3) to evidence and provide for the assumption of the Notes and the
Indenture obligations by a permitted successor to the Trust;
(4) to add additional covenants of the Trust for the benefit of the
related Noteholders, or to surrender any rights or power conferred upon the
Trust;
(5) to convey, transfer, assign, mortgage or pledge any property or
assets to or with the Indenture Trustee and to set forth the terms and
conditions as to how the Indenture Trustee will hold and deal with such property
or assets and to correct or amplify the description of any such property or
assets;
(6) to cure any ambiguity or correct or supplement any provision in the
Indenture or in any supplemental indenture or any Series Supplement or amendment
to any Series Supplement which may be inconsistent with any other provision of
the Indenture or any supplemental indenture and any Series Supplement or to make
any other provisions; provided that such will not adversely affect the interests
of any Noteholder without its consent;
(7) to evidence and provide for the acceptance of the appointment of a
successor Indenture Trustee or to add to or change any of the provisions of the
Indenture as shall be necessary and permitted to facilitate the administration
by more than one trustee;
(8) to modify, eliminate or add to the provisions of the Indenture in
order to comply with the Trust Indenture Act of 1939, as amended; and
(9) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the Indenture or any Series Supplement or modify in any
manner the rights of Noteholders under such Indenture or any Series Supplement;
provided that any action shall not adversely affect in any material respect the
interests of any Noteholder, unless the Noteholders' consent is obtained as
described below; provided further that no amendment will be permitted if it
would result in a taxable event to any Noteholder unless such Noteholder's
consent is obtained as described below. An amendment described above shall be
deemed not to adversely affect the interests of any Noteholder if each Rating
Agency rating such Notes confirms in writing that such amendment will not result
in a reduction or withdrawal of the then current ratings of such Notes or the
applicable Rating Agencies rating such Notes, within 10 days after receipt of
notice of such amendment, shall not have notified the Seller, the Servicer or
the Trust in writing that such amendment will result in a reduction or
withdrawal of the current ratings of the Notes.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
The Indenture and any Series Supplement may be amended in writing by
the Trust and the Indenture Trustee, and if provided in the Prospectus
Supplement with the consent of any third party Credit Enhancement Provider, if
any (provided no Credit Enhancement Provider Default (as defined in the related
Prospectus Supplement) has occurred and is continuing), unless otherwise
specified in the accompanying Prospectus Supplement, with the consent of the
Noteholders evidencing not less than a majority of the aggregate outstanding
principal balance of all Series of Notes, materially and adversely affected,
voting collectively, for the purpose of adding any provision to, change in any
manner or eliminate any of the provisions of the Indenture or any Series
Supplement or modifying in any manner the rights of the Noteholders of any
Series.
Unless the related Prospectus Supplement provides otherwise, without
the consent of the third party Credit Enhancement Provider, if any (so long as
no Credit Enhancement Default (as defined in the related Prospectus Supplement)
has occurred and is continuing), and the holder of each outstanding related Note
affected thereby, however, no amendment to the Indenture or any Series
Supplement may:
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(1) change the date of any installment or principal of or interest on,
or any premium payable upon the redemption of, any Note or reduce in any manner
the principal amount thereof, the interest rate thereon or the redemption price
with respect thereto, modify the provisions of the Indenture or any Series
Supplement 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 or change any place of payment where, or the coin or currency in
which, any Note or any interest thereon is payable,
(2) change the definition of or the manner of calculating the Investor
Interest, the aggregate default amount or the Investor Percentage of such
Series,
(3) reduce the aforesaid percentage of undivided interests, the holders
of which are required to consent to any such amendment, in each case without the
consent of all Noteholders of all Series adversely affected,
(4) terminate, modify or amend AIG's support obligations with respect
to ART, AIC, AICCO, IP Finance I, IP Finance II and IP Funding, without the
consent of the holders of all Notes of all Series outstanding and confirmation
from each Rating Agency that such action will not affect the rating of any
outstanding Notes,
(5) impair the right to institute suit for the enforcement of certain
provisions of the Indenture or any Series Supplement regarding the application
of funds to payment on the Notes,
(6) reduce the percentage of the aggregate outstanding principal amount
of the Notes, the consent of the holders of which is required for any
supplemental Indenture or Series Supplement or amendment of a Series Supplement,
or waiver of compliance with certain provisions of the Indenture or any Series
Supplement or of certain defaults thereunder and their consequences as provided
for in the Indenture or any Series Supplement,
(7) modify or alter the provisions of the Indenture or any Series
Supplement regarding the voting of Notes held by the Trust, the Seller, an
affiliate of either of them or any Insured on the Notes,
(8) reduce the percentage of the aggregate outstanding principal amount
of the Notes, the consent of the holders of which is required to direct the
Indenture Trustee to sell or liquidate the assets of the Trust if the proceeds
of such sale would be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding Notes,
(9) decrease the percentage of the aggregate outstanding principal
amount of the Notes required to amend the sections of the Indenture or any
Series Supplement which specify the applicable percentage of aggregate
outstanding principal amount of the Notes necessary to amend the Indenture or
any Series Supplement or to provide that certain other provision of the
Indenture or any Series Supplement may not be modified or waived without the
consent of each Noteholder affected thereby,
(10) modify any of the provisions of the Indenture or any Series
Supplement in such manner as to affect the calculation of the amount of any
payment of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such calculation) or to
affect the rights of the Noteholders to the benefit of any provisions for the
mandatory redemption of the Notes contained in the Indenture or any Series
Supplement, or
(11) permit the creation of any lien ranking prior to or on a parity
with the lien of the Indenture with respect to any part of the collateral for
the Notes or, except as otherwise permitted or contemplated in the Indenture or
any Series Supplement, terminate the lien of the Indenture on any such
collateral or deprive the holder of any Note of the security provided by the
lien of the Indenture or any Series Supplement; provided further, that no
amendment will be permitted if it would result in a taxable event to any
Noteholder, unless such Noteholder's consent is obtained as described above.
Promptly following the execution of any amendment to the Indenture or any Series
Supplement, the Indenture Trustee will furnish written notice of the substance
of such amendment to each Noteholder of all Series (or with respect to an
amendment of a Series Supplement, to the applicable Series).
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EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement,
"Events of Default" under the Indenture will consist of: (a) a default for five
business days or more after the receipt of notice from the Indenture Trustee in
the payment of any interest on any Class of Notes of any Series (other than the
most subordinated Class of any Series as specified in the related Series
Supplement retained by the Seller or any of its Affiliates) after the same
becomes due and payable; (b) a default in the payment of the principal or of any
installment of the principal of any Class of Notes of any Series (other than the
most subordinated Class of any Series as specified in the related Series
Supplement retained by the Seller or any of its Affiliates) when the same
becomes due and payable; or (c) certain events of bankruptcy, insolvency or
liquidation of the Trust. However, the amount of principal due and payable on
any class of Notes on any Payment Date, or any Scheduled Payment Date, if
applicable, (prior to the legal final Payment Date, if any, for such class) will
generally be determined by the amount available to be deposited in the Payment
Account for such Payment Date. Therefore, the failure to pay principal on a
class of Notes generally will not result in the occurrence of an Event of
Default unless such class of Notes has a legal final Payment Date, and then not
until such Payment Date for such class of Notes.
If an Event of Default (other than in clause (c) above) should occur
and be continuing with respect to the Notes of any Series, the Indenture Trustee
or the holders of a majority of the aggregate principal balance of all Notes of
all Series outstanding voting together as a single class (a "Note Majority") may
declare the principal of all the Notes of all Series outstanding to be
immediately due and payable at par, with interest thereon. Such declaration may
be rescinded by a Note Majority if: (a) the Trust has paid to or deposited with
the Indenture Trustee a sum sufficient to pay all amounts then due with respect
to the Notes (without giving effect to such acceleration) and certain amounts
payable to the Indenture Trustee and (b) all Events of Default (other than
nonpayment of the principal of the Notes due solely as a result of such
acceleration) have been cured or waived. If an Event of Default with respect to
events in clause (c) above should occur, all unpaid principal of and accrued
interest on all of the Notes of all Series outstanding will become immediately
due and payable without any declaration or other act on the part of the
Indenture Trustee or any Noteholder.
If the Notes of any Series have been declared due and payable following
an Event of Default with respect thereto, the Indenture Trustee may institute
proceedings to collect amounts due or foreclose on the Trust assets, exercise
remedies as a secured party, sell the assets of the Trust or elect to have the
Trust maintain possession of the Receivables and continue to apply collections
on such Receivables as if there had been no declaration of acceleration
(although the Rapid Amortization Period commenced by such declaration will
continue unless such declaration is rescinded). The Indenture Trustee, however,
will be prohibited from selling the assets of the Trust held by the Trust
following an Event of Default, unless (a) the holders of all the outstanding
Notes of all outstanding Series consent to such sale; (b) the Investor
Percentage of the proceeds of such sale or liquidation are sufficient to pay in
full the principal of, and the accrued interest on, all outstanding Notes of all
outstanding Series and any other amounts due to Noteholders at the date of such
sale or liquidation; or (c) the Indenture Trustee determines that the Investor
Percentage of the proceeds of the sale or liquidation of the assets of the Trust
would not be sufficient on an ongoing basis to make all payments of principal
and interest on the outstanding Notes of all outstanding Series as such payments
would have become due if such obligations had not been declared due and payable,
and the Indenture Trustee obtains the consent of the holders representing 662/3%
of the aggregate principal balance of all outstanding Notes of all outstanding
Series. In the event the Notes are accelerated and the assets of the Trust are
sold, the funds, if any, on deposit in any reserve account or received from
another source of credit support will be available to first pay interest on and
then principal of the Notes.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, if an Event of Default occurs and is continuing with
respect to any Series of Notes, the Indenture Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of the Note Majority, if the Indenture Trustee reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with such request.
Subject to the provisions for indemnification and certain limitations contained
in the Indenture, a Note Majority will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
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the Indenture Trustee and a Note Majority may, in certain cases, waive any
default with respect thereto, except a default in the payment of principal (or
premium, if any) or interest on the Notes or a default in respect of a covenant
or provision of the Indenture that cannot be modified without the waiver or
consent of` all of the holders of all outstanding Notes of all outstanding
Series.
No holder of any Note of any Series will have the right to institute
any proceeding with respect to the Indenture and related Series Supplement or
for the appointment of a receiver or trustee, or for any other remedy, unless:
(1) such holder previously has given to the Indenture Trustee written
notice of a continuing Event of Default,
(2) the holders of not less than 25% in principal amount of the
outstanding Notes of all Series have made written request to the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee,
(3) such holder or holders have offered and, if requested, provided the
Indenture Trustee reasonable indemnity for the costs, expenses and liabilities
of complying with such request,
(4) the Indenture Trustee has for 60 days failed to institute such
proceeding after receipt of notice, and request and offer of indemnity; and
(5) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by a Note Majority.
If an Event of Default occurs and is continuing and if it is known to
the Indenture Trustee, the Indenture Trustee will provide to each Noteholder and
each Rating Agency, and any Credit Enhancement Provider, if applicable, notice
of the Event of Default within 5 business days after it acquires such knowledge,
or receives notice, of such event. Except in the case of a failure to pay
principal of or interest on any Note, the Indenture Trustee may withhold the
notice beyond such 5 business day period if and so long as it determines in good
faith that withholding the notice is in the interests of the Noteholders.
In addition, the Indenture Trustee and each Noteholder and Note Owner,
by accepting the Notes, will covenant that they will not at any time institute
against the Trust any bankruptcy, reorganization or other proceeding under any
federal or state bankruptcy or similar law.
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Trust, the Owner Trustee or the Indenture Trustee under the
Indenture or any certificate or other writing delivered in connection therewith
against (a) the Seller, the Servicer, the Indenture Trustee or the Owner Trustee
in its individual capacity, or (b) any owner of a beneficial interest in the
Trust, or (c) any partner, owner, beneficiary, agent, officer, director,
employee or agent of the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee in its individual capacity, any holder of a beneficial
interest in the Trust, the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee, or of any successor or assignee of the Seller, the Servicer,
the Indenture Trustee or the Owner Trustee in its individual capacity, except
(x) as any such person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee will have no such obligations in their
individual capacity) and (y) that nothing will release the Seller or the
Servicer from their own obligations under the Related Documents or such other
writings and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
CERTAIN COVENANTS
The Indenture will provide that the Trust may not consolidate with or
merge into any other entity, unless: (a) 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, (b) such entity expressly assumes the Trust's
obligation to make due and punctual payments upon the Notes and the performance
or observance of every agreement and covenant of the Trust under the Indenture,
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(c) no default, Event of Default, Pay Out Event or Servicer Default shall have
occurred and be continuing immediately after such merger or consolidation, (d)
the applicable Rating Agencies shall have notified the Seller, the Servicer, the
Indenture Trustee and the Trust in writing that such transaction will not result
in a reduction or withdrawal of the then current ratings of any outstanding
series of Notes, (e) if the related Prospectus Supplement provides, the third
party Credit Enhancement Provider, if any, has consented to such merger or
consolidation except that no such consent shall be required if a Credit
Enhancement Provider Default (as defined in the related Prospectus Supplement)
has occurred and is continuing, (f) the Trust has received an opinion of counsel
to the effect that such transaction would have no material adverse federal tax
consequence to the Trust or to any Noteholder, (g) any action necessary to
maintain the lien and security interest created by the Indenture has been taken
and (h) the Trust has delivered to the Indenture Trustee an officers'
certificate of the Trust and an opinion of counsel each stating that such
transaction and the supplemental indenture executed in connection with such
transaction comply with the Indenture and that all conditions precedent relating
to the transaction have been complied with (including any filing required by the
Exchange Act).
Also, the Trust may not convey or transfer all or substantially all of
its properties or assets to any other entity, unless: (a) the entity that
acquires the assets of the Trust (1) agrees that all right, title and interest
conveyed or transferred shall be subject and subordinate to the rights of
Noteholders, (2) expressly agrees to make all filings with the SEC (and any
other appropriate entity) required by the Exchange Act in connection with the
Notes and (3) is organized under the laws of the United States or any state; and
(b) the criteria specified in clause (b) through (h) of the preceding paragraph
have been complied with.
The Trust will not, among other things, (a) except as expressly
permitted by the Indenture, any Series Supplement, the Notes, the Sale and
Servicing Agreement, the Purchase Agreement, the Master Trust Agreement or
certain related documents for the Trust (collectively, the "Related Documents"),
sell, transfer, exchange or otherwise dispose of any of the properties or assets
of the Trust unless directed by the Indenture Trustee, (b) claim any credit on
or make any deduction from the principal and interest payable in respect of the
related Notes (other than amounts withheld under the Internal Revenue Code of
1986, as amended, 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 the Notes, (c) except as contemplated by the
Master Trust Agreement and Related Documents, dissolve, terminate or liquidate
in whole or in part, (d) permit the validity or effectiveness of the Indenture
or any Series Supplement to be impaired, permit the lien in favor of the
Indenture Trustee to be amended, hypothecated, subordinated, terminated or
discharged or permit any person to be released from any covenants or obligations
with respect to the related Notes under such Indenture or any Series Supplement
except as may be expressly permitted thereby, (e) 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 the Notes or
any part thereof, or any interest therein or proceeds thereof except as
expressly permitted by the Related Documents, (f) permit the lien of the
Indenture or any Series Supplement not to constitute a valid first priority
security interest in the Receivables or (g) amend, modify or fail to comply with
the provisions of the Related Documents without the prior written consent of the
Indenture Trustee.
The Trust may not engage in any activity other than as specified under
the section of the related Prospectus Supplement entitled "The Trust, The
Seller, The Originators and The Servicer." The Trust will not incur, assume or
guarantee any indebtedness other than indebtedness incurred pursuant to the
Notes and the Indenture or otherwise in accordance with the Related Documents.
NEW ISSUANCES
The Indenture provides for the Indenture Trustee to issue two types of
notes; (a) one or more Series of Term Notes which may be issued in more than one
Class and varying rights and priorities and are transferable and have the
characteristics described below and (b) one or more series of Variable Funding
Notes that bear a fixed or floating rate of interest and have an outstanding
principal amount which may be increased or decreased and having the
characteristics described in the related Series Supplement (each such issuance,
a "New Issuance"). If specified in a Prospectus Supplement, the Noteholders may
tender Notes representing any outstanding Series of Notes to the Indenture
Trustee (an "Investor Exchange"). Pursuant to the Indenture, the Trust will
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define, with respect to any newly issued Series, all principal terms of such
Series (the "Principal Terms"). Upon the issuance of an additional Series of
Notes, none of the Seller, the Servicer, the Indenture Trustee or the Trust will
be required or intends to obtain the consent of any Noteholder of any other
Series previously issued by the Trust. However, as a condition of a New
Issuance, the Trust will deliver to the Indenture Trustee written confirmation
that the New Issuance will not result in the reduction or withdrawal by any
Rating Agency of its rating of any outstanding Series. The Trust may offer any
Series under a prospectus or other disclosure document (a "Disclosure Document")
in offerings pursuant to this Prospectus or in transactions either registered
under the Securities Act of 1933, as amended (the "Securities Act") or exempt
from registration thereunder directly, through one or more other underwriters or
placement agents, in fixed-price offerings or in negotiated transactions or
otherwise.
Unless otherwise specified in the accompanying Prospectus Supplement,
the Trust may perform New Issuances and define Principal Terms such that each
Series issued under the Indenture has a period during which amortization or
accumulation of the principal amount thereof is intended to occur which may have
a different length and begin on a different date than such period for any other
Series. Further, one or more Series may be in their amortization or accumulation
periods while other Series are not. Moreover, each Series may have the benefit
of a Credit Enhancement which is available only to such Series. Under the
Indenture, the Indenture Trustee shall hold any such form of Credit Enhancement
only on behalf of the Series with respect to which it relates. Likewise, with
respect to each such form of Credit Enhancement, the Trust may deliver a
different form of Credit Enhancement agreement. The Trust may specify different
Note Rates and monthly servicing fees with respect to each Series (or a
particular Class within such Series). The Trust will also have the option under
the Indenture to vary between Series the terms upon which a Series (or a
particular Class within such Series) may be repurchased or refinanced by the
Seller or remarketed to other investors. Additionally, certain Series may be
subordinated to other Series, or Classes within a Series may have different
priorities. There will be no limit to the number of New Issuances that may be
performed under the Indenture.
Unless otherwise specified in the accompanying Prospectus Supplement, a
New Issuance may only occur upon the satisfaction of certain conditions provided
in the Indenture. Under the Indenture, the Trust may perform a New Issuance by
notifying the Indenture Trustee at least three days in advance of the date upon
which the New Issuance is to occur. Under the Indenture, the notice will state
the designation of any Series to be issued on the date of the New Issuance and,
with respect to each such Series: (a) its initial Investor Interest (or method
for calculating such amount) which amount may not be greater than the current
aggregate principal amount of the Trust Interest minus the highest Minimum Trust
Interest for any outstanding Series or, in the case of an Investor Exchange, the
sum of the Investor Interest of the notes to be exchanged plus the current
aggregate principal amount of the Trust Interest, minus the highest Minimum
Trust Interest for any outstanding Series, except the one being exchanged, (b)
its initial outstanding principal amount (or method for calculating such amount)
and (c) the provider of Credit Enhancement, if any, which is expected to provide
support with respect to it. The Indenture provides that on the date of the New
Issuance, the Indenture Trustee will authenticate any such Series only upon
delivery to it of the following, among others, (a) a Series Supplement in a form
satisfactory to the Indenture Trustee and signed by the Trust and specifying the
Principal Terms of such Series, (b) (1) an opinion of counsel to the effect
that, if so stated in the related Series Supplement, the Notes of such Series
will be characterized as indebtedness for federal income tax purposes and (2) an
opinion of counsel to the effect that, for federal income tax purposes, (A) such
issuance will not adversely affect the tax characterization of Notes of any
outstanding Series or Class that were characterized at the time of their
issuance, (B) following such issuance the Trust will not be deemed to be an
association (or publicly traded partnership) taxable as a corporation and (C)
such issuance will not cause or constitute an event in which gain or loss would
be recognized by any Noteholder or the Trust (an opinion of counsel with respect
to any matter to the effect referred to in clause (b) with respect to any action
is referred to in this Prospectus as a "Tax Opinion"), (c) if required by the
related Series Supplement, the form of Credit Enhancement, if any, (d) if Credit
Enhancement is required by the Series Supplement, an appropriate Credit
Enhancement agreement with respect thereto executed by the Trust and the Credit
Enhancement Provider, (e) written confirmation from each Rating Agency that the
New Issuance will not result in such Rating Agency's reducing or withdrawing its
rating on any then outstanding Series rated by it, (f) in the case of an
Investor Exchange, the existing Notes of the Series to be exchanged, (g) an
officer's certificate of the Seller to the effect that after giving effect to
the New Issuance the Seller would not be required to add Additional Receivables
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pursuant to the Sale and Servicing Agreement and the Trust Interest would be at
least equal to a specified minimum level (the "Minimum Trust Interest") and (h)
an opinion of counsel as to the grant by the Trust to the Indenture Trustee of a
first priority, perfected security interest in the assets of the Trust. Upon
satisfaction of such conditions, the Indenture Trustee will authenticate the new
Series (and, in the case of an Investor Exchange, cancel the notes of the
exchanged Series).
ANNUAL COMPLIANCE STATEMENT
The Trust will be required to file annually with the Indenture Trustee
a written statement as to the fulfillment of its obligations under the
Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The Indenture Trustee will be required to mail each year to all related
Noteholders a brief report relating to, among other things, its eligibility and
qualification to continue as Indenture Trustee under the Indenture, any amounts
advanced by it under the Indenture, the amount, interest rate and maturity date
of certain indebtedness owing by the Trust to the Indenture Trustee in its
individual capacity, the property and funds physically held by the Indenture
Trustee as such and any action taken by it that materially affects the Notes and
that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The 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 the Indenture Trustee of funds sufficient for the payment in full of all of
such Notes.
TRUST INDENTURE ACT
The Indenture will comply with applicable provisions of the Trust
Indenture Act of 1939, as amended.
THE INDENTURE TRUSTEE
The Indenture Trustee may upon prior written notice to the Trust and
the Servicer resign at any time, in which event the Servicer will be obligated
to appoint a successor trustee eligible under the Indenture which, if the
Prospectus Supplement so provides, shall be acceptable to the third party Credit
Enhancement Provider, if any, so long as no Credit Enhancement Provider Default
(as defined in the Prospectus Supplement) has occurred and is continuing. The
Trust may also remove the Indenture Trustee, if the Prospectus Supplement so
provides with the consent of the third party Credit Enhancement Provider, if
any, if the Indenture Trustee ceases to be eligible to continue as such under
the Indenture or if the Indenture Trustee becomes insolvent or otherwise becomes
incapable of performing its duties or acting as Indenture Trustee. In such
circumstances, the Servicer will be obligated to appoint a successor trustee
eligible under the Indenture which, if the Prospectus Supplement so provides,
shall be acceptable to the third party Credit Enhancement Provider, if any, so
long as no Credit Enhancement Provider Default (as defined in the Prospectus
Supplement) has occurred and is continuing. Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, including the approval of the provider of any credit
enhancement, if any, specified in the related Prospectus Supplement and will not
become effective until acceptance of the appointment by a successor trustee.
REPORTS TO NOTEHOLDERS
Unless otherwise specified in the accompanying Prospectus Supplement,
for each Series of Notes, on each Payment Date, or as soon thereafter as is
practicable, as specified in the accompanying Prospectus Supplement, the
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Indenture Trustee will forward to each Noteholder of record a statement prepared
by the Servicer setting forth, among other things:
(a) the total amount paid to each Noteholder,
(b) the amount of the payment on such Payment Date allocable to
principal on the Notes,
(c) the amount of such payment allocable to interest on the Notes,
(d) the amount of collections of Principal Receivables received during
the preceding Monthly Period or Periods since the last Payment Date and
allocated in respect of the Notes,
(e) the aggregate amount of Principal Receivables, the Investor
Interest and the Investor Interest as a percentage of the aggregate amount of
the Principal Receivables in the Trust as of the end of the last day of the
preceding Monthly Period or Periods since the last Payment Date,
(f) the aggregate outstanding balance of Receivables which are
delinquent, broken down by period of delinquency as provided in the related
Series Supplement, in accordance with the Servicer's then existing premium
finance obligation guidelines as of the end of the last day of the preceding
Monthly Period or Periods since the last Payment Date,
(g) the aggregate Investor Default Amount for the preceding Monthly
Period or Periods since the last Payment Date,
(h) the aggregate amount of Investor Charge-Offs for the preceding
Monthly Period or Periods since the last Payment Date and the amount of
reimbursements of previous Investor Charge-Offs for the preceding Monthly Period
or Periods since the last Payment Date,
(i) the amount of the Investor Servicing Fee for the preceding Monthly
Period or Periods since the last Payment Date,
(j) the amount to be withdrawn and/or available under any Enhancement
and Credit Enhancement, if any, as of the close of business on such Payment
Date,
(k) the "pool factor" as of the close of business on the last day of
the preceding Monthly Period (consisting of a seven-digit decimal expressing the
ratio of such Series Investor Interest to such Series initial Investor
Interest), and
(l) the aggregate amount of collections on Finance Charge Receivables
allocable to the Investor Interest during the preceding Monthly Period or
Periods since the last Payment Date.
In the case of a Series of Notes having more than one Class, the
statements forwarded to Noteholders will provide information as to each Class of
Notes, as appropriate. The Servicer will not be required to calculate the
Minimum Trust Interest for any Monthly Period if the Servicer certifies in the
Monthly Servicer Report for such Monthly Period that the Trust Interest as of
the date thereof equals or exceeds 50% of the Trust assets as of the close of
business on the last business day of the preceding Monthly Period and that such
Trust Interest exceeds the Minimum Trust Interest as of the end of such Monthly
Period.
On or before January 31 of each calendar year or such other date as
specified in the accompanying Prospectus Supplement, the Indenture Trustee will
furnish to each person who at any time during the preceding calendar year was a
Noteholder of record, a statement prepared by the Indenture Trustee containing
the information required to be contained in the regular monthly report to
Noteholders, as set forth in clauses (a), (b) and (c) above aggregated for such
calendar year or the applicable portion thereof during which such person was a
Noteholder, together with such other customary information (consistent with the
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treatment of the Notes as debt) as the Indenture Trustee deems necessary or
desirable to enable the Noteholders to prepare their United States tax returns.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the accompanying Prospectus Supplement,
with respect to each Series of Notes, Noteholders may hold their Notes through
DTC (in the United States) or Clearstream or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations that are
participants in such systems.
Cede, as nominee for DTC, will hold the global Notes. Clearstream and
Euroclear will hold omnibus positions on behalf of the Clearstream Customers and
the Euroclear Participants, respectively, through customers' securities accounts
in Clearstream's and Euroclear's names on the books of their respective
depositaries (collectively, the "Depositaries") which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC was
created to hold securities for its participating organizations ("Participants")
and facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of Participants,
thereby eliminating the need for physical movement of securities. Participants
include securities brokers and dealers (who may include the underwriters of any
Series), banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (the "Indirect Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Clearstream Customers and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Customers or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Clearstream Customers and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Clearstream
or Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Clearstream Customer or Euroclear Participant on such business day. Cash
received in Clearstream or Euroclear as a result of sales of securities by or
through a Clearstream Customer or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available in
the relevant Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
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Note Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interest
in, Notes may do so only through Participants and Indirect Participants. In
addition, Note Owners will receive all distributions of principal of, and
interest on, the Notes from the Indenture Trustee through the Participants who
in turn will receive them from DTC. Under a book-entry format, Note Owners may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Indenture Trustee to Cede, as nominee for DTC. DTC will forward
such payments to its Participants which thereafter will forward them to Indirect
Participants or Note Owners. It is anticipated that the only "Noteholder" will
be Cede, as nominee of DTC. Note Owners will not be recognized by the Indenture
Trustee as Noteholders, as such term is used in the Indenture, and Note Owners
will only be permitted to exercise the rights of Noteholders indirectly through
the Participants who in turn will exercise the rights of Noteholders through
DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Notes and is required
to receive and transmit distributions of principal and interest on the Notes.
Participants and Indirect Participants with which Note Owners have accounts with
respect to the Notes similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Note Owners.
Accordingly, although Note Owners will not possess Notes, Note Owners will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Note Owner
to pledge Notes to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Notes, may be limited due
to the lack of a physical note for such Notes.
DTC has advised the Seller that it will take any action permitted to be
taken by a Noteholder under the Indenture and any Series Supplement only at the
direction of one or more Participants to whose account with DTC the Notes are
credited. Additionally, DTC has advised the Seller that it will take such
actions with respect to specified percentages of the Investor Interest only at
the direction of and on behalf of Participants whose holdings include interests
that satisfy such specified percentages. DTC may take conflicting actions with
respect to other interests to the extent that such actions are taken on behalf
of Participants whose holdings include such interests.
Clearstream is incorporated under the laws of Luxembourg as a
professional depositary. Clearstream holds securities for its customers
("Clearstream Customers") and facilitates the clearance and settlement of
securities transactions between Clearstream Customers through electronic
book-entry changes in accounts of Clearstream Customers, thereby eliminating the
need for physical movement of securities. Transactions may be settled in
Clearstream in any of 28 currencies, including United States dollars.
Clearstream provides to its Clearstream Customers, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Clearstream interfaces
with domestic markets in several countries. As a registered bank in Luxembourg,
Clearstream is subject to regulation by the Luxembourg Commission for the
Supervision of the Financial Sector. Clearstream Customers are world-wide
financial institutions, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the underwriters of any Series of Notes. Indirect access to
Clearstream is also available to other institutions, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream Customer, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of securities and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 27 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "Cooperative").
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All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
the Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters of
any Series of Notes. Indirect access to the Euroclear System is also available
to other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific notes to
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream Customers or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain United States Federal Income Tax Consequences" in this
Prospectus. Clearstream or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Noteholder under the Indenture and
any Series Supplement on behalf of a Clearstream Customer or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to its Depositary's ability to effect such actions on its behalf through
DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES
Unless otherwise specified in the accompanying Prospectus Supplement,
the Notes of each Series will be issued as Definitive Notes in fully registered,
certificated form to Note Owners or their nominees rather than to DTC or its
nominee, only if (a) the Trust advises the Indenture Trustee in writing that DTC
is no longer willing or able to discharge properly its responsibilities as
Depositary with respect to such Series of Notes, and the Indenture Trustee or
the Trust is unable to locate a qualified successor, (b) the Trust, at its
option, advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through DTC or (c) after the occurrence of a Servicer Default
or an Event of Default, Note Owners representing not less than 50% (or such
other percentage specified in the accompanying Prospectus Supplement) of the
outstanding Investor Interest advise the Indenture Trustee and DTC through
Participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interest of the Note Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Notes. Upon surrender by DTC of the
definitive notes representing the Notes and instructions for re-registration,
the Indenture Trustee will issue the Notes as Definitive Notes, and thereafter
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the Indenture Trustee will recognize the holders of such Definitive Notes as
holders under the Indenture ("Holders").
Distribution of principal and interest on the Notes will be made by the
Indenture Trustee directly to Holders of Definitive Notes in accordance with the
procedures set forth in this Prospectus and in the Indenture. Interest payments
and any principal payments on each Payment Date will be made to Holders in whose
names the Definitive Notes were registered at the close of business on the
related Record Date. Distributions will be made by check mailed to the address
of such Holder as it appears on the register maintained by the Indenture
Trustee. The final payment on any Note (whether Definitive Notes or the Notes
registered in the name of Cede representing the Notes), however, will be made
only upon presentation and surrender of such Note at the office or agency
specified in the notice of final distribution to Noteholders. The Trustee will
provide such notice to registered Noteholders not later than the fifth day of
the month of such final distributions.
Definitive Notes will be transferable and exchangeable at the offices
of the "Transfer Agent and Registrar", which shall initially be the Indenture
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith. The Transfer Agent and Registrar shall not be required to register
the transfer or exchange of Definitive Notes for a period of five business days
preceding the due date for any payment with respect to such Definitive Notes.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
Except as otherwise specified in the accompanying Prospectus
Supplement, the following summary describes certain terms of: (a) the Purchase
Agreement pursuant to which the Seller has purchased and will purchase Eligible
Receivables from the Originators; (b) the Sale and Servicing Agreement, pursuant
to which the Trust has acquired and will acquire those Receivables from the
Seller and agrees to the servicing of the Receivables by the Servicer; (c) the
Master Trust Agreement pursuant to which the Trust will be created; and (d) the
Administration Agreement pursuant to which the Administrator will undertake
certain administrative duties with respect to the Trust.
TRANSFER AND ASSIGNMENT OF RECEIVABLES
In connection with the initial transfer of the Receivables to the
Trust, the Originators are required to indicate, and in connection with each
subsequent transfer of Receivables to the Trust, the Originators are required to
indicate, in their computer files that the Receivables have been conveyed to the
Trust. In addition, the Seller will cause the Originators to provide to the
Indenture Trustee computer files or microfiche lists, containing a true and
complete list showing each Premium Finance Obligation, identified by account
number and by total outstanding balance as of the end of the Monthly Period
during which such Receivables are transferred. The Seller will not deliver or
cause to be delivered to the Trustee any other records or agreements relating to
the Premium Finance Obligations or the Receivables, except in connection with
additions or removals of Receivables. Except as stated above, the records and
agreements relating to the Premium Finance Obligations and the Receivables
maintained by the Originators, the Seller or the Servicer are not and will not
be segregated by the Originators, the Seller or the Servicer from other
documents and agreements relating to other commercial premium finance
obligations and receivables and are not and will not be stamped or marked to
reflect the transfer of the Receivables to the Trust, but the computer records
of the Originators and the Sellers are and will be required to be marked to
evidence such transfer. None of the Originators have taken or will be obligated
to take any actions in order to protect for the benefit of the Seller or the
Trust, respectively, a security interest in the Receivables, other than the
Uniform Commercial Code financing statements filed with respect to the
Receivables meeting the requirements of New York, California and Delaware state
law. See "Risk Factors--Potential Priority of Certain Liens" and "Certain Legal
Aspects of the Receivables" in this Prospectus.
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REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Notes, upon execution of each Series Supplement, each Originator will
make under the Purchase Agreement certain representations and warranties to the
Seller and the Seller will make under the Sale and Servicing Agreement as
applicable, certain representations and warranties to the Trust, to the effect
that, among other things, as of the Closing Date of the related Series, it is
duly incorporated and in good standing and that it has the authority to
consummate the transactions contemplated by the Purchase Agreement and the Sale
and Servicing Agreement, as applicable. If so provided in the accompanying
Prospectus Supplement, if (a) any of these representations and warranties proves
to have been incorrect in any material respect when made, and continues to be
materially incorrect for 60 days after notice to the related Originator or the
Seller, as applicable, by the Indenture Trustee or to the related Originator,
the Seller and the Indenture Trustee by the Noteholders holding more than 50% of
the Investor Interest of such Series, and (b) as a result the interests of the
Noteholders are materially and adversely affected, and continue to be materially
and adversely affected during such period, then a Pay Out Event shall occur for
each such Series ten business days thereafter, unless Noteholders holding more
than 50% of the Investor Interest of each such Series give notice to the
Indenture Trustee, the Seller and the Servicer declaring that a Pay Out Event
has not occurred, thereby commencing the Rapid Amortization Period or, if so
specified in the accompanying Prospectus Supplement, the Rapid Accumulation
Period.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Notes, the Seller will make with respect to the Receivables
representations and warranties to the Trust to the effect, among other things,
that, as of the date of transfer of each such Receivable to the Trust (a) such
Receivable is an Eligible Receivable (as defined below), and (b) all material
consents, licenses, approvals or authorizations of or registrations or
declarations with any governmental authority required to be obtained, effected
or given in connection with the origination and/or servicing of the related
Premium Finance Obligation and the conveyance of each such Receivable to the
Trust have been duly effected or given. In the event of a breach of any
representation and warranty set forth in this paragraph, as a result of which
the Premium Finance Obligation relating to a Receivable becomes a Defaulted
Obligation or which breach in the case of (b) above would have a material
adverse effect on the interests of the Noteholders, within 60 days, or such
longer period as may be agreed to by the Indenture Trustee (but no longer than
120 days), of either the discovery of such breach and the resulting effect by
the Seller or receipt by the Seller of written notice of such breach given by
the Indenture Trustee, the Seller will accept reassignment of each Receivable,
as to which such breach relates if such breach continues throughout the
aforementioned applicable period (an "Ineligible Receivable") on the terms and
conditions referred to below. The Seller will accept reassignment of each such
Ineligible Receivable by (a) depositing into the Collection Account an amount
equal to the Finance Charge Receivables due but not collected with respect to
such Ineligible Receivable, (b) directing the Servicer to deduct the unpaid
principal amount of each such Ineligible Receivable from the aggregate amount of
Principal Receivables used to calculate the Trust Interest, and (c) depositing
into the Collection Account an amount equal to the principal balance of such
Ineligible Receivable, provided, however, that if the exclusion of an Ineligible
Receivable from the calculation of the Trust Interest would cause the Trust
Interest to be less than the Minimum Trust Interest or would otherwise not be
permitted by law, then such Ineligible Receivable shall be removed upon the
Seller depositing in the Principal Account (for allocation as a Principal
Receivable) in immediately available funds an amount equal to the amount by
which the Trust Interest would be reduced below the Minimum Trust Interest. Upon
any such reassignment of a Receivable to the Seller, the Seller will reassign
such Receivable to the applicable Originator, pursuant to the terms of the
Purchase Agreement. The obligation of the Seller or the related Originator, as
applicable, to accept reassignment of any Ineligible Receivable is the sole
remedy respecting any breach of the representations and warranties referred to
in this paragraph with respect to such Receivable available to the Noteholders
or the Indenture Trustee on behalf of the Noteholders.
Upon the execution of each Series Supplement, the Servicer and the
Seller with respect to (a) below, and the Seller with respect to (b) below, will
make representations and warranties to the Trust to the effect, among other
things, that as of the closing date of the issuance by the Trust of the related
Series of Notes (including the Initial Closing Date) and each Addition Date (a)
the Sale and Servicing Agreement constitutes a valid and legally binding
obligation of it, and (b) the transfer of Receivables to the Trust under the
Sale and Servicing Agreement constitutes a valid transfer to the Trust of the
entire right, title and interest in and to the Receivables and the proceeds
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thereof (including amounts in any of the accounts established for the benefit of
the related Noteholders), and recoveries thereon. The Servicer and the Seller
will make upon the execution of each Series Supplement, representations and
warranties to the Trust to the effect, among other things, that as of the
closing date of the issuance by the Trust of the related Series of Notes
(including the Initial Closing Date) (x) all information previously furnished by
it or to be furnished by it in writing to the Indenture Trustee in connection
with the Sale and Servicing Agreement and the transactions contemplated thereby
is and will be true and accurate in all material respects, and (y) all
approvals, authorizations, consents, orders or other actions of any person or of
any governmental body or official required in connection with the execution and
delivery of the Sale and Servicing Agreement and the Notes and the performance
of the transactions contemplated by the Sale and Servicing Agreement have been
obtained. The Seller will make with respect to the Receivables, representations
and warranties to the Trust similar to those described in the two foregoing
sentences in connection with each assignment of Receivables added to the Trust
from time to time in accordance with the terms and conditions of the Sale and
Servicing Agreement. In the event of a breach by the Seller of any of the
representations and warranties described in clause (a) or (b) above, if such
breach has a material adverse effect on the Trust, the Indenture Trustee, by
written notice to the Seller, or the Holders of Notes evidencing interest in the
Trust aggregating more than 50% of the aggregate Investor Interest of all Series
outstanding under the Trust may direct the Seller to accept reassignment of all
of the Receivables in the Trust Portfolio within 60 days of such notice, or
within such longer period specified in such notice (but no longer than 120
days). Such reassignment will not be required to be made, however, if at any
time during such applicable period, or such longer period, the representations
and warranties described in (a) or (b) above, as applicable, shall be true and
correct in all respects. The deposit amount for such reassignment with respect
to each Series of Notes required to be repurchased following such notice, will
be (unless otherwise specified in the related Series Supplement) generally equal
to the outstanding balance of the Notes of such Series on the last day of the
Monthly Period preceding the date on which the reassignment is scheduled to be
made plus an amount equal to all interest accrued but unpaid on such Notes at
the applicable Note Rate through the end of the interest accrual period in which
such reassignment occurs of each such Series (less the amounts, if any,
previously allocated for payment of interest and principal with respect to each
such Series of Notes). The reassignment deposit amount will equal the sum of the
reassignment deposits with respect to each Series then issued and outstanding
which is required to be repurchased following such notice. The allocable portion
of such reassignment deposit amount will be paid in full to the Noteholders of
such Series upon presentation and surrender of their Notes. If the Indenture
Trustee or the holders of the outstanding Notes give notice directing the Seller
to accept reassignment as provided in the Sale and Servicing Agreement, the
obligation of the Seller to accept reassignment of the Receivables and to pay
the reassignment deposit amount will constitute the sole remedy respecting a
breach of the representations and warranties described in (a) or (b) above.
Unless otherwise specified in the accompanying Prospectus Supplement,
with respect to each Series of Notes, an "Eligible Receivable" is defined to
mean a Receivable: (a) which has arisen from (i) a Loan, which has either been
funded or will be funded within 30 days of its transfer to the Trust, made to an
Insured that used the proceeds of such Loan to pay premiums on property or
casualty insurance policies, governed by the law of any State of the United
States, Puerto Rico or the District of Columbia or (ii) a Deferred Payment
Obligation which has either been purchased or will be purchased within 30 days,
governed by the law of any State of the United States, Puerto Rico or the
District of Columbia, (b) which has arisen from a Loan or a Deferred Payment
Obligation, having a stated maturity, that was in material compliance with all
requirements of law applicable to AIC, AICCO, IP Finance I, IP Finance II, IP
Funding, or any Third Party Originator that originated the same (each, an
"Originator"), the Servicer, the Seller and the Trust and which, at the time of
the transfer of such Receivable to the Trust, complies in all material respects
with all requirements of law applicable to AIC, AICCO, IP Finance I, IP Finance
II, IP Funding, any Third Party Originator, the Servicer, the Seller and the
Trust, (c) with respect to which all material consents, licenses, approvals or
authorizations of, or registrations or declarations with, each governmental
authority required to be obtained, effected or given in connection with the
creation of such Receivable or the execution, delivery and performance by AIC,
AICCO, IP Finance I, IP Finance II, IP Funding, any Third Party Originator of
the Premium Finance Obligation relating to such Receivable, have been duly
obtained, effected or given and are in full force and effect as of the date of
transfer to the Trust, (d) which, at the time of transfer of such Receivable to
the Trust, represents a beneficial interest in a Loan or interest in a Deferred
Payment Obligation that has been originated in accordance with AIC's
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underwriting guidelines and has not been waived or modified except for waivers
or modifications that were made by the Servicer in accordance with its customary
servicing standards, (e) with respect to Loans, as to which the related Loan is
not subject to any right of rescission, setoff, counterclaim, defense arising
out of violations of usury laws, or any other defenses of any Insured at the
time of the transfer of such Receivable to the Trust, other than defenses that
may arise after the time of transfer out of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights in general and general equity principles, (f) as to which all
obligations of AIC, AICCO, IP Finance I, IP Finance II, IP Funding, any Third
Party Originator, the Servicer and the Seller with respect to such Receivable
required to be fulfilled pursuant to the related premium finance loan agreement
or assignment agreement and the Sale and Servicing Agreement, are satisfied, (g)
as to which, at the time of transfer of such Receivable to the Trust, none of
AIC, AICCO, IP Finance I, IP Finance II, IP Funding, any Third Party Originator,
the Servicer or the Seller has taken any action which would impair, or failed to
take any action necessary to avoid impairing, the rights of the Trust or the
Noteholders therein, (h) with respect to which in the case of Additional
Receivables only, the Insured under the related Receivable is not the direct
Insured under any Defaulted Obligation (other than a Defaulted Obligation
resulting solely from an event of bankruptcy of an entity other than such direct
Insured), (i) which, in the case of Additional Receivables only, does not relate
to a Defaulted Obligation or a Premium Finance Obligation which is overdue, (j)
as to which the related Premium Finance Obligation and all amounts due thereon
are denominated and payable only in United States dollars, (k) which has either
arisen from a Loan whereby the related premium finance agreement provides the
related Originator and, in the case of a Third Party Originator, its licensed
transferees, a limited power of attorney allowing it to cancel the related
insurance policy, if cancelable, in accordance with state law upon non-payment
of a Loan installment by the Insured thereunder (l) which has arisen from a
Premium Finance Obligation whereby the related premium finance agreement or
assignment agreement, as applicable, allows the related Originator and, in the
case of a Third Party Originator, its licensed transferees, to direct the
insurance company to pay to such party any unearned premium under the related
insurance policy calculated as of the time of cancellation of the insurance
policy, if cancelable, and/or proceeds from the collateral securing such Premium
Finance Obligation, and (m) which has a stated maturity of less than or equal to
60 months from its date of transfer to the Trust.
It will not be required or anticipated that the Indenture Trustee will
make, any general examination of the Receivables or any records relating to the
Receivables for the purpose of establishing the presence or absence of defects,
compliance with an Originator's or the Seller's representations and warranties
or for any other purpose.
ADDITION OF TRUST ASSETS
As described above under "The Receivables," the Seller will have the
right and, in some circumstance, is obligated to convey to the Trust, from time
to time, Additional Receivables. In addition, the Seller will be required to
convey Additional Receivables to maintain the Minimum Trust Interest under the
circumstances and in the amounts specified in the accompanying Prospectus
Supplement. The Seller currently expects to convey to the Trust its interest in
all Receivables generated and transferred to the Seller by Originators from time
to time.
Each Additional Receivable must be an Eligible Receivable at the time
of its conveyance. However, Additional Receivables may not arise from Premium
Finance Obligations of the same credit quality as the initial Premium Finance
Obligations. Additional Receivables may have been originated by the Originators
using criteria different from those which were applied by the Originators to the
initial Premium Finance Obligations or may have been acquired by the Originators
from an institution which may have had different credit criteria.
If so specified in the Prospectus Supplement relating to a Series, in
addition to or in lieu of Additional Receivables, the Seller under the Sale and
Servicing Agreement will be permitted to add to the Trust participations
representing interests in a pool of assets primarily consisting of receivables
arising under commercial Premium Finance Obligations owned by the Seller or its
affiliates and collections thereon ("Participations"). Participations may be
evidenced by one or more certificates of ownership issued under a separate
pooling and servicing agreement or similar agreement (a "Participation
Agreement") entered into by the Seller, or its affiliates, which entitles the
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holder to receive percentages of collections generated by the pool of assets
subject to such Participation Agreement from time to time and to certain other
rights and remedies specified therein. Participations may have their own credit
enhancement, pay out events, servicing obligations and servicer defaults, all of
which are likely to be enforceable by a separate trustee under the Participation
Agreement and may be different from those specified in this Prospectus. The
rights and remedies of the Trust as the holder of a Participation (and therefore
the Noteholders) will be subject to all the terms and provisions of the related
Participation Agreement.
A conveyance by the Seller to the Trust of Additional Receivables or
Participations is subject to the following conditions, among others: (a) no
selection procedures materially adverse to the interests of the holders of any
Series of Notes were used in selecting the Additional Receivables, (b) the
Seller will deliver, on or prior to the Determination Date following a Monthly
Period during which Additional Receivables or Participations are conveyed to the
Trust, a written confirmation of assignment (the "Assignment") to the Trust of
the Additional Receivables or Participations and a computer file or microfiche
list containing a true and complete list of all Receivables, including
Additional Receivables or Participations, as of the end of such Monthly Period
and (c) the transfer of Additional Receivables or Participations by the Seller
to the Trust constitutes a valid transfer and sale of the entire right and
interest in and to the Additional Receivables or Participations. The Seller is
not required to give notice to either Rating Agency of their intention to convey
Additional Receivables or Participations to the Trust.
The Indenture Trustee will file the periodic reports otherwise required
to be filed by the Indenture Trustee with the Securities and Exchange Commission
(the "SEC") pursuant to the Exchange Act, including on behalf of the Trust, a
Report on Form 8-K with respect to the Monthly Noteholders' Statement (as
defined in the Indenture).
REMOVAL OF RECEIVABLES
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Notes and subject to the conditions set forth in the next succeeding
sentence, on each Determination Date on which the Trust Interest exceeds the
Minimum Trust Interest on such Determination Date, the Seller may, but shall not
be obligated to, not more than once during the Monthly Period during which such
Determination Date occurs, designate Receivables for deletion and removal from
the Trust with five business days' prior written notice to the Indenture Trustee
and Servicer but without notice to Noteholders (the "Removed Receivables"). The
Seller is permitted to designate and require reassignment of Removed Receivables
only upon satisfaction of the following conditions, among other things: (a) on
or prior to the reassignment date, the Seller will have delivered to the Trust
and the Indenture Trustee for execution a written reassignment and, within five
business days after the reassignment date, the Seller shall have delivered or
cause to be delivered to the Indenture Trustee a computer file or microfiche
list containing a true and complete list of all Removed Receivables, the Removed
Receivables to be identified by, among other things, account number and their
aggregate amount of Principal Receivables as of the date of their removal (the
"Removal Date"); (b) the Seller will represent and warrant that no selection
procedure used by the Seller which is materially adverse to the interests of the
holders of any Notes issued by the Trust was utilized in selecting the Removed
Receivables; (c) the removal of any Removed Receivables shall not, in the
reasonable belief of the Seller (1) cause a Pay Out Event to occur, (2) cause
the Trust Interest to be less than the Minimum Trust Interest on such Removal
Date or (3) result in the failure to make any payment with respect to any
Series; (d) the Seller will have delivered prior written notice of the removal
to the Rating Agencies and prior to the date on which such Receivables are to be
removed, neither the Seller nor the Indenture Trustee will have received notice
from either Rating Agency that such removal will result in the reduction or
withdrawal of the then-existing rating of any outstanding Series of Notes; (e)
the Seller will have delivered to the Indenture Trustee an officer's certificate
confirming the items set forth in clauses (a) through (d) above; and (f) the
Seller, the Indenture Trustee and each Rating Agency will have received an
opinion of counsel that the proposed removal will not adversely affect the
federal income tax characterization of the Trust. If such removal would be
subject to the independent valuation requirements of the Trust Indenture Act of
1939, as amended, then the removal of Receivables will be subject to the further
condition that the Trust deliver the requisite opinion or certification. The
Seller does not presently expect to remove Receivables from the Trust.
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COLLECTION AND OTHER SERVICING PROCEDURES
For each Series of Notes, the Servicer will be responsible for
servicing and administering the Premium Finance Obligations giving rise to the
Receivables in accordance with the Servicer's policies and procedures for
servicing commercial premium finance receivables that are owned for its own
account comparable to the Receivables (the "Guidelines").
DISCOUNT OPTION
If so specified in a Prospectus Supplement, the Seller may, at its sole
discretion, designate a specified fixed or variable percentage (the "Discount
Percentage") of the amount of Receivables arising in the Premium Finance
Obligations with respect to the Trust on and after the date such option is
exercised that otherwise would have been treated as Principal Receivables to be
treated as Finance Charge Receivables. In effect, if such option is exercised by
the Seller, the Principal Receivables are treated as having been transferred to
the Trust at a discount. The result of such discounting treatment is to increase
the yield to the Trust beyond the actual income performance of the Premium
Finance Obligations. Such designation will become effective upon satisfaction of
the requirements set forth in the Sale and Servicing Agreement, including
written confirmation by each Rating Agency of its then-current rating on each
outstanding Series of the Trust. After such designation is effective, on the
date of processing of any collections, the product of the Discount Percentage
and collections of Receivables that arise in the Premium Finance Obligations on
such day on or after the date such option is exercised that otherwise would be
Principal Receivables will be deemed collections of Finance Charge Receivables
and will be applied accordingly, unless otherwise provided in the accompanying
Prospectus Supplement.
TRUST ACCOUNTS
Unless otherwise specified in a Prospectus Supplement, the Indenture
Trustee will establish and maintain with a Qualified Institution, which may be
the Indenture Trustee, in the name of the Trust two separate accounts in a
segregated trust account (which need not be a deposit account), a "Finance
Charge Account" and a "Principal Account," for the benefit of the Noteholders of
all related Series, including any Series offered pursuant to this Prospectus.
The Indenture will provide that the Indenture Trustee or the Servicer will have
the power to establish Series accounts in Series Supplements, including a
Principal Funding Account, a Pre-Funding Account or such other account specified
in the Series Supplement, each of which series accounts shall be held for the
benefit of the Noteholders of the related Series and for the purposes set forth
in the accompanying Prospectus Supplement. The Indenture Trustee will also
establish a "Payment Account" (a non- interest bearing segregated demand deposit
account established with a Qualified Institution). The Servicer will establish
and maintain with the Indenture Trustee, in the name of the Trustee, for the
benefit of Noteholders of all Series issued thereby including any Series offered
pursuant to this Prospectus, an account established for the purpose of holding
collections of Receivables (the "Collection Account"), which will be a
non-interest bearing segregated account established and maintained with a
"Qualified Institution," defined as a depositary institution or trust company,
which may include the Indenture Trustee, organized under the laws of the United
States or any one of the states thereof or the District of Columbia, which
either (a) has corporate trust powers and at all times has a certificate of
deposit rating of P-1 by Moody's Investors Service, Inc. ("Moody's") and of A-1
by Standard & Poor's Rating Service, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's") or a long-term unsecured debt obligation rating of at
least A3 by Moody's and at least A- by Standard & Poor's and deposit insurance
provided by either the Bank Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"), each administered by the FDIC, or (b) at all times has
a certificate of deposit rating of at least P-1 by Moody's and A-1+ by Standard
& Poor's or a long term unsecured debt obligation rating of at least Aa3 by
Moody's and of at least AA- by Standard & Poor's and deposit insurance as
required by the FDIC or (c) a depositary institution, which may include the
Indenture Trustee, which is acceptable to the Rating Agency. In addition, the
Series Supplement for any Series may require the Indenture Trustee to establish
and maintain a subaccount of the Collection Account for such series (each such
subaccount, a "Collection Subaccount"). Unless otherwise specified in the
accompanying Prospectus Supplement, funds in the Collection Account or any
Collection Subaccount, that are not both deposited and to be withdrawn on the
same day for the Trust may be invested to the extent provided in the Series
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Supplement, at the direction of the Servicer, in (a) obligations of or fully
guaranteed by the United States of America, (b) demand deposits; time deposits
or certificates of deposit of (A) any depositary institution or trust company,
the certificates of deposit of which have credit ratings from Moody's and
Standard & Poor's of P-1 and A-1+, respectively, and the long-term unsecured
debt obligations of which have a rating from Moody's and Standard & Poor's of at
least Aa3 and AA- respectively or (B) the corporate trust department of such
depositary institutions or trust company, the certificates of deposit of which
have ratings from Moody's and Standard & Poor's of P-1 and A-1 respectively, and
long-term debt obligations of which have a rating from Moody's and Standard &
Poor's of at least A3 and A- respectively, (c) commercial paper having, at the
time of the Trust's investment or contractual commitment to invest therein, a
rating of P-1 and A-1+ respectively, from Moody's and Standard & Poor's or
otherwise approved by each Rating Agency, (d) bankers' acceptances issued by any
depositary institution or trust company described in clause (b) above, (e)
investments in money market or common trust funds rated AAA-M or AAA-MG by
Standard & Poor's or P-1 by Moody's or otherwise approved by each Rating Agency,
(f) demand deposits, time deposits and certificates of deposit which are fully
insured to the limits as required by law and by the FDIC, (g) certain open end
diversified investment companies which each Rating Agency designates in writing
will not result in a withdrawal or downgrade of its then current rating of any
Series it rates, and (h) any other investment if each Rating Agency confirms in
writing that such investment will not adversely affect its then-current rating
or ratings of the Notes (such investments, "Permitted Investments"). Any such
investment must mature and such funds be available for withdrawal on or prior to
the Transfer Date related to the Monthly Period in which such funds were
received or deposited, or if specified in a related Series Supplement on the
immediately following Payment Date. Unless otherwise specified in the
accompanying Prospectus Supplement, any earnings (net of losses and investment
expenses) on funds in the Collection Account or any Collection Subaccount will
be paid to the Trust. Unless otherwise specified in the accompanying Prospectus
Supplement, neither the Servicer nor the Trust is required to deposit additional
amounts in any such account in respect of such losses or expenses. See
"--Defaulted Receivables; Investor Charge-Offs." Funds in any other Series
account established by a Series Supplement may be invested in Permitted
Investments or otherwise as provided in the accompanying Prospectus Supplement.
The Servicer will have the revocable power to withdraw funds from the
Collection Account and to instruct the Indenture Trustee to make withdrawals and
payments from the Finance Charge Account and the Principal Account for the
purpose of carrying out the Servicer's duties under the Sale and Servicing
Agreement. Unless otherwise specified in the accompanying Prospectus Supplement,
the Indenture Trustee will initially be the paying agent and will have the
revocable power to withdraw funds from the Payment Account for the purpose of
making payments to the Noteholders.
FUNDING PERIOD
For any Series of Notes, the accompanying Prospectus Supplement may specify that
for a period beginning on a Closing Date and ending on a specified date before
the commencement of an Amortization Period or Accumulation Period with respect
to such Series (the "Funding Period"), the aggregate amount of Principal
Receivables in the Trust allocable to such Series may be less than the aggregate
principal amount of the Notes of such Series and that the amount of deficiency
(the "Pre-Funding Amount") will be held in a trust account established with the
Indenture Trustee for the benefit of Noteholders of such Series (the
"Pre-Funding Account") pending the transfer of additional Receivables to the
Trust or pending the reduction of the Investor Interests of other Series issued
by the Trust. The accompanying Prospectus Supplement will specify the initial
Investor Interest with respect to such Series, the full Investor Interest and
the date by which the Investor Interest is expected to equal the full Investor
Interest. The Investor Interest will increase as Receivables are delivered to
the Trust or as the Investor Interests of other Series of the Trust are reduced.
The Investor Interest may also decrease due to Investor Charge-Offs or the
occurrence of a Pay Out Event with respect to such Series as provided in the
accompanying Prospectus Supplement.
During the Funding Period, funds on deposit in the Pre-Funding Account for a
Series of Notes will be withdrawn and paid to the Trust to the extent of any
increases in the Investor Interest. In the event that the Investor Interest does
not for any reason equal the full Investor Interest by the end of the Funding
Period, any amount remaining in the Pre-Funding Account and any additional
amounts specified in the accompanying Prospectus Supplement will be payable to
the Noteholders of such Series in the manner and at such time as set forth in
the accompanying Prospectus Supplement.
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If so specified in the accompanying Prospectus Supplement, monies in the
Pre-Funding Account will be invested by the Indenture Trustee in Permitted
Investments or will be subject to a guaranteed rate or investment agreement or
other similar arrangement, and, in connection with each Payment Date during the
Funding Period, investment earnings on funds in the Pre-Funding Account during
the related Monthly Period will be withdrawn from the Pre-Funding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Finance Charge
Account for distribution in respect of interest on the Notes of the related
Series in the manner specified in the accompanying Prospectus Supplement.
INVESTOR PERCENTAGE AND TRUST PERCENTAGE
The Servicer will allocate between the Investor Interest of each Series
issued and outstanding (and between each Class of each Series) and the Trust
Interest, and, in certain circumstances, the interest of certain Credit
Enhancement Providers, all amounts collected on Finance Charge Receivables, all
amounts collected on Principal Receivables and all Receivables of Premium
Finance Obligations which either (i) remained in default one year after the
cancellation or cancellability of the related insurance policy or (ii) were
written off as uncollectible by the Servicer ("Defaulted Obligations"). The
Servicer will make each allocation by reference to the applicable Investor
Percentage of each Series and the Trust Percentage, and, in certain
circumstances, the percentage interest of certain Credit Enhancement Providers
(the "Credit Enhancement Percentage") with respect to such Series. The
Prospectus Supplement relating to a Series will specify the Investor Percentage
and, if applicable, the Credit Enhancement Percentage with respect to the
allocations of collections of Principal Receivables, Finance Charge Receivables
and Receivables in Defaulted Obligations during the Revolving Period, any
Amortization Period and any Accumulation Period, as applicable. In addition, for
each Series of Notes having more than one Class, the accompanying Prospectus
Supplement will specify the method of allocation between each Class.
The "Trust Percentage" will, in all cases with respect to Receivables,
be equal to 100% minus the aggregate Investor Percentage and, if applicable, the
aggregate Credit Enhancement Percentages, for all Series then outstanding.
APPLICATION OF COLLECTIONS
Unless otherwise specified in the accompanying Prospectus Supplement
and, except as otherwise provided below, the Servicer will deposit into the
Collection Account for the Trust, no later than the second business day (or such
other day specified in the accompanying Prospectus Supplement) following the
date of receipt, any payment collected by the Servicer on the Receivables. On
the same day as any such deposit is made, the Servicer will make the deposits
and payments to the accounts and parties as indicated below; provided, however,
that for as long as AIC, or AICCO, or IP Finance I, or IP Finance II or IP
Funding or an Affiliate thereof remains a Servicer under the Sale and Servicing
Agreement, and either (a) the AIG Support Agreement remains in effect with
respect to the Servicer and is not terminated, amended or modified other than in
accordance with its terms, and AIG or AIC has and maintains a senior unsecured
long-term rating of at least Aa3 by Moody's and of at least AA- by Standard &
Poor's or (b) AIG or AIC has and maintains a commercial paper rating of P-1 by
Moody's and of A-1 by Standard & Poor's, then the Servicer may make such
deposits and payments on a monthly or other periodic basis on the business day
immediately prior to each Payment Date or other business day specified in the
accompanying Prospectus Supplement (each, a "Transfer Date") in an amount equal
to the lesser of (1) collections received in the immediately preceding Monthly
Period allocable to the aggregate Investor Interests for each Group of all
outstanding Series and (2) the amount required to be deposited into the Finance
Charge Account, the Principal Account or any other Series account or, without
duplication, distributed on or prior to the related Payment Date to Noteholders
of all outstanding Series. On the same date as any deposit is made to the
Collection Account, the Servicer will (a) transfer funds from the Collection
Account to the Finance Charge Account and Principal Account to the extent
required under "--Application of Collections," and (b) make such further
distributions and payments as required thereunder. Deposits required to be made
by AIC, or AICCO, or IP Finance I, or IP Finance II or IP Funding or an
Affiliate thereof as Servicer into the Finance Charge Account, Principal
Account, and any other account established for the benefit of the holders of any
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Series of Notes may also be made on a monthly basis rather than on a more
frequent basis if the conditions referred to in the second sentence of this
paragraph are met.
Unless otherwise specified in the accompanying Prospectus Supplement,
notwithstanding anything in the Indenture, the Sale and Servicing Agreement or
any Series Supplement to the contrary, whether the Servicer is required to make
monthly or daily deposits from the Collection Account into the Finance Charge
Account or the Principal Account or any other Series account, with respect to
any Monthly Period, (a) the Servicer will only be required to deposit
collections from the Collection Account into the Finance Charge Account, the
Principal Account or any Series account established by a related Series
Supplement up to the required amount to be deposited into any such deposit
account or, without duplication, distributed or deposited on or prior to the
related Payment Date to Noteholders or to the provider of Enhancement and (b) if
at any time prior to such Payment Date the amount of collections deposited in
the Collection Account exceeds the amount required to be deposited pursuant to
clause (a) above, the Servicer, subject to certain limitations, will be
permitted to withdraw the excess from the Collection Account and pay such excess
to the Trust.
Unless otherwise specified in the accompanying Prospectus Supplement,
the Servicer will withdraw the following amounts from the Collection Account for
application as indicated:
(a) an amount equal to the Trust Percentage of the aggregate
amount of such deposits in respect of Principal Receivables and Finance
Charge Receivables, respectively, will be paid or held for payment to
the Trust, provided that any collections of Principal Receivables
allocable to the Trust will be (1) paid to the Trust if, and only to
the extent that, the Trust Interest is greater than the Minimum Trust
Interest or (2) deposited in an account (the "Excess Funding Account")
and treated as Unallocated Principal Collections;
(b) an amount equal to the applicable Investor Percentage of
the aggregate amount of such deposits in respect of Finance Charge
Receivables will be deposited into the Finance Charge Account for
allocation and distribution as described in the accompanying Prospectus
Supplement;
(c) during the Revolving Period, an amount equal to the
applicable Investor Percentage of the aggregate amount of such deposits
in respect of Principal Receivables will be paid or held for payment to
the Trust, subject to the limitations described in paragraph (a) above;
(d) during the Controlled Amortization Period, Controlled
Accumulation Period or Rapid Accumulation Period, as applicable, an
amount equal to the applicable Investor Percentage of such deposits in
respect of Principal Receivables up to the amount, if any, as specified
in the accompanying Prospectus Supplement will be deposited in the
Principal Account or Principal Funding Account, as applicable, for
allocation and payment to Noteholders as described in the accompanying
Prospectus Supplement, provided that if collections of Principal
Receivables exceed the principal payments which may be allocated or
distributed to Noteholders, the amount of such excess will be paid to
the Trust, subject to the limitations described in paragraph (a) above;
and
(e) during the Principal Amortization Period, if applicable,
and the Rapid Amortization Period, an amount equal to the applicable
Investor Percentage of such deposits in respect of Principal
Receivables will be deposited into the Principal Account for
application and distribution as provided in the accompanying Prospectus
Supplement.
In the case of a Series of Notes having more than one Class, the
amounts in the Collection Account will be allocated and applied to each Class in
the manner and order of priority described in the accompanying Prospectus
Supplement.
Any amounts collected in respect of Principal Receivables and not paid
to the Trust because the Trust Interest is less than the Minimum Trust Interest
as described in paragraph (a) above (with respect to each Series, "Unallocated
Principal Collections"), together with any adjustment payments as described
below, will be paid to and held in the Excess Funding Account and paid to the
Trust if, and only to the extent that, the Trust Interest is greater than the
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Minimum Trust Interest. If an Amortization Period or Accumulation Period has
commenced, Unallocated Principal Collections will be held for distribution to
the Noteholders on the dates specified in the accompanying Prospectus Supplement
or accumulated for distribution on the Scheduled Payment Date, as applicable,
and distributed to the Noteholders of each Class or held for and distributed to
the Noteholders of other Series of Notes issued by the Trust in the manner and
order of priority specified in the accompanying Prospectus Supplement.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any Series offered hereby may be included in a group of Series (a "Group"). If
so specified in the accompanying Prospectus Supplement, the Noteholders of a
Series within a Group or any Class thereof may be entitled to receive all or a
portion of Excess Finance Charge Collections with respect to another Series
within such Group or Class thereof to cover any shortfalls with respect to
amounts payable from collections of Finance Charge Receivables allocable to such
Series or Class. Unless otherwise provided in the accompanying Prospectus
Supplement, with respect to any Series, "Excess Finance Charge Collections" for
any Monthly Period will equal the excess of collections of Finance Charge
Receivables and certain other amounts allocated to the Investor Interest of such
Series or Class over the sum of (a) interest accrued for the current month
("Monthly Interest") and overdue Monthly Interest on the Notes of such Series or
Class (together with, if applicable, interest on overdue Monthly Interest at the
rate specified in the accompanying Prospectus Supplement ("Additional
Interest")), (b) accrued and unpaid Investor Servicing Fees with respect to such
Series or Class payable from collections of Finance Charge Receivables, (c) the
Investor Default Amount with respect to such Series or Class, (d) unreimbursed
Investor Charge-Offs with respect to such Series or Class and (e) other amounts
specified in the accompanying Prospectus Supplement. The term "Investor
Servicing Fee" for any Series of Notes or Class thereof means the servicing fee
allocable to the Investor Interest with respect to such Series or Class, as
specified in the accompanying Prospectus Supplement. The term "Investor Default
Amount" means, for any Monthly Period and for any Series or Class thereof, the
aggregate amount of the Investor Percentage of Principal Receivables (and
accrued unpaid finance charges) in Defaulted Obligations; provided, however,
that the calculation of Investor Default Amount will in no event give effect to
losses in respect of certain concentrated Receivables as described in the
accompanying Prospectus Supplement. Except as otherwise specified in a related
series Supplement, the term "Investor Charge-Off" means, for any Monthly Period,
and for any Series or Class thereof, the amount by which (a) the related Monthly
Interest and overdue Monthly Interest (together with, if applicable, Additional
Interest), the accrued and unpaid Investor Servicing Fees payable from
collections of Finance Charge receivables, the Investor Default Amount and any
other required fees exceeds (b) amounts available to pay amounts out of
collections of Finance Charge Receivables, available Credit Enhancement amounts,
if any and other sources specified in the accompanying Prospectus Supplement,
but not more than such Investor Default Amount. See "--Application of
Collections," "--Shared Excess Finance Charge Collections," "--Defaulted
Receivables; Investor Charge-Offs" and "Credit Enhancement" in this Prospectus.
SHARED PRINCIPAL COLLECTIONS
If so specified in the accompanying Prospectus Supplement, to the
extent that collections of Principal Receivables and certain other amounts that
are allocated to the Investor Interest of any Series are not needed to make
payments or deposits with respect to such Series, such collections ("Shared
Principal Collections") will be applied to cover any scheduled or permitted
principal payments due to or for the benefit of Noteholders of other Series. If
so specified in the accompanying Prospectus Supplement, the allocation of Shared
Principal Collections may be among Series within a Group. Any such reallocation
will not result in a reduction in the Investor Interest of the Series to which
such collections were initially allocated.
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
Unless otherwise specified in the accompanying Prospectus Supplement,
for each Series of Notes, on the fourth business day preceding each Transfer
Date (the "Determination Date"), the Servicer will calculate the aggregate
Investor Default Amount for the preceding Monthly Period, which will be equal to
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the aggregate amount of the Investor Percentage of Principal Receivables (and
accrued unpaid finance charges) in Defaulted Obligations. Defaulted Obligations
are Premium Finance Obligations which in such Monthly Period were (a) in default
for more than one year after the cancellation or cancellability of the related
insurance policy, which cancellation or cancellability was the result of such
default, or (b) written off as uncollectible in accordance with the Servicer's
policies and procedures for servicing commercial premium finance obligation
receivables, comparable to the Receivables. In the case of a Series of Notes
having more than one Class, the Investor Default Amount will be allocated among
the Classes in the manner described in the accompanying Prospectus Supplement.
If so provided in the accompanying Prospectus Supplement, an amount equal to the
Investor Default Amount for any Monthly Period may be paid from other amounts,
including collections in the Finance Charge Account or from Credit Enhancement,
and applied to pay principal to Noteholders or, subject to certain limitations,
the Trust, as appropriate. In the case of a Series of Notes having one or more
Classes of Subordinated Notes, the accompanying Prospectus Supplement may
provide that all or a portion of amounts otherwise allocable to such
Subordinated Notes may be paid to the holders of the Senior Notes to make up any
Investor Default Amount allocable to such holders of Senior Notes.
With respect to each Series of Notes, the Investor Interest with
respect to such Series will be reduced by the amount of Investor Charge-Offs for
any Monthly Period. Investor Charge-Offs will be reimbursed on any Payment Date
to the extent amounts on deposit in the Finance Charge Account and any Credit
Enhancement account designated for such purpose and otherwise available therefor
exceed such interest, fees and any aggregate Investor Default Amount payable on
such date. Such reimbursement of Investor Charge-Offs will result in an increase
in the Investor Interest with respect to such Series. In the case of a Series of
Notes having more than one Class, the accompanying Prospectus Supplement will
describe the manner and priority of allocating Investor Charge-Offs and
reimbursements thereof among the Investor Interests of the several Classes.
Losses resulting from Investor Default Amounts are generally shared
between the Investor Interest of each outstanding Series, based on their
respective floating Investor Percentages, and the Trust Interest. Certain losses
resulting from charge-offs of Receivables in excess of specified levels will be
allocated entirely to the Trust Interest. Accordingly, such excess losses will
not be borne by the Investor Interests and will not be taken into account in
Investor Default Amount of any Series. The circumstances under which excess
losses will be allocated entirely to the Trust are related to certain
concentrated Receivables in the Trust Portfolio as specified in each Series
Prospectus Supplement.
State laws impose limitations on the amount of finance charges that may
accrue upon the unpaid balance of a Loan after its scheduled maturity and the
late fees that may be imposed upon an Insured's default in payment of any
installments due under a Loan. Such laws vary widely by state, but often provide
for the recovery of only minimal additional interest and fees, if any.
DEFEASANCE
If so specified in the Prospectus Supplement relating to a Series, the
Trust may terminate its substantive obligations in respect of such Series by
depositing, or causing to be deposited, with the Indenture Trustee, from amounts
representing, or acquired with, collections of Receivables, money or Permitted
Investments sufficient to make all remaining scheduled interest and principal
payments on such Series or all outstanding Series of Notes of the Trust, as the
case may be, on the dates scheduled for such payments and to pay all amounts
owing to any Credit Enhancement Provider with respect to such Series or all
outstanding Series, as the case may be, if such action would not result in a Pay
Out Event for any Series. Prior to its first exercise of its right to substitute
money or Permitted Investments for Receivables, the Trust will deliver, or cause
to be delivered, to the Indenture Trustee (a) an opinion of counsel to the
effect that such deposit and termination of obligations will not result in the
Trust being required to register as an "investment company" within the meaning
of the Investment Company Act of 1940, as amended and (b) a Tax Opinion.
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REFINANCING
If so specified in the Prospectus Supplement relating to a Series, the
Trust may redeem such Series of Notes (a "Refinancing") from funds deposited
into the related Series Payment Account representing the proceeds of the
refinancing of the Receivables on any Payment Date specified in the Prospectus
Supplement (the Payment Date on which any Series of Notes are to be refinanced,
the "Refinancing Date"), in whole or in part, with or without premium on the
terms specified in the Prospectus Supplement from funds deposited into the
Series Payment Account equal to the price specified in the Prospectus Supplement
necessary for redemption of the Notes (the "Refinancing Price").
Unless otherwise specified in the accompanying Prospectus Supplement,
the Refinancing Price will be equal to the sum of the unpaid Series Investor
Interest and accrued and unpaid interest on the Series Notes at the respective
Series Note Rates through the day preceding the Refinancing Date, less amounts,
if any, on deposit on the Refinancing Date in the Series Payment Account for the
payment of accrued and unpaid principal and interest on the Series Notes.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
If specified in an accompanying Prospectus Supplement, with respect to
any Series, the related Notes may be subject to optional repurchase by the
Servicer on any Payment Date after the total Investor Interest of such Series
and the Enhancement Invested Amount, if any, with respect to such Series, is
reduced to an amount less than or equal to 10% of the initial Investor Interest
(or such other amount specified in the accompanying Prospectus Supplement), if
certain conditions set forth in the Indenture and the related Series Supplement
are met. The accompanying Prospectus Supplement will set forth the applicable
repurchase price.
The Notes of each Series will be retired on the day following the date
on which the final payment of principal is scheduled to be made to the
Noteholders, whether as a result of optional reassignment to the Trust or
otherwise. Each Prospectus Supplement will specify the Series Termination Date
with respect to the related Series of Notes; provided, however, that the Notes
may be subject to prior termination as provided above. If the Investor Interest
is greater than zero on the Series Termination Date, the Indenture Trustee or
Servicer may be required to sell or cause to be sold certain Receivables in the
manner provided in the Sale and Servicing Agreement and Series Supplement and to
pay the net proceeds of such sale and any collections on the Receivables, in an
amount at least equal to the sum of the Investor Interest and the Enhancement
Invested Amount, if any, with respect to such Series plus accrued interest due
thereon.
Unless the Servicer and Seller instructs the Indenture Trustee
otherwise, the Trust will terminate on the earlier of (a) the day after the
Payment Date on which the aggregate Investor Interest and Enhancement Invested
Amount or Collateral Interest, if any, with respect to each Series outstanding
is zero, (b) December 31, 2034, or (c) if the assets of the Trust are sold,
disposed of or liquidated following the occurrence of an Insolvency Event (as
defined in the Indenture), immediately following such sale, disposition or
liquidation (such date, the "Trust Termination Date"). Upon the payment of all
amounts due under the Indenture, the Indenture Trustee will release the security
interest in the Receivables and other assets of the Trust.
PAY OUT EVENTS
Unless otherwise specified in the accompanying Prospectus Supplement,
as described above, the Revolving Period will continue through the date
specified in the accompanying Prospectus Supplement unless a Pay Out Event
occurs prior to such date. A Pay Out Event occurs with respect to all Series
issued by the Trust upon the occurrence of any of the following events:
(a) certain events of insolvency or bankruptcy relating to any
Originator, the Servicer or the Seller;
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(b) the Seller is unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of the Sale
and Servicing Agreement;
(c) the Trust or the Seller becomes an "investment company"
within the meaning of the Investment Company Act of 1940, as amended;
or
(d) AIG fails to meet its obligations under the AIG Support
Agreement or the AIG Support Agreement is modified, amended or
terminated, except as otherwise expressly permitted according to its
terms.
In addition, a Pay Out Event may occur with respect to any Series upon
the occurrence of any other event specified in the accompanying Prospectus
Supplement. On the date on which a Pay Out Event is deemed to have occurred, the
Rapid Amortization Period or, if so specified in the accompanying Prospectus
Supplement, the Rapid Accumulation Period will commence. If, because of the
occurrence of a Pay Out Event, the Rapid Amortization Period begins earlier than
the scheduled commencement of an Amortization Period or prior to a Scheduled
Payment Date, Noteholders will begin receiving distributions of principal
earlier than they otherwise would have, which may shorten the average life of
the Notes.
In addition to the consequences of a Pay Out Event discussed above,
unless otherwise specified in the accompanying Prospectus Supplement, if the
Seller becomes the subject of a bankruptcy proceeding, on the day of such event
the Seller will immediately cease to transfer Principal Receivables to the Trust
and promptly give notice to the Indenture Trustee of such event. Within 15 days,
the Indenture Trustee will publish a notice of the liquidation stating that the
Indenture Trustee intends to sell, dispose of, or otherwise liquidate the assets
of the Trust in a commercially reasonable manner. Unless otherwise instructed
within a specified period by Noteholders representing a Note Majority, the
Indenture Trustee will sell, dispose of, or otherwise liquidate the assets of
the Trust in a commercially reasonable manner and on commercially reasonable
terms. Such a sale may cause a loss to Noteholders of each such Series if the
proceeds from such early sale allocable to such Series, if any, and the amount
available under any Enhancement applicable to such Series were insufficient to
pay Noteholders of such Series in full. The proceeds from the sale, disposition
or liquidation of the Receivables will be treated as collections of the
Receivables and applied as specified above in "--Application of Collections" and
in the accompanying Prospectus Supplement.
If the only Pay Out Event to occur is the commencement of bankruptcy
proceedings with respect to the Seller, the bankruptcy court or trustee may have
the power to prevent the early sale, liquidation or disposition of the assets of
the Trust and the commencement of a Rapid Amortization Period or, if applicable
with respect to a Series as specified in the accompanying Prospectus Supplement,
a Rapid Accumulation Period. In addition, a bankruptcy court or trustee may have
the power to cause the early sale of the assets of the Trust and the early
retirement of the Notes, to prohibit the continued transfer of Additional
Receivables to the Trust, and to repudiate the servicing obligations of either
AIC, AICCO, IP Finance I, IP Finance II or IP Funding. See "Risk
Factors--Possible Effects of Insolvency or Bankruptcy of the Originators or the
Seller" in this Prospectus and see "--Servicer Default" below.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the accompanying Prospectus Supplement,
for each Series of Notes, the Servicer's compensation for its servicing
activities and reimbursement for its expenses will take the form of the payment
to it of the servicing fee payable at the times and in the amounts specified in
the accompanying Prospectus Supplement. The Investor Servicing Fee will be
funded from collections of Finance Charge Receivables allocated to the Investor
Interest and will be paid each month, or on such other specified periodic basis,
from amounts so allocated and on deposit in the Finance Charge Account or, in
certain limited circumstances, from amounts available from Enhancement and other
sources, if any. The remainder of the servicing fee for the Trust will be
allocable to the Trust Interest, the Investor Interests of any other Series
issued by the Trust and the interest represented by the Enhancement Invested
Amount or the Collateral Interest, if any, with respect to such Series, as
described in the accompanying Prospectus Supplement. Neither the Trust nor the
Noteholders will have any obligation to pay the portion of the servicing fee
allocable to the Trust Interest.
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The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Sale and Servicing Agreement to be payable by the Trust or the Noteholders
other than any tax imposed on or measured by income, including any federal,
state and local income and franchise taxes, if any, of the Trust or the
Noteholders.
CERTAIN MATTERS REGARDING THE SELLER AND THE SERVICER
With respect to each Series of Notes, the Servicer may not resign from
its obligations and duties under the Sale and Servicing Agreement, except upon
determination that performance of its duties is no longer permissible under
applicable law. No such resignation will become effective until the Indenture
Trustee or a successor to the Servicer has assumed the Servicer's
responsibilities and obligations under the Sale and Servicing Agreement.
Notwithstanding the above, each of AIC, AICCO, IP Finance I, IP Finance II and
IP Funding may transfer its servicing obligations to any of its affiliates. In
addition, each of AIC, AICCO, IP Finance I, IP Finance II and IP Funding may
transfer its servicing obligation to any other entity, if each Rating Agency
confirm that any such transfer will not result in the reduction or withdrawal of
its then existing rating on any outstanding Notes.
The Sale and Servicing Agreement provides that the Servicer will
indemnify the Trust, the Owner Trustee and the Indenture Trustee from and
against any loss, liability, expense, damage or injury suffered or sustained by
reason of any acts or omissions or alleged acts or omissions of the Servicer
with respect to the activities of the Trust, the Owner Trustee or the Indenture
Trustee; provided, however, that the Servicer will not indemnify (a) the
Indenture Trustee for liabilities imposed by or resulting from or by reason of
fraud, negligence, breach of fiduciary duty, or willful misconduct by the
Indenture Trustee in the performance of its duties under the Indenture, the Sale
and Servicing Agreement, or any Series Supplement, (b) the Trust, the
Noteholders or the Note Owners for liabilities, costs and expenses arising from
actions taken by the Indenture Trustee at the request of Noteholders (other than
those incurred in connection with the exercise of the rights conferred under the
Indenture and the Related Documents), (c) the Trust, the Noteholders or the Note
Owners for any losses, claims, damages or liabilities incurred by any of them in
their capacities as investors, including without limitation, losses incurred as
a result of Defaulted Obligations or (d) the Trust, the Noteholders or the Note
Owners for any liabilities, costs or expenses of the Trust, the Noteholders or
the Note Owners arising under any tax law, including without limitation, any
federal, state or local or foreign income or franchise tax or any other tax
imposed on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith) required to be paid by
the Trust, the Noteholders or the Note Owners in connection with the Indenture
or any Series Supplement to any taxing authority.
The Sale and Servicing Agreement provides that the Seller will
indemnify the Trust, the Owner Trustee and the Indenture Trustee from and
against any loss, liability, damage or injury suffered or sustained by reason of
any violation by the Trust, the Owner Trustee, the Indenture Trustee or the
Servicer of any laws, including state premium finance licensing laws, with
respect to any Receivable; provided, however, that the Seller shall not
indemnify (a) the Indenture Trustee for liabilities imposed by reason of fraud,
negligence, or willful misconduct by the Indenture Trustee in the performance of
its duties under the Sale and Servicing Agreement, Indenture or any Series
Supplement or (b) the Trust, the Owner Trustee, Noteholders or the Note Owners
for liabilities, costs or expenses of the Trust arising from actions taken by
the Indenture Trustee at the request of Noteholders (other than those incurred
in connection with the exercise of the rights conferred under the Indenture and
the Related Documents). Any such indemnification will not be payable from the
assets of the Trust.
The Sale and Servicing Agreement provides that neither the Seller nor
the Servicer nor any of their respective directors, officers, employees or
agents will be under any other liability to the Trust, the Owner Trustee, the
Indenture Trustee, the Noteholders, any Credit Enhancement Provider or any other
person for any action taken, or for refraining from taking any action pursuant
to the Sale and Servicing Agreement. Neither the Seller, the Servicer, nor any
of their respective directors, officers, employees or agents will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence of the Seller, the Servicer or any
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such person in the performance of its duties or by reason of reckless disregard
of obligations and duties thereunder and in the case of the Seller and the
Servicer breach of the express terms of any Related Documents. In addition, the
Sale and Servicing Agreement provides that the Servicer is not under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Sale and Servicing
Agreement, the Indenture and any Series Supplement and which in its opinion may
expose it to any expense or liability.
Any person into which, in accordance with the Sale and Servicing
Agreement, the Seller or the Servicer may be merged or consolidated or any
person resulting from any merger or consolidation to which the Seller or the
Servicer is a party, or any person succeeding to the business of the Seller or
the Servicer, upon execution of a supplement to the Sale and Servicing
Agreement, and delivery of an officer's certificate with respect to compliance
of the transaction with the terms of the Sale and Servicing Agreement and
delivery of an opinion of counsel with respect to the compliance of the
transaction with the applicable provisions of the Sale and Servicing Agreement,
will be the successor to the Seller or the Servicer, as the case may be, under
the Sale and Servicing Agreement.
The Seller or the Servicer may effect any merger, consolidation or
assumption which is in accordance with the provisions of the preceding sentence
so long as, among other conditions set forth in the Sale and Servicing
Agreement: (a) if the Seller or the Servicer, as the case may be, is not the
surviving entity, such person certifies in writing to the Indenture Trustee that
all of the applicable representations and warranties are true and correct with
respect to such person; (b) each Rating Agency indicates that such event will
not adversely affect the then-existing rating of certificates of any Series
outstanding; (c) the successor entity executes a supplemental agreement whereby
such entity agrees to assume all the obligations and covenants of the Seller or
the Servicer, as the case may be; and (d) in the case of merger or consolidation
of the Seller when the Seller is not the surviving entity or the Servicer when
the Servicer is not the surviving entity, the AIG Support Agreement remains in
effect with respect to the successor entity.
Under the Sale and Servicing Agreement, each of the Seller, the
Servicer, the Owner Trustee and the Indenture Trustee has agreed that it will
not at any time prior to the date that is one year or day after the payment in
full of the latest maturing Note and the termination of the Indenture institute
against the Trust, or join in any institution against the Trust of, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Noteholders of
any Series or the Sale and Servicing Agreement, Indenture and any Series
Supplement.
SUPPORT AGREEMENT
ART, AIC, AICCO, IP Finance I, IP Finance II, IP Funding and AIG
entered into a support agreement dated as of November 8, 1999 (the "AIG Support
Agreement"). Under the AIG Support Agreement, AIG has agreed to be the ultimate
beneficial owner of all of the voting capital stock of ART, AIC, AICCO, IP
Finance I, IP Finance II and IP Funding.
The AIG Support Agreement further provides that AIG will cause each of
ART, AIC, AICCO, IP Finance I, IP Finance II and IP Funding to maintain a net
worth of not less than one dollar, and that if (a) ART, AIC, AICCO, IP Finance
I, IP Finance II or IP Funding needs funds to meet any of its obligations as
Seller or a Servicer under the Sale and Servicing Agreement, or (b) ART, AIC,
AICCO, IP Finance I, IP Finance II or IP Funding has insufficient funds to pay
any of its obligations when due (except for any such obligations which are the
subject of a bona fide dispute) the non-payment of which could constitute a
basis for the filing of an involuntary case against ART, AIC, AICCO, IP Finance
I, IP Finance II or IP Funding under the Bankruptcy Code, AIG will provide ART,
AIC, AICCO, IP Finance I, IP Finance II or IP Funding, as the case may be, funds
on a timely basis to cause such obligations to be satisfied when due. The AIG
Support Agreement is not a direct or indirect guarantee by AIG to any person of
the payment of the principal of or interest on any indebtedness, liability or
obligation of ART, AIC, AICCO, IP Finance I, IP Finance II or IP Funding. The
Indenture allows the AIG Support Agreement to be amended; provided, however,
that no amendment will be effective unless each Noteholder of all Series
outstanding consents to such amendment and each Rating Agency confirms in
writing that such amendment will not adversely affect the then-existing rating
of any outstanding Series or Class for which it is a Rating Agency. AIG may
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terminate its support agreement by assuming the obligations of ART, AIC, AICCO,
IP Finance I, IP Finance II and IP Funding, under the Sale and Servicing and
Agreement. See "--Pay Out Events" above.
In connection with the AIG Support Agreement, AIG has entered into a
letter agreement with the Indenture Trustee (the "AIG Letter Agreement") for the
benefit of the Noteholders of all outstanding Series pursuant to which AIG has
agreed that it will not default under the AIG Support Agreement and it will not
amend or terminate the AIG Support Agreement other than in accordance with its
terms; provided, however, that the AIG Letter Agreement may be amended or
terminated with the prior written consent of each such Noteholder and prior
written confirmation of each Rating Agency that such amendment or termination
will not have an adverse effect on the then-existing ratings of the Notes of any
outstanding Series. The AIG Letter Agreement provides that if AIG fails to
perform any of the covenants or agreements contained in the AIG Letter
Agreement, the Indenture Trustee may in its discretion proceed to protect and
enforce its rights for the benefit of the Noteholders by appropriate judicial
proceedings or by any other proper remedy.
For purposes of determining whether a Pay Out Event occurs by reason of
any default by AIG under the AIG Support Agreement, the Letter Agreement will be
deemed to be part of the AIG Support Agreement.
SERVICER DEFAULT
Unless otherwise specified in the accompanying Prospectus Supplement,
in the event of any Servicer Default (as defined below), which is not remedied
or otherwise cured either the Indenture Trustee or Noteholders representing more
than 50% of the aggregate Investor Interest of all Notes outstanding by written
notice to such Servicer (and to the Indenture Trustee if given by the
Noteholders), may terminate all of the rights and obligations of such Servicer
as servicer under the Sale and Servicing Agreement and in and to the Receivables
and the proceeds thereof and the Indenture Trustee may appoint a new Servicer (a
"Service Transfer"). The rights and obligations of the Seller under the Sale and
Servicing Agreement and in the Trust will not be affected by such termination.
The Indenture Trustee will as promptly as possible appoint a successor Servicer.
If no such Servicer has been appointed and has accepted such appointment by the
time the Servicer ceases to act as Servicer, all authority, power and
obligations of such Servicer under the Sale and Servicing Agreement shall pass
to and be vested in the Indenture Trustee. If the Indenture Trustee is unable to
obtain any bids from eligible servicers and such Servicer delivers an officer's
certificate to the effect that it cannot in good faith cure the Servicer Default
which gave rise to a transfer of servicing, and if the Indenture Trustee is
legally unable to act as successor Servicer, then the Indenture Trustee shall
give the Seller the right of first refusal to purchase the Receivables on terms
equivalent to the best purchase offer as determined by the Indenture Trustee.
Unless otherwise specified in the accompanying Prospectus Supplement
with respect to a Series of Notes, "Servicer Default" under the Sale and
Servicing Agreement refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or
deposit (other than with respect to Credit Balances), or to give
instructions or notice to the Indenture Trustee to make certain
payments, transfers or deposits, on the date the Servicer is required
to do so under the Sale and Servicing Agreement, the Indenture or any
Series Supplement (or within the applicable grace period, which shall
not exceed five business days);
(b) failure on the part of the Servicer duly to observe or
perform in any respect any other covenants or agreements of the
Servicer in the Sale and Servicing Agreement, the Indenture or any
Series Supplement, which has a material adverse effect on the
Noteholders of any Series issued and outstanding under the Trust (which
determination will be made without taking into consideration any
Enhancement) and which continues unremedied for a period of 60 days
after written notice of such failure is received and continues to have
a material adverse effect on such Noteholders; provided, however, that
failure on the part of the Servicer duly to observe or perform in any
respect certain specified covenants or agreements of the Servicer set
forth in the Sale and Servicing Agreement, which has a material adverse
effect on the Noteholders of any outstanding Series (which
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determination shall be made without taking into account any
Enhancement) and which continues after, and notwithstanding the removal
or payment by the Servicer of the related Receivable, will be a
Servicer Default unless the Servicer shall have, within 60 days after
the date (following such removal or payment) on which written notice of
such continuing material adverse effect shall have been given to the
Servicer, remedied such failure;
(c) any representation, warranty or certification made by the
Servicer in the Sale and Servicing Agreement (including any supplement
thereto), or in the Indenture (including any Series Supplement thereto)
or in any certificate delivered pursuant to the Sale and Servicing
Agreement or in the Indenture (including any Series Supplement
thereto), proves to have been incorrect when made which has a material
adverse effect on the Noteholders of any Series issued and outstanding
under the Trust (which determination will be made without taking into
consideration any Enhancement), and which continues to be incorrect in
any material respect for a period of 60 days after written notice is
received and continues to have a material adverse effect on such
Noteholders;
(d) the occurrence of certain events of bankruptcy or
insolvency of the Servicer; or
(e) such other event specified in the accompanying Prospectus
Supplement.
Unless otherwise stated in the accompanying Prospectus Supplement,
notwithstanding the foregoing, a delay in or failure of performance referred to
in clause (a) above for a period of ten business days, or referred to under
clause (b) or (c) for a period of 60 business days, shall not constitute a
Servicer Default if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure was caused by
an act of God or other similar occurrence. Upon the occurrence of any such
event, the Servicer will not be relieved from using its best efforts to perform
its obligations in a timely manner in accordance with the terms of the Sale and
Servicing Agreement, and the Servicer will provide the Indenture Trustee, any
provider of Enhancement and/or any issuer of any third-party Credit Enhancement
(a "Credit Enhancement Provider"), the Seller, the holders of the Trust Interest
and the holders of Notes of each Series issued and outstanding under the Trust
prompt notice of such failure or delay by it, together with a description of the
cause of such failure or delay and its efforts to perform its obligations.
In the event of a Servicer Default, if bankruptcy proceedings are
commenced in respect of the Servicer and no Servicer Default other than such
bankruptcy of the Servicer exists, the bankruptcy trustee or court may have the
power to prevent either the Indenture Trustee or the majority of the Noteholders
from effecting a Service Transfer.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement provides that on or before April 30 of
each calendar year, or such other date as specified in the accompanying
Prospectus Supplement, the Servicer will cause a firm of nationally recognized
independent accountants (who may also render other services to the Servicer or
Seller) to furnish a report to the effect that such firm has examined the
assertion by an officer of the Servicer, made pursuant to the Sale and Servicing
Agreement, that the Servicer has complied in all material respects with the
terms of the Sale and Servicing Agreement relating to the servicing of
Receivables, which examination includes a review of certain documents and
records relating to the servicing of the Receivables and has compared the
information contained in the Servicer's reports delivered under the Sale and
Servicing Agreement during the period covered by the report with such documents
and records and that, on the basis of such examination, such firm is of the
opinion that the assertion by the Servicer's officer is fairly stated in all
material respects, except for such exceptions as such firm shall believe to be
immaterial and such other exceptions as shall be set forth in such report. In
addition, on or before April 30 of each calendar year, the Servicer will also
cause a firm of nationally recognized independent accountants (who may also
render other services to the Servicer or the Seller) to furnish a report to the
effect that such firm has compared the mathematical calculations of each amount
set forth in the Servicer's reports delivered under the Sale and Servicing
Agreement during the period covered by the report with the Servicer's computer
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reports which were the source of such amounts and that, based on such
comparison, such amounts are in agreement, except for such exceptions as such
firm believes to be immaterial and such other exceptions as set forth in such
firms' report.
The Sale and Servicing Agreement provides for delivery to the Indenture
Trustee on or before April 30 of each calendar year or such other date as
specified in the accompanying Prospectus Supplement, of an annual statement
signed by an officer of the Servicer to the effect that, to the best of such
officer's knowledge, the Servicer has fully performed, or has caused to be
performed, all its obligations under the Sale and Servicing Agreement throughout
the preceding year in all material respects, or, if there has been a default in
the performance of any such obligation in any material respects, specifying the
nature and status of the default.
AMENDMENTS
The Sale and Servicing Agreement may be amended in writing by the
Trust, the Seller, the Servicer and the Indenture Trustee, without Noteholder
consent, to cure any ambiguity, to correct or supplement any provision therein
which may be inconsistent with any other provision therein, and to add any other
provisions with respect to matters or questions arising under the Sale and
Servicing Agreement which are not inconsistent with the provisions of the Sale
and Servicing Agreement; provided, that such action does not adversely affect in
any material respect the interests of any Noteholder.
The Sale and Servicing Agreement may be amended in writing by the
Trust, the Seller, the Servicer and the Indenture Trustee with the consent of
the holders of Notes evidencing in the aggregate not less than 66 2/3% of the
investor interest of all outstanding Series adversely affected, for the purpose
of adding any provisions to, changing in any manner or eliminating any of the
provisions of the Sale and Servicing Agreement or of modifying in any manner the
rights of Noteholders of any Series. No such amendment however, may (a) reduce
in any manner the amount of, or delay the timing of, distributions required to
be made on such Series, (b) change the definition of or the manner of
calculating the Noteholders investor interests, the aggregate investor default
amount or the investor percentage of such Series, or (c) reduce the aforesaid
percentage of investor interests, the holders of which are required to consent
to any such amendment, in each case without the consent of all Noteholders of
all Series adversely affected. Promptly following the execution of any amendment
to the Sale and Servicing Agreement or any supplement, the Trustee will furnish
written notice of the substance of such amendment to each Noteholder of all
Series affected thereby.
LIST OF NOTEHOLDERS
With respect to each Series of Notes, upon written request of
Noteholders of record representing interests in the Trust aggregating not less
than 20% (or such other percentage specified in the accompanying Prospectus
Supplement) of the outstanding principal balance of the Notes of such Series,
the Indenture Trustee after having been adequately indemnified by such
Noteholders for its costs and expenses, will afford such Noteholders access
during business hours to the current list of Noteholders of the Trust for
purposes of communicating with other Noteholders with respect to their rights
under the Indenture or the related Notes. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Notes" above.
THE INDENTURE TRUSTEE
The Seller, the Servicer and their respective affiliates may from time
to time enter into normal banking and trustee relationships with the Indenture
Trustee and its affiliates. The Indenture Trustee, the Seller, the Servicer and
any of their respective affiliates may hold Notes in their own names. In
addition, for purposes of meeting the legal requirements of certain local
jurisdictions, the Indenture Trustee shall have the power to appoint a
co-trustee 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 Indenture Trustee by the Indenture will be conferred or imposed
upon the Indenture Trustee and such separate trustee or co-trustee jointly, or,
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in any jurisdiction in which the Indenture Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Indenture Trustee.
The Indenture Trustee may, upon prior written notice to the Trust and
the Servicer, resign at any time, in which event the Servicer will be obligated
to appoint a successor Indenture Trustee. The Trust may remove the Indenture
Trustee if the Indenture Trustee ceases to be eligible to continue as such under
the Indenture or if the Indenture Trustee becomes insolvent. In such
circumstances, the Seller will be obligated to appoint a successor Indenture
Trustee. Any resignation or removal of the Indenture Trustee and appointment of
a successor Indenture Trustee does not become effective until acceptance of the
appointment by the successor Indenture Trustee.
THE TRUST ADMINISTRATOR
AIC as the trust administrator (the "Trust Administrator")
will perform certain duties which the Trust and the Owner Trustee would
ordinarily perform which duties are enumerated in the Administration Agreement
and will provide such additional services consistent with the terms of the
Administration Agreement.
NOTEHOLDERS HAVE LIMITED CONTROL OF ACTIONS
Noteholders of any Series or Class within a Series will need the
consent or approval of a specified percentage of the Noteholders of all Series
of outstanding Notes, all voting together without regard to Series, to take or
direct certain actions, including to require the appointment of a successor
Servicer after a Servicer Default, to amend the Sale and Servicing Agreement or
Indenture in some cases, and to direct a repurchase of all assets of the Trust
after certain violations of the Seller's representations and warranties. The
interests of the Noteholders of other Series may not coincide with yours, making
it more difficult for any particular Noteholder to achieve the desired results
from such vote.
ENHANCEMENT
GENERAL
For any Series, Enhancement may be provided with respect to one or more
Classes thereof. Enhancement may be in the form of the subordination of one or
more Classes of the Notes of such Series, a letter of credit, the establishment
of a cash collateral guaranty or account, a collateral interest, a surety bond,
an insurance policy, a spread account, a reserve account, a yield enhancement
account, the use of cross support features or another method of Enhancement
described in the accompanying Prospectus Supplement, or any combination of the
foregoing. If so specified in the accompanying Prospectus Supplement, any form
of Enhancement may be structured so as to be drawn upon by more than one Class
to the extent described in that accompanying Prospectus Supplement.
Unless otherwise specified in the accompanying Prospectus Supplement
for a Series, the Enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
Notes and interest thereon. If losses occur which exceed the amount covered by
the Enhancement or which are not covered by the Enhancement, Noteholders will
bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, the accompanying
Prospectus Supplement will include a description of (a) the amount payable under
such Enhancement, (b) any conditions to payment thereunder not otherwise
described herein, (c) the conditions (if any) under which the amount payable
under such Enhancement may be reduced and under which such Enhancement may be
terminated or replaced and (d) any material provision of any agreement relating
to such Enhancement. Additionally, the accompanying Prospectus Supplement may
set forth certain information with respect to any Credit Enhancement Provider,
including (1) a brief description of its principal business activities, (2) its
principal place of business, place of incorporation and the jurisdiction under
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which it is chartered or licensed to do business, (3) if applicable, the
identity of regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (4) its total assets, and its stockholders' or
policy holders' surplus, if applicable, and other appropriate financial
information as of the date specified in the Prospectus Supplement. If so
specified in the accompanying Prospectus Supplement, Enhancement with respect to
a Series may be available to pay principal of the Notes of such Series following
the occurrence of certain Pay Out Events with respect to such Series. In such
event, the Credit Enhancement Provider will have an interest in certain cash
flows in respect of the Receivables to the extent described in such Prospectus
Supplement (the "Enhancement Invested Amount").
SUBORDINATION
If so specified in the accompanying Prospectus Supplement, one or more
Classes of Notes of any Series will be subordinated as described in the
accompanying Prospectus Supplement to the extent necessary to fund payments with
respect to the Senior Notes. The rights of the holders of any such Subordinated
Notes to receive distributions of principal and/or interest on any Payment Date
for such Series will be subordinate in right and priority to the rights of the
holders of Senior Notes, but only to the extent set forth in the accompanying
Prospectus Supplement. If so specified in the accompanying Prospectus
Supplement, subordination may apply only in the event of certain types of losses
not covered by another Enhancement. The accompanying Prospectus Supplement will
also set forth information concerning the amount of subordination of a Class or
Classes of Subordinated Notes in a Series, the circumstances in which such
subordination will be applicable, the manner, if any, in which the amount of
subordination will decrease over time, and the conditions under which amounts
available from payments that would otherwise be made to holders of such
Subordinated Notes will be distributed to holders of Senior Notes. If
collections of Receivables otherwise distributable to holders of a Subordinated
Class of a Series will be used as support for a Class of another Series, the
accompanying Prospectus Supplement will specify the manner and conditions for
applying such a cross-support feature.
LETTER OF CREDIT
If so specified in the accompanying Prospectus Supplement, support for
a Series or one or more Classes thereof will be provided by one or more letters
of credit. A letter of credit may provide limited protection against certain
losses in addition to or in lieu of other Enhancement. The issuer of the letter
of credit (the "L/C Bank") will be obligated to honor demands with respect to
such letter of credit, to the extent of the amount available thereunder, to
provide funds under the circumstances and subject to such conditions as are
specified in the accompanying Prospectus Supplement.
The maximum liability of an L/C Bank under its letter of credit will
generally be an amount equal to a percentage specified in the accompanying
Prospectus Supplement of the initial Investor Interest of a Series or a Class of
such Series. The maximum amount available at any time to be paid under a letter
of credit will be determined in the manner specified therein and in the
accompanying Prospectus Supplement.
CASH COLLATERAL GUARANTY OR ACCOUNT
If so specified in the accompanying Prospectus Supplement, support for
a Series or one or more Classes thereof will be provided by a guaranty (the
"Cash Collateral Guaranty") secured by the deposit of cash or certain permitted
investments in an account (the "Cash Collateral Account") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral Account
alone. The amount available pursuant to the Cash Collateral Guaranty or the Cash
Collateral Account will be the lesser of amounts on deposit in the Cash
Collateral Account and an amount specified in the accompanying Prospectus
Supplement. The accompanying Prospectus Supplement will set forth the
circumstances under which payments are made to beneficiaries of the Cash
Collateral Guaranty from the Cash Collateral Account or from the Cash Collateral
Account directly.
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COLLATERAL INTEREST
If so specified in the accompanying Prospectus Supplement, support for
a Series or one or more Classes thereof will be provided initially by an
interest in the Trust (the "Collateral Interest") in an amount specified in the
Prospectus Supplement. Such Series may also have the benefit of a Cash
Collateral Guaranty or Cash Collateral Account with an initial amount on deposit
therein, if any, as specified in the Prospectus Supplement which may be
increased (i) to the extent the Issuer elects, subject to certain conditions
specified in the accompanying Prospectus Supplement, to apply collections of
Principal Receivables allocable to the Collateral Interest to decrease the
Collateral Interest, (ii) to the extent collections of Principal Receivables
allocable to the Collateral Interest are required to be deposited into the Cash
Collateral Account as specified in the accompanying Prospectus Supplement and
(iii) to the extent excess collections of Finance Charge Receivables are
required to be deposited into the Cash Collateral Account as specified in the
accompanying Prospectus Supplement. The total amount of the Enhancement
available pursuant to the Collateral Interest and, if applicable, the Cash
Collateral Guaranty or Cash Collateral Account will be the lesser of the sum of
the Collateral Interest and the amount on deposit in the Cash Collateral Account
and an amount specified in the accompanying Prospectus Supplement. The
accompanying Prospectus Supplement will set forth the circumstances under which
payments which otherwise would be made to holders of the Collateral Interest
will be distributed to holders of Notes and, if applicable, the circumstances
under which payment will be made under the Cash Collateral Guaranty or under the
Cash Collateral Account.
INSURANCE POLICY OR SURETY BOND
If so specified in the accompanying Prospectus Supplement, insurance
with respect to a Series or one or more Classes thereof will be provided by one
or more insurance companies. Such insurance will guarantee, with respect to one
or more Classes of the related Series, distributions of interest or principal in
the manner and amount specified in the accompanying Prospectus Supplement.
If so specified in the accompanying Prospectus Supplement, a surety
bond will be purchased for the benefit of the holders of any Series or Class or
such Series to assure distributions of interest or principal with respect to
such Series or Class of Notes in the manner and amount specified in the
accompanying Prospectus Supplement.
SPREAD ACCOUNT
If so specified in the accompanying Prospectus Supplement, support for
a Series or one or more Classes thereof will be provided by the periodic deposit
of certain available excess cash flow from the Trust assets into an account (the
"Spread Account") intended to assist with subsequent distribution of interest
and principal on the Notes of such Class or Series in the manner specified in
the accompanying Prospectus Supplement.
RESERVE ACCOUNT
If so specified in the accompanying Prospectus Supplement, support for
a Series or one or more Classes thereof or any Enhancement related thereto will
be provided by the establishment of a reserve account (the "Reserve Account").
The Reserve Account may be funded, to the extent provided in the accompanying
Prospectus Supplement, by an initial cash deposit, the retention of certain
periodic distributions of principal or interest or both otherwise payable to one
or more Classes of Notes, including the Subordinated Notes, or the provision of
a letter of credit, guarantee, insurance policy or other form of credit or any
combination thereof. The Reserve Account will be established to assist with the
subsequent distribution of principal or interest on the Notes of such Series or
Class thereof or such other amount owing on any Enhancement thereto in the
manner provided in the accompanying Prospectus Supplement.
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YIELD ENHANCEMENT ACCOUNT
If so specified in the accompanying Prospectus Supplement, support for
a Series or one or more Classes thereof will be provided by periodic deposit of
certain available cash flows otherwise allocable to the Trust, excess Finance
Charges and other amounts specified in the accompanying Prospectus Supplement
into an account (the "Yield Enhancement Account") intended to cover all or any
one of the following: interest payments, servicing fees, to avoid reduction of
Investor Interest due to Default Amounts and to reimburse such reductions, in
the manner specified in the accompanying Prospectus Supplement.
NOTE RATINGS
Any rating of the Notes by a Rating Agency will indicate:
o its view on the likelihood that Noteholders will receive
required interest and principal payments; and
o its evaluation of the Receivables and the availability of any
Enhancement for the Notes.
Among the things a rating will not indicate are:
o the likelihood that principal payments will be paid on a
scheduled date;
o the likelihood that a Pay Out Event will occur;
o the likelihood that a United States withholding tax will be
imposed on non-U.S. Noteholders;
o the marketability of the Notes;
o the market price of the Notes; or
o whether the Notes are an appropriate investment for any
purchaser.
A rating will not be a recommendation to buy, sell or hold the Notes. A
rating may be lowered or withdrawn at any time by a Rating Agency.
The Seller will request a rating of the Notes offered by this
Prospectus and the accompanying Prospectus Supplement from at least one Rating
Agency. Rating agencies other than those requested could assign a rating to the
Notes and such a rating could be lower than any rating assigned by a Rating
Agency chosen by the Seller.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Seller has represented and warranted, in the Sale and Servicing
Agreement that the transfer of Receivables by it to the Trust is either an
absolute transfer and assignment to the Trust of all beneficial interest of the
Seller in and to the related Receivables, except for the interest of the Seller
as holder of the beneficial interest in the Trust, or the grant to the Trust of
a security interest in such Receivables. The Seller also has represented and
warranted in the Sale and Servicing Agreement that, in the event the transfer of
Receivables by the Seller to the Trust is deemed to create a security interest
under the Uniform Commercial Code, as in effect in the States of California,
Delaware, New Hampshire or New York, as applicable (the "UCC"), there will exist
an enforceable first priority perfected security interest in the Receivables in
favor of the Trust, except for certain tax and other governmental liens and
other nonconsensual liens. For a discussion of the Trust's rights arising from a
breach of these warranties, see "Description of the Transfer and Servicing
Agreements--Representations and Warranties" in this Prospectus.
The Seller has covenanted as to Receivables to be conveyed, that it
will take no action or allow any action to be taken to cause any Premium Finance
Obligation or a related Receivable to be anything other than a "general
intangible" for purposes of the UCC.
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There are certain limited circumstances in which a prior or subsequent
transferee of Receivables coming into existence after the Closing Date could
have an interest in such Receivables with priority over the Trust's interest.
Under the Sale and Servicing Agreement, however, the Seller has represented and
warranted that it transferred the Seller's beneficial interest in the
Receivables to the Trust free and clear of the lien of any third party. In
addition, the Seller has covenanted and will covenant that it will not sell,
pledge, assign, transfer or grant any lien on any Receivable (or any interest
therein) other than to the Trust. A tax or government lien or other
nonconsensual lien on property of the Seller arising prior to the time a
Receivable comes into existence may also have priority over the interest of the
Trust in such Receivable.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the ownership and disposition of the Notes and is based on the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated and proposed thereunder (the "Regulations"), judicial decisions and
published administrative rulings and pronouncements of the Internal Revenue
Service (the "Service"), all as in effect on the date hereof. Legislative,
judicial or administrative changes or interpretations hereafter enacted or
promulgated could alter or modify the analysis and conclusions set forth below,
possibly on a retroactive basis. This summary does not purport to address the
federal income tax consequences either to special classes of taxpayers (such as
S corporations, banks, thrifts, other financial institutions, insurance
companies, mutual funds, small business investment companies, real estate
investment trusts, regulated investment companies, broker-dealers, tax-exempt
organizations and persons that hold the securities described herein as part of a
straddle, hedging or conversion transaction) or to a person or entity holding an
interest in a holder (e.g., as a stockholder, partner, or holder of an interest
as a beneficiary). This summary (a) assumes that the Notes will be held by the
holders thereof as capital assets as defined in the Code and (b) except as
indicated (and other than for purposes of the discussion under "--Treatment of
the Notes as Debt" and "--Possible Alternative Characterization" below),
describes the consequences of Notes that are properly characterized as debt for
federal income tax purposes. No information is provided herein with respect to
any foreign, state or local tax consequences of the ownership and disposition of
the Notes or any federal alternative minimum tax or estate and gift tax
considerations. Except for "--Non-U.S. Note Owners" and "--Information Reporting
and Backup Withholding" below, the following discussion applies only to a U.S.
Note Owner (defined below).
PROSPECTIVE INVESTORS ARE THEREFORE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH REGARD TO UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES IN THEIR OWN PARTICULAR
CIRCUMSTANCES, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, FOREIGN COUNTRY OR OTHER JURISDICTION TO WHICH THEY MAY BE SUBJECT.
For purposes of the discussion set forth below, a "Noteholder" means a
beneficial owner of a Note.
For purposes of this discussion, "U.S. Person" means a citizen or
resident of the United States, a corporation or partnership organized in or
under the laws of the United States, any state thereof, or any political
subdivision of either (including the District of Columbia), an estate, the
income of which is includible in gross income for U.S. federal income tax
purposes regardless of its source or a trust with respect to which a court in
the U.S. is able to exercise primary authority over its administration and one
or more U.S. persons have the authority to control all of its substantial
decisions. The term "U.S. Note Owner" means any U.S. Person and any other person
to the extent that the income attributable to its interest in a Note is
effectively connected with that person's conduct of a U.S. trade or business. A
"Non-U.S. Note Owner" means a person other than a U.S. Note Owner and persons
subject to rules applicable to former citizens and residents of the United
States.
TREATMENT OF THE NOTES AS DEBT
The Trust and Noteholders express in the Indenture the intent that, for
United States federal, state and local income, franchise and other tax purposes,
the Notes will be indebtedness of the Trust secured by the Receivables. The
Trust, by entering into the Indenture, and each Noteholder, by the acceptance of
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a Note, agree to treat the Notes as indebtedness of the Trust for all such tax
purposes. Because different criteria are used in determining the financial and
regulatory accounting treatment of the transaction, however, the Trust will
treat the Agreement, for certain non-tax accounting purposes, as effecting a
transfer of ownership interests in the Receivables and not as creating debt
obligations of the Trust.
A basic premise of federal income tax law is that the economic
substance of a transaction generally determines its tax consequences. The
determination of whether the economic substance of a transfer of an interest in
property is instead a loan secured by the transferred property has been made by
the Service and the courts on the basis of numerous factors designed to
determine whether the transferor has relinquished (and the transferee has
obtained) substantial incidents of ownership in the property. The primary
factors examined are whether the transferee has the opportunity to gain if the
property increases in value, and has the risk of loss if the property decreases
in value. Based upon an analysis of such factors and although no transaction
closely comparable to that contemplated herein has been the subject of any
Regulations, revenue ruling or judicial decision, it is the opinion of Weil,
Gotshal & Manges LLP ("Counsel") that, under current law, assuming due execution
of and compliance with the Indenture, and subject to the assumptions set forth
herein, for federal income tax purposes the Notes when issued will not
constitute an ownership interest in the Receivables, but properly will be
characterized as debt secured by the Receivables. In the further opinion of
Counsel, the Trust will not be an association or publicly-traded partnership
taxable as a corporation.
POSSIBLE ALTERNATIVE CHARACTERIZATION
Although as described above, it is the opinion of Counsel that the
Notes properly will be characterized as debt for federal income tax purposes,
none of the Seller, any Originator or the Trust will seek a ruling from the
Service on the characterization of the Notes for federal income tax purposes and
the opinion of Counsel will not be binding on the Service. Thus, no assurance
can be given that such a characterization will prevail. Were the Service to
contend successfully that the Notes were not debt obligations for federal income
tax purposes, the Trust would be classified for federal income tax purposes as a
partnership.
If some or all of the Notes were treated as equity interests in a
partnership, the partnership would likely be treated as a "publicly traded
partnership." A publicly traded partnership is taxed in the same manner as a
corporation unless at least 90% of its gross income consists of specified types
of "qualifying income." Such qualifying income includes, among other things,
"interest income" that is "not derived in the conduct of a financial or
insurance business." It is unclear whether, were the Trust treated as a
partnership, interest received by it in respect of the Receivables would be
considered to be derived from the conduct of a financial or insurance business
by the Trust.
If a deemed partnership between the Trust and the Noteholders were to
qualify for the foregoing exception from taxation as a corporation, the deemed
partnership would not be subject to federal income tax, but each item of income,
gain, loss and deduction generated as a result of the ownership of the
Receivables by the partnership would be passed through to the partners in such a
partnership (including any Noteholders that are treated as holding equity
interests in the partnership) according to their respective interests therein.
The amount of income reportable by the Noteholders as partners in such a
partnership could differ from that reportable by the Noteholders as holders of
debt. A cash basis Noteholder treated as a partner, for example, might be
required to report income when it accrues to the partnership rather than when it
is received by the Noteholder. Moreover, an individual Noteholder's share of
expenses of the partnership would constitute miscellaneous itemized deductions,
which in the aggregate (a) are allowed as deductions only to the extent they
exceed two percent of the Noteholder's adjusted gross income and (b) are subject
to reduction in the hands of a Noteholder whose adjusted gross income exceeds a
certain amount. As a result, the Noteholder might be taxed on an amount of
income greater than the amount of interest received on the Noteholder's Note. In
addition, partnership characterization may have adverse state or local tax
consequences for Noteholders.
If, alternatively, some or all of the Notes were treated as equity
interests in a publicly traded partnership taxable as a corporation, the Trust
(or other deemed entity) would be subject to United States federal income taxes
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(and state and local taxes) at corporate tax rates on its income from the
Receivables. Distributions on the Notes might not be deductible in computing the
Trust's (or other deemed entity's) taxable income, and distributions to the
Noteholders would probably be treated as dividends to the extent paid out of
after-tax earnings. Such an entity-level tax could result in reduced
distributions to Noteholders, or the Noteholders could be liable for a share of
such tax.
Because the Trust will treat the Notes as indebtedness for federal
income tax purposes, the Servicer and the Paying Agent (and Participants and
Indirect Participants) will not comply with the tax reporting requirements
applicable to the possible alternative characterizations of the Notes discussed
above.
Except where indicated to the contrary, the following discussion
assumes that the Notes are debt for federal income tax purposes.
INTEREST INCOME TO NOTEHOLDERS
Interest on a Note should be taxable to a U.S. Noteholder as ordinary
income at the time it accrues or is received in accordance with such
Noteholder's method of accounting for federal income tax purposes.
It is anticipated that the Notes will be issued at par value (or at an
insubstantial discount from par value) and that, except as indicated, no
original issue discount ("OID") will arise with respect to the Notes. Under the
OID regulations, a holder of a Note issued with more than a de minimis amount of
OID must include such OID in income on a constant yield basis. It is possible,
moreover, that under the Regulations, interest payable on the Notes, as well as
any discount from par value, will constitute OID because late payment or
nonpayment of interest would not be regarded as subject to penalties or to
reasonable remedies to compel payment. Were the Notes treated as being issued
with OID, the principal consequence would be that Noteholders using the cash
basis method of accounting would be required to report interest income from the
Notes on an accrual basis. In any event, a purchaser who buys a Note for more or
less than its issue price will generally be subject, respectively, to the
premium amortization or market discount rules of the Code.
SALE OR EXCHANGE OF NOTES
If a Note is sold or exchanged, the seller will recognize gain or loss
equal to the difference between the amount realized upon the sale or exchange
and its adjusted basis in the Note. The adjusted basis of a Note will equal its
cost, increased by any unpaid OID and market discount includable in income with
respect to the Note prior to its sale, and reduced by any principal payments
previously received with respect to the Note and any bond premium amortization
previously applied to offset interest income. Except to the extent of any
accrued market discount not previously included in income, the gain or loss
recognized on the sale or exchange of a Note will generally be capital gain or
loss if the Note was held as a capital asset and will be long-term capital gain
loss if the Note was held by the Noteholder for the requisite holding periods at
the time of the disposition.
NON-U.S. NOTE OWNERS
As described above, Counsel will render its opinion that the Notes will
properly be classified as debt for federal income tax purposes. If the Notes are
so treated:
(a) Interest paid to a nonresident alien or foreign
corporation or partnership would be exempt from U.S. withholding taxes
(including backup withholding taxes), provided the holder complies with
applicable identification requirements (and neither actually or
constructively owns 10% or more of the voting stock of AIG nor is a
controlled foreign corporation with respect to AIG nor is an individual
who ceased being a U.S. citizen or long-term resident for tax avoidance
purposes). Applicable indemnification requirements will be satisfied if
there is delivered to a securities clearing organization (or bank or
other financial institution that holds Notes on behalf of the customer
in the ordinary course of its trade or business), (i) IRS Form W-8 BEN
signed under penalties of perjury by the beneficial owner of the Notes
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stating that the holder is not a U.S. person and providing such
holder's name and address, (ii) IRS Form W-8ECI signed by the
beneficial owner of the Notes or such owner's agent claiming exemption
from withholding under an applicable tax treaty or (iii) IRS Form
W-8ECI signed by the beneficial owner of the Notes or such owner's
agent claiming exception from withholding of tax on income connected
with the conduct of a trade or business in the United States; provided
that in any such case (x) the applicable form is delivered pursuant to
applicable procedures and is properly transmitted to the United States
entity otherwise required to withhold tax and (y) none of the entities
receiving the form has actual knowledge that the holder is a U.S.
person or that any certification on the form is false;
(b) a holder of a Note who is a nonresident alien or foreign
corporation will not be subject to United States federal income tax on
gain realized on the sale, exchange or redemption of such Note provided
that (i) such gain is not effectively connected to a trade or business
carried on by the holder in the United States, (ii) in the case of a
holder that is an individual, such holder neither is present in the
United States for 183 days or more during the taxable year in which
such sale, exchange or redemption occurs, nor ceased being a U.S.
citizen or long-term resident for tax avoidance purposes and (iii) in
the case of gain representing accrued interest, the conditions
described in clause (a) are satisfied; and
(c) a Note held by an individual who at the time of death is a
nonresident alien will not be subject to United States federal estate
tax as a result of such individual's death if, immediately before his
death (i) the individual did not actually or constructively own 10% or
more of the voting stock of AIG, (ii) the holding of such Note was not
effectively connected with the conduct by the decedent of a trade or
business in the United States and (iii) the individual did not cease
being a U.S. citizen or long-term resident for tax avoidance purposes.
The Service recently issued final regulations (the "New Regulations")
which would provide alternative methods of satisfying the certification
requirement described above. The New Regulations would require, in the case of
Notes held by a foreign partnership, that (x) the certification described in
clause (a) above be provided by the partners rather than by the foreign
partnership and (y) the partnership provide certain information. A look-through
rule would apply in the case of tiered partnerships. NON-U.S. NOTEHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF THE
CERTIFICATION REQUIREMENTS IN THE NEW REGULATIONS.
If the Service were to contend successfully that some or all of the
Notes were equity interests in a partnership (not taxable as a corporation), a
holder of such a Note that is a nonresident alien or foreign corporation might
be required to file a U.S. individual or corporate income tax return and pay tax
on its share of partnership income at regular U.S. rates, including in the case
of a corporation the branch profits tax (and would be subject to withholding tax
on its share of partnership income). In addition, if the Notes are equity
interests in a partnership, an individual holder that is a nonresident alien at
death may be required to include the value of the Notes in such holder's gross
estate (unless otherwise provided in an applicable treaty). If some or all of
the Notes are recharacterized as equity interests in a "publicly traded
partnership" taxable as a corporation, to the extent distributions of such Notes
were treated as dividends, a nonresident alien individual or foreign corporation
generally would be taxed on the gross amount of such dividends (and subject to
withholding) at a rate of 30% unless such rate were reduced by an applicable
treaty. In addition, an individual holder that is a nonresident alien at death
would be required to include the value of such Note in such holder's gross
estate (unless otherwise provided in an applicable treaty).
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31 percent
may apply to payments made in respect of a Note to a registered owner who is not
an "exempt recipient" and who fails to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the manner
required. Generally, individuals are not exempt recipients whereas corporations
and certain other entities are exempt recipients. Payments made in respect of a
U.S. Note Owner must be reported to the IRS, unless the U.S. Note Owner is an
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exempt recipient or otherwise establishes an exemption. Compliance with the
identification procedures (described in the preceding section) would establish
an exemption from backup withholding for a non-U.S. Note Owner who is not an
exempt recipient.
In addition, upon the sale of a Note to (or through) a "broker," the
broker must withhold 31 percent of the entire purchase price, unless either (i)
the broker determines that the seller is a corporation or other exempt recipient
or (ii) the seller provides certain identifying information in the required
manner, and in the case of a non-U.S. Note Owner certifies that the seller is a
non-U.S. Note Owner (and certain other conditions are met). Such a sale must
also be reported by the broker to the IRS, unless either (i) the broker
determines that the seller is an exempt recipient or (ii) the seller certifies
its non-U.S. status (and certain other conditions are met). Certification of the
registered owner's non-U.S. status normally would be made on Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence. As defined by Treasury regulations, the term
"broker" includes all persons who stand ready to effect sales made by others in
the ordinary course of a trade or business, as well as brokers and dealers
registered as such under the laws of the United States or a state. These
requirements generally will apply to a U.S. office of a broker, and the
information reporting requirements generally will apply to a foreign office of a
U.S. broker as well as to a foreign office of a foreign broker (i) that is a
controlled foreign corporation within the meaning of section 957(a) of the Code
or (ii) 50 percent or more of whose gross income from all sources for the three
year period ending with the close of its taxable year preceding the payment (or
for such part of the period that the foreign broker has been in existence) was
effectively connected with the conduct of a trade or business within the United
States.
Any amounts withheld under the backup withholding rules from a payment
to a Note Owner would be allowed as a refund or a credit against such Note
Owner's U.S. federal income tax, provided that the required information is
furnished to the IRS.
Recently issued final Treasury regulations will revise some of the
foregoing information reporting and backup withholding procedures generally
beginning January 1, 2000; Note Owners should consult their tax advisers
concerning the impact to them, if any, of such revised procedures.
STATE AND LOCAL TAXATION
THE DISCUSSION ABOVE DOES NOT ADDRESS THE TAXATION OF THE TRUST OR THE
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP OR DISPOSITION OF AN INTEREST IN THE
NOTES UNDER ANY STATE OR LOCAL TAX LAW. EACH INVESTOR SHOULD CONSULT ITS OWN TAX
ADVISER REGARDING STATE AND LOCAL TAX CONSEQUENCES.
ERISA CONSIDERATIONS
Any fiduciary with respect to an employee benefit plan subject to the
fiduciary standards under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), should determine before authorizing an investment of a
portion of such plan's assets in the Notes whether, among other factors, the
investment (i) is permitted under such plan's governing instruments, and (ii) is
appropriate in light of such plan's overall investment policy and (iii) is
prudent considering the composition and diversification of such plan's
portfolio, and the "Risk Factors" and other factors discussed in this Prospectus
and in the accompanying Prospectus Supplement.
The prohibited transaction rules of Section 406 of ERISA or Section
4975 of the Code may restrict certain transactions directly or indirectly
involving the assets of employee benefit plans or other plans subject to such
sections, including individual retirement accounts and persons which are deemed
to be using assets of such plans (collectively, "Plans"), and persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code
(collectively, "Parties in Interest") with respect to such Plans, unless an
exemption applies. A non-exempt violation of these prohibited transaction rules
may generate excise tax and other liabilities under ERISA and Section 4975 of
the Code for Parties in Interest or other persons. Plans that are governmental
plans (as defined in Section 3(32) of ERISA) and certain church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
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Some transactions involving the operation of the Trust could give rise
to a prohibited transaction under ERISA or Section 4975 of the Code if the
underlying assets of the Trust were deemed to be "plan assets" by reason of any
Plan acquiring or holding an equity interest in the Trust. The term "equity
interest" as defined in the "plan assets" regulation issued by the Department of
Labor (the "DOL"), excludes securities which are treated as indebtedness under
applicable local law and lack substantial equity features. The designation of
the Notes as debt instruments is not controlling, and the terms and
characteristics of the Notes should be carefully evaluated. Although there is
little published authority, the Seller believes that the following factors,
among others, are indicative of a Note being treated as indebtedness lacking
substantial equity features:
the form of the Note being in the traditional form of an
obligation to pay principal and interest;
the probability of payment of principal and interest, as may
be reflected by a rating of the Note in one of the three
highest categories by a nationally recognized rating agency;
the absence of any express or implied rights of the holder of
a Note to payments which do not constitute principal or
interest, and to exercise rights normally associated with the
ownership of equity in the absence of a default under the
Note;
the availability of credit enhancement, if any;
the availability of an amount of equity to support payment of
the Note, and
a difference between the expected rate of return on the Note
and an equity interest in the Trust.
Many, if not all, of the foregoing factors are expected to apply to one
or more classes of Notes to be offered under a Prospectus Supplement. Each
investor considering an investment in Notes with the assets of a Plan is
expected to review the Prospectus Supplement with respect to the Notes and to
consult with its counsel.
In the event any Notes acquired or held by a Plan are not treated as
equity interests, the Notes may constitute an extension of credit between the
Plan and the Trust to which the prohibited transaction rules could apply. The
stated equity interests of the Trust are expected to be directly owned by the
Trust and indirectly owned by the Seller. The Seller may be a Party in Interest
with respect to many Plans. Before purchasing Notes, a Plan fiduciary or other
Plan investor should consider whether a prohibited transaction might arise by
reason of the relationship between the Plan and the Seller, the Indenture
Trustee, any underwriters of such Series or any of their affiliates and consult
their counsel regarding the purchase in light of the considerations described
below. The DOL has issued five class exemptions that may apply to otherwise
prohibited transactions arising from the purchase or holding of the Notes: DOL
Prohibited Transaction Class Exemptions ("PTCE") 96-23 (Class Exemption for Plan
Asset Transactions Determined by In-House Asset Managers), 95-60 (Class
Exemption for Certain Transactions Involving Insurance Company General
Accounts), 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts) and 84-14 (Class Exemption
for Plan Asset Transactions Determined by Independent Qualified Professional
Asset Managers).
The Notes of any Series may not be purchased with "plan assets" of a
Plan if the Seller, the Servicer, the Trustee or any of their affiliates (a) has
investment or administrative discretion with respect to such Plan assets; (b)
has authority or responsibility to give, or regularly gives, investment advice
with respect to such Plan assets, for a fee and pursuant to an agreement or
understanding that such advice (i) will serve as a primary basis for investment
decisions with respect to such Plan assets, and (ii) will be based on the
particular investment needs of such Plan; or (c) unless PTCE 95-60, 91-38 or
90-1 applies, is an employer maintaining or contributing to such Plan.
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In light of the foregoing, fiduciaries or other persons contemplating
purchasing the Notes on behalf or with "plan assets" of any Plan should consult
their own counsel regarding whether the Trust assets represented by the Notes
would be considered "plan assets," the consequences that would apply if the
Trust's assets were considered "plan assets," and the availability of exemptive
relief from the prohibited transaction rules under the Exemption or otherwise.
In light of the foregoing, by acceptance of a Note, each holder of such Note
shall be deemed to have
(1) represented and warranted either that the holder is not acquiring
or considered to be acquiring the Note with assets of a Plan or that the
acquisition and holding of the Note will not give rise to a non-exempt
prohibited transaction; and
(2) agreed that the holder will not sell or otherwise transfer the Note
without obtaining from the purchaser or other transferee a similar
representation, warranty and agreement as set forth in this sentence.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting
agreement (an "Underwriting Agreement") to be entered into with respect to each
Series of Notes offered hereby, the Trust will agree to sell to each of the
underwriters named therein and in the accompanying Prospectus Supplement, and
each of such underwriters will severally agree to purchase from the Trust, the
principal amount of Notes set forth therein and in the accompanying Prospectus
Supplement (subject to proportional adjustment on the terms and conditions set
forth in the related Underwriting Agreement in the event of an increase or
decrease in the aggregate amount of Notes offered hereby and by the accompanying
Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the Notes
offered hereby and by the accompanying Prospectus Supplement if any of such
Notes are purchased. In the event of a default by any underwriter, each
Underwriting Agreement will provide that, in certain circumstances, purchase
commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Prospectus Supplement will set forth the price at which each
Series of Notes or Class being offered thereby initially will be offered to the
public and any concessions that may be offered to certain dealers participating
in the offering of such Notes. After the initial public offering, the public
offering price and such concessions may be changed.
Each Underwriting Agreement will provide that the Trust will indemnify
the related underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The place and time of delivery for any Series of Notes in respect of
which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Notes will be
passed upon for the Trust, the Seller and the Originators by Kenneth V. Harkins,
Associate General Counsel of AIG, and by Weil, Gotshal & Manges LLP, New York
special counsel to the Seller. Certain legal matters relating to the issuance of
the Notes under the laws of the State of Delaware will be passed upon for the
Trust by Richards, Layton & Finger, P.A. Certain legal matters relating to the
federal tax consequences of the issuance of the Notes will be passed upon for
the Seller by Weil, Gotshal & Manges LLP.
REPORTS TO NOTEHOLDERS
The Servicer will prepare monthly and annual reports that will contain
information about the Trust. The financial information contained in the reports
will not be prepared in accordance with generally accepted accounting
principles. Unless and until Definitive Notes are issued, the reports will be
sent to Cede & Co. which is the nominee of The Depository Trust Company and the
registered holder of the Notes. No financial reports will be sent to you. See
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"Certain Information Regarding the Securities--Book-Entry Registration,"
"Description of the Notes--Reports to Noteholders" and "--Annual Compliance
Statement" in this Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the Notes with the SEC.
This Prospectus is part of the registration statement, but the registration
statement includes additional information.
The Servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the Trust.
You may read and copy any reports, statements or other information we
file at the SEC's public reference room in Washington, D.C. at 450 Fifth Street,
N.W. Washington D.C. 20549 You can request copies of these documents, upon
payment of a duplicating fee, by writing to the SEC. Please call the SEC at
(800) SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings are also available to the public on the SEC Internet site
(http://www.sec.gov.).
The SEC allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus. Information that we file later with
the SEC will automatically update the information in this Prospectus. In all
cases, you should rely on the later information over different information
included in this Prospectus or the accompanying Prospectus Supplement. We
incorporate by reference any future annual, monthly and special SEC reports and
proxy materials filed by or on behalf of the Trust until we terminate our
offering of the Notes.
As a recipient of this Prospectus, you may request a copy of any
document we incorporate by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by writing
or calling us at: Investor Relations; 70 Pine Street, New York, New York 10270,
(212) 770-7000.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered AIG
Credit Premium Finance Master Trust Asset Backed Notes (the "Global Securities")
to be issued in Series from time to time (each, a "Series") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of DTC, Clearstream 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 Clearstream 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 Clearstream or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against- payment basis
through the respective Depositaries of Clearstream and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Clearstream and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC (other
than through accounts at Clearstream or Euroclear) will follow the settlement
practices applicable to U.S. corporate debt obligations. 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 Clearstream
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds in registered form. Global Securities will be credited to
the securities custody accounts on the settlement date against payment for value
on the settlement date.
SECONDARY MARKET TRADING
Because the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants (other than Citibank, NA ("Citibank") and Morgan Guaranty Trust
Company of New York ("Morgan") as depositories for Clearstream and Euroclear,
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respectively) will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
TRADING BETWEEN CLEARSTREAM CUSTOMERS AND/OR EUROCLEAR PARTICIPANTS.
Secondary market trading between Clearstream Customers or Euroclear Participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
TRADING BETWEEN DTC SELLER AND CLEARSTREAM OR EUROCLEAR PURCHASER. When
Global Securities are to be transferred from the account of a DTC Participant
(other than Citibank and Morgan as depositories for Clearstream and Euroclear,
respectively) to the account of a Clearstream Customer or a Euroclear
Participant, the purchaser must send instructions to Clearstream prior to
settlement date 12:30. Clearstream or Euroclear, as the case may be, will
instruct Citibank or Morgan, respectively, to receive the Global Securities for
payment. Payment will then be made by Citibank or Morgan, as the case may be, to
the DTC Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Clearstream Customer's or Euroclear Participant's
account. Credit for the Global Securities will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Clearstream or Euroclear cash
debit will be valued instead as of the actual settlement date.
Clearstream Customers and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream Customers or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Clearstream Customers 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 Clearstream Customer'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 Citibank or Morgan for the benefit of Clearstream Customers or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently from a trade between two DTC Participants.
TRADING BETWEEN CLEARSTREAM OR EUROCLEAR SELLER AND DTC PURCHASER. Due
to time zone differences in their favor, Clearstream Customers and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through Citibank or Morgan, to another DTC Participant. The seller will send
instructions to Clearstream before settlement date 12:30. In these cases,
Clearstream or Euroclear will instruct Citibank or Morgan, as appropriate, to
credit the Global Securities to the DTC Participant's account against payment.
The payment will then be reflected in the account of the Clearstream Customer or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Clearstream Customer's or Euroclear Participant's account would be back-valued
to the value date (which would be the preceding day, when settlement occurred in
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New York). If the Clearstream Customer or Euroclear Participant has a line of
credit with its respective clearing system and elects to draw on such line of
credit in anticipation of receipt of the sale proceeds in its account, the
back-valuation may substantially reduce or offset any overdraft charges incurred
over that one-day period. If settlement is not completed on the intended value
date (i.e., the trade fails), receipt of the cash proceeds in the Clearstream
Customer's or Euroclear Participant's account would instead be valued as of the
actual settlement date.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless, under currently applicable law, (a) 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 (b) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Notes
that are non-U.S. Persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (or successor form, including
W-8BEN). If the information shown on Form W-8BEN changes, a new Form W-8BEN 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 or successor form including form W-8EC1.
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons that are Note Owners 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 Note) or successor form, including form W-8BEN. If the
treaty provides only for a reduced rate, withholding tax will be imposed at that
rate.
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 Note Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through 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. Effective January 1, 2001,
Forms W-8 and Form 1001 will be replaced by Form W-8 BEN. Form 4224 will be
replaced by Form W-8ECI. The new forms can be used currently in place of Forms
W-8, 1000 and 4224.
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, any state thereof, or any political subdivision of either
(including the District of Columbia), (iii) an estate the income of which is
includible in gross income for United States tax purposes regardless of its
source or (iv) a trust with respect to which a United States Court has primary
jurisdiction and which has one or more United States persons controlling its
substantial decisions. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities Investors are advised to consult their own tax advisors for
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<PAGE>
specific tax advice concerning their holding and disposing of the Global
Securities. Further, the U.S. Treasury Department has recently finalized new
regulations that will revise some aspects of the current system for withholding
on amounts paid to foreign persons. Under these regulations, interest or OID
paid to a nonresident alien would continue to be exempt from U.S. withholding
taxes (including backup withholding) provided that the holder complies with the
new certification procedures.
71
<PAGE>
INDEX OF TERMS FOR PROSPECTUS
TERM PAGE
---- ----
Accumulation Period 24
Addition Date 23
Additional Interest 48
Additional Receivables 23
Administration Agreement 15
AIC 1
AICCO 1
AIG 9
AIG Letter Agreement 54
AIG Support Agreement 54
AIGC 16
AIGCC 16
Amortization Period 25
ART 1
Assignment 43
Bankruptcy Code 9
BIF 45
Cash Collateral Account 59
Cash Collateral Guaranty 59
Cede 26
Class 1, 24
Classes 1
Clearstream 26
Clearstream Customers 37
Closing Date 25
Code 61
Collateral Interest 59
Collection Account 44
Collection Subaccount 45
Controlled Accumulation Period 4
Controlled Amortization Period 4
Cooperative 38
Counsel 62
Credit Balance 23
Credit Enhancement 6
Credit Enhancement Percentage 46
Credit Enhancement Provider 55
Defaulted Obligations 46
Deferred Payment Obligations 1, 16
Definitive Notes 26
Depositaries 36
Depositary 26
Determination Date 49
Disclosure Document 33
Discount Percentage 44
DOL 66
DTC 26
Eligible Receivable 41
Page continues...
<PAGE>
INDEX OF TERMS FOR PROSPECTUS
TERM PAGE
---- ----
Enhancement Invested Amount 58
Enhancements 2
ERISA 66
Euroclear 38
Euroclear Operator 38
Euroclear Participants 38
Events of Default 30
Excess Finance Charge Collections 48
Excess Funding Account 47
Exchange Act 36
Finance Charge Account 44
Finance Charge Receivables 2
fund 20
funded 20
funding 20
Funding Period 46
Group 48
Guidelines 44
Holders 39
Indenture 1, 25
Indenture Trustee 1, 25
Indirect Participants 36
Ineligible Receivable 40
Initial Closing Date 23
Initial Cut-Off Date 23
Insured 7
Insureds 16
Investor Charge-Off 48
Investor Default Amount 48
Investor Exchange 33
Investor Interest 3, 25
Investor Percentage 3
Investor Servicing Fee 48
IP Finance I 1
IP Finance II 1
IP Funding 1
L/C Bank 59
Loan Portfolio 16
Loans 1
Master Trust Agreement 1, 15
Minimum Trust Interest 34
Monthly Interest 48
Monthly Period 26
Moody's 45
New Issuance 33
New Regulations 65
Non-U.S. Note Owner 62
Note Majority 30
72
<PAGE>
INDEX OF TERMS FOR PROSPECTUS
TERM PAGE
---- ----
Note Owner 26
Note Rate 25
Noteholder 37
Noteholders 24
Notes 1
OID 63
Originator 41
Originators 1
Owner Trustee 1, 15
Participants 36
Participation Agreement 43
Participations 43
Parties in Interest 66
Pay Out Event 5
Payment Account 44
Payment Date 3
Permitted Investments 45
Plans 66
Pre-Funding Account 46
Pre-Funding Amount 46
Premium Finance Obligations 1
Principal Account 44
Principal Amortization Period 4
Principal Funding Account 27
Principal Receivables 2
Principal Terms 33
PTCE 67
Purchase Agreement 2
Purchased Loans 20
Qualified Institution 44
Rapid Accumulation Period 4
Rapid Amortization Period 4
Rating Agencies 14
Rating Agency 6, 14
Receivables 1, 23
Refinancing 50
Refinancing Date 50
Refinancing Price 50
Regulations 61
Related Documents 32
Removal Date 43
Page continues...
<PAGE>
Removed Receivables 23, 43
Reserve Account 60
Revolving Period 4
SAIF 45
Sale and Servicing Agreement 2, 16
Scheduled Payment Date 4
SEC 43
Securities Act 33
Seller 2, 16
Senior Notes 25
Series 15
Series Supplement 1, 25
Series Termination Date 4
Service 61
Service Transfer 54
Servicer 2, 16
Servicer Default 55
Shared Principal Collections 49
Spread Account 60
Standard & Poor's 45
Subordinated Notes 25
Tax Opinion 34
Term Notes 1
Terms and Conditions 38
Third Party Originators 20
Transfer Agent and Registrar 39
Transfer Date 47
Trust 1, 15
Trust Administrator 57
Trust Interest 3
Trust Percentage 46
Trust Portfolio 23
Trust Termination Date 51
U.S. Note Owner 62
U.S. Person 62
UCC 61
Unallocated Principal Collections 48
Underwriting Agreement 67
Variable Funding Notes 1, 27
Yield Enhancement Account 60
73
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<PAGE>
SUBJECT TO COMPLETION, DATED [_____], 2000
Prospectus Supplement to Prospectus Dated June 21, 2000
AIG CREDIT PREMIUM FINANCE MASTER TRUST
Issuer
A.I. RECEIVABLES TRANSFER CORP.
Seller
SERIES [ ]-1
$[ _________ ] FLOATING RATE ASSET BACKED NOTES
THE TRUST WILL ISSUE
---------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE S-13 IN THIS PROSPECTUS
SUPPLEMENT AND PAGE 72 IN THE PROSPECTUS.
Neither the notes, nor the underlying loans,
deferred payment obligations or receivables
are insured or guaranteed by any
governmental agency.
The notes will represent obligations of the
trust only and will not represent interests
in or obligations of AIGCC, AIC, AICCO, IP
Finance I, IP Finance II and IP Funding or
any of their affiliates.
This prospectus supplement may be used to
offer and sell the notes
---------------------------------------------
Series [ ]-1 Series [ ]-]
Class A Notes Class B Notes
------------- -------------
Principal amount $[ ____ ] $[ ____ ]
Note rate One-month LIBOR + One-month LIBOR +
[ ____ ] % annually [ ____ ] % annually
Interest paid Monthly Monthly
First interest payment date [ _____ ] [ ____ ]
First principal [ ____ ] [ ____ ]
payment date
Legal final maturity [ ____ ] [ ____ ]
THE TRUST WILL ALSO ISSUE THE FOLLOWING SECURITIES, WHICH ARE NOT OFFERED BY
THIS PROSPECTUS SUPPLEMENT--
o Series [ ]-1 Class C Floating Rate Notes, with a principal amount of $
[___].
CREDIT ENHANCEMENT--
o Subordination
The Class B Notes are subordinated to the Class A Notes. Subordination
of the Class B Notes provides credit enhancement for the Class A Notes.
The Class C Notes are subordinated to the Class A Notes and the Class B
Notes. Subordination of the Class C Notes provides credit enhancement
for both the Class A Notes and the Class B Notes.
o Yield Enhancement Account
A portion of collections that would otherwise be paid to the Trust will
be used to fund a reserve account called the Yield Enhancement Account
for the benefit of Noteholders.
This prospectus supplement and the accompanying prospectus relate solely to the
offering of the Class A Notes and Class B Notes only.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISPROVED THESE NOTES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriter of the Class A Notes and Class B Notes
[GOLDMAN, SACHS & CO.]
The date of this Prospectus Supplement is [ ___________ ], 2000
NY2:\761782\24\11278.0005
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two
separate documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
your Series of notes and (b) this Prospectus Supplement, which describes the
specific terms of your Series of notes.
IF THE TERMS OF YOUR SERIES OF NOTES VARY BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
We include cross-references in this Prospectus Supplement
and the accompanying Prospectus to captions in these materials where you can
find further related discussions. The following Table of Contents and the Table
of Contents included in the accompanying Prospectus provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms
used in this Prospectus Supplement and the accompanying Prospectus are defined
under the caption "Index of Terms for Prospectus Supplement" beginning on page
S-57 in this document and under the caption "Index of Terms for Prospectus"
beginning on page 72 in the accompanying Prospectus.
[THE UNDERWRITERS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING OVER-ALLOTMENT, STABILIZING
AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES AND THE IMPOSITION OF PENALTY
BIDS, IN EACH CASE IN CONNECTION WITH THE OFFERING OF THE NOTES. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.]
---------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY OF TERMS..........................................................................................................1
OFFERED SECURITIES........................................................................................................1
Interest Payments.........................................................................................................1
Principal Payments........................................................................................................1
OTHER SECURITIES..........................................................................................................1
The Class C Notes.........................................................................................................1
SECURITY FOR THE NOTES....................................................................................................2
CREDIT ENHANCEMENT........................................................................................................2
Subordination.............................................................................................................2
Yield Enhancement Account.................................................................................................2
OTHER INTERESTS IN THE TRUST..............................................................................................3
Other Series of Notes.....................................................................................................3
The Trust Interest........................................................................................................3
TRUST ASSETS..............................................................................................................3
Receivables...............................................................................................................3
AIC Trust Transferor Certificate..........................................................................................4
COLLECTIONS BY THE SERVICER...............................................................................................4
ALLOCATIONS AND PAYMENTS TO YOU AND YOUR SERIES...........................................................................4
Allocations of Collections of Finance Charge Receivables..................................................................5
Allocations of Collections of Principal Receivables.......................................................................7
[REFINANCING OF THE NOTES................................................................................................11
SHARED PRINCIPAL COLLECTIONS.............................................................................................11
DENOMINATIONS............................................................................................................11
REGISTRATION, CLEARANCE AND SETTLEMENT...................................................................................11
TAX STATUS 12
ERISA CONSIDERATIONS.....................................................................................................12
NOTE RATINGS.............................................................................................................12
[EXCHANGE LISTING........................................................................................................12
RISK FACTORS.............................................................................................................13
Possible Effect of Indirect Ownership Interest in AIC Trust Receivables via Transferor Certificate of AIC Trust..........13
Possible Effects of Lack of Historical Experience With Deferred Payment Obligations......................................13
Possible Effect of Geographic Concentration and Adverse Economic Factors on Origination..................................13
THE AIGC PREMIUM FINANCE PORTFOLIOS......................................................................................14
General ..............................................................................................................14
i
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Premium Finance Obligation Origination; Collection Policy................................................................14
The Originators Premium Finance Portfolio................................................................................15
THE RECEIVABLES..........................................................................................................22
AIC Trust Interest.......................................................................................................23
MATURITY ASSUMPTIONS.....................................................................................................24
Controlled Amortization Period...........................................................................................24
Rapid Amortization Period................................................................................................25
Pay Out Events...........................................................................................................25
Other Considerations.....................................................................................................25
THE TRUST, THE SELLER, THE ORIGINATORS AND THE SERVICER..................................................................26
DESCRIPTION OF SERIES PROVISIONS.........................................................................................27
General ..............................................................................................................27
New Issuances............................................................................................................28
Interest Payments........................................................................................................29
Principal Payments.......................................................................................................31
[Postponement of Controlled Amortization Period..........................................................................32
Subordination............................................................................................................33
Allocation Percentages...................................................................................................33
Reallocation of Cash Flows...............................................................................................34
Application of Collections...............................................................................................36
Allocations..............................................................................................................36
Payment of Interest, Fees and Other Items................................................................................37
Excess Spread............................................................................................................38
Payments of Principal....................................................................................................41
Shared Principal Collections.............................................................................................42
Defaulted Receivables; Investor Charge-Offs..............................................................................43
Yield Enhancement Account................................................................................................45
Excess Funding Account; Minimum Trust Interest; Excess Receivables Amount................................................46
Pay Out Events...........................................................................................................48
Servicing Compensation and Payment of Expenses...........................................................................51
[Refinancing.............................................................................................................51
Reports to Noteholders...................................................................................................51
[Amendments..............................................................................................................52
ERISA CONSIDERATIONS.....................................................................................................52
Class A Notes............................................................................................................52
Class B Notes............................................................................................................53
Consultation With Counsel................................................................................................53
ii
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UNDERWRITING.............................................................................................................54
ANNEX I OTHER SERIES ISSUED AND OUTSTANDING.............................................................................56
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT.................................................................................57
</TABLE>
iii
<PAGE>
SUMMARY OF TERMS
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING
YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE NOTES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS.
o THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS AND
OTHER INFORMATION TO AID YOUR UNDERSTANDING AND IS QUALIFIED BY THE FULL
DESCRIPTION OF THESE CALCULATIONS, CASH FLOWS AND OTHER INFORMATION IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
OFFERED SECURITIES
AIG Credit Premium Finance Master Trust (the "Trust") is offering the Series [
__ ]-1 Class A Floating Rate Asset Backed Notes (the "Class A Notes") and the
Series [ __ ]-1 Class B Floating Rate Asset Backed Notes (the "Class B Notes")
as part of Series [ __ ]-1. The Class A Notes and the Class B Notes (together,
the "Offered Notes") represent debt obligations secured by a partial, undivided
interest in the assets of the Trust.
The Class B Notes are subordinated to the Class A Notes.
INTEREST PAYMENTS
The Class A Notes will accrue interest for each Interest Period at the Class A
Note Rate. The "Class A Note Rate" is a variable rate equal to one month LIBOR +
[ ____ ]%.
The Class B Notes will accrue interest for each Interest Period at the Class B
Note Rate. The "Class B Note Rate" is a variable rate equal to one month LIBOR +
[ ____ ]%.
Interest accrued during each Interest Period will be due on each Payment Date.
Any interest due but not paid on a Payment Date will be payable on the next
Payment Date [together with additional interest at the applicable note rate plus
[ __ ]% per annum].
o A "Payment Date" is the 15th day of each month, or if that day is not a
business day, the next business day. The first Payment Date is [ ____ ].
o Each "Interest Period" begins on and includes a Payment Date and ends on
but excludes the next Payment Date. However, the first Interest Period
will begin on and include [ ____ ] (the "Closing Date") and end on but
exclude [ ____ ], the first Payment Date.
PRINCIPAL PAYMENTS
The Class A Noteholders and Class B Noteholders are expected to have available
an amount equal to $[ _____ ], the "Controlled Distribution Amount," to make
payments of principal on each Payment Date from [ _____ ] to [ _____ ] (the
"Class A Controlled Amortization Period"). The Class B Noteholders are scheduled
to receive a single payment of principal, the "Class B Controlled Distribution
Amount", on the Payment Date in [ _____ ], the ("Class B Controlled Amortization
Period"). However, certain circumstances could cause principal to be paid
earlier or later, or in reduced amounts. No principal will be paid to the Class
B Noteholders until the Class A Noteholders are paid in full. See "Maturity
Assumptions" in this Prospectus Supplement and in the accompanying Prospectus
and "Description of Series Provisions--Allocation Percentages" in this
Prospectus Supplement."
The final payment of principal and interest plus all other amounts due and owing
to the Noteholders on the Offered Notes will be made no later than [ ____ ], 20[
__ ], or, if that date is not a business day, the next business day, called the
"Legal Final Maturity" or the "Series [ __ ]-1 Termination Date."
See "Description of Series Provisions--Principal Payments" in this Prospectus
Supplement for a discussion of the determination of amounts available to pay
principal.
OTHER SECURITIES
THE CLASS C NOTES
The Trust is also issuing the Series [ __ ]-1 Class C Floating Rate Asset Backed
Notes (the "Class C Notes" and together with the Offered Notes, the "Notes"),
which represent debt obligations secured by a partial, undivided interest in the
1
<PAGE>
assets of the Trust. The Class C Notes are subordinated to the Offered Notes. As
a subordinated interest, the Class C Notes are a form of credit enhancement for
the Offered Notes.
THE CLASS C NOTES ARE NOT BEING OFFERED UNDER THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS.
SECURITY FOR THE NOTES
The Notes are secured by a partial, undivided interest in the assets of the
Trust, which interest is referred to as the "Investor Interest" and is described
in greater detail below. The Notes generally are not secured by the remaining
undivided interest in the assets of the Trust, which is referred to as the
"Trust Interest". The Trust's right to receive the proceeds of Trust assets
allocable to the Trust Interest is not subordinate to the Noteholders' right to
receive payment on the Notes from the proceeds of Trust assets allocable to the
Investor Interest, except to the limited extent described below.
CREDIT ENHANCEMENT
Credit enhancement for your Series is for your Series' benefit only, and you are
not entitled to the benefits of any credit enhancement available to other
Series.
SUBORDINATION
Subordination of the Class B Notes provides credit enhancement for the Class A
Notes. Subordination of the Class C Notes provides credit enhancement for the
Class A Notes and the Class B Notes.
The Class C Investor Interest and the Class B Investor Interest must be reduced
to zero, and the Class B and Class C Notes must be written down to zero, before
the Class A Investor Interest or Class A Notes will suffer any loss of
principal. The Class C Investor Interest must be reduced to zero, and the Class
C Notes must be written down to zero, before the Class B Investor Interest or
Class B Notes will suffer any loss of principal.
On any Payment Date, no interest will be paid on the Class C Notes until all
interest due and owing on the Class A Notes and Class B Notes is paid in full.
On any Payment Date, no principal will be paid to the Class B Notes until all
principal due and owing to the Class A Notes and [all interest due and owing on
the Class A Notes and Class B Notes is paid in full]. On any Payment Date, no
principal will be paid to the Class C Notes until all principal due and owing on
the Class A Notes and Class B Notes is paid in full.
For a description of the events (other than payments of principal) which may
lead to a reduction of the Class A Investor Interest, the Class B Investor
Interest and the Class C Investor Interest, see "Description of Series
Provisions--Reallocation of Cash Flows," "--Excess Funding Account; Minimum
Trust Interest; Excess Receivables Amount," "--Application of Collections" and
"--Defaulted Receivables;Investor Charge-Offs" in this Prospectus Supplement
YIELD ENHANCEMENT ACCOUNT
The Notes will also have the benefit of credit enhancement in the form of an
account (the "Yield Enhancement Account") which will be maintained by the
Indenture Trustee for the benefit of the Noteholders.
Funds on deposit in the Yield Enhancement Account on each Transfer Date will be
added to Excess Spread and made available for application on the next Payment
Date in respect of the Notes to the extent and in the priorities set forth under
"Description of Series Provisions--Application of Collections--Excess Spread."
On each Transfer Date, the Servicer will deposit the Available Yield Enhancement
Amount into the Yield Enhancement Account, which will be available for credit
enhancement for the Notes. Such deposit will be made out of Receivable
collections otherwise allocable to the Trust Interest. In addition, the Servicer
will deposit into the Yield Enhancement Account on each Transfer Date any
remaining amounts.
The "Available Yield Enhancement Amount" will be equal to [ ___ ]% of Receivable
collections during the preceding Monthly Period times the Floating Investor
Percentage; provided that the Available Yield Enhancement Amount will be capped
so that it will not exceed the Monthly Interest due on the Notes for such
Transfer Date plus Monthly Interest not previously paid and Additional Interest.
In general, on each Transfer Date, any amount in excess of the 91 Day
Delinquency Amount remaining in the Yield Enhancement Account after application
2
<PAGE>
of the funds on deposit therein for the purposes described above will be paid to
the Trust, provided that a Pay Out Event has not occurred See "Description of
Series Provisions--Yield Enhancement Account."
OTHER INTERESTS IN THE TRUST
OTHER SERIES OF NOTES
The Trust expects to issue additional Series of notes. When issued by the Trust,
the notes of each of those Series will also represent debt obligations secured
by a partial, undivided interest in the assets of the Trust. The Trust may issue
additional Series with terms that may be different from any other Series without
prior review or consent by any Noteholders.
The Trust has previously issued four Series of notes which are Variable Funding
Notes. You can review a summary of the terms of the outstanding Series of notes
under the caption "Annex I: Other Series Issued and Outstanding" included at the
end of this Prospectus Supplement.
THE TRUST INTEREST
AIC, AICCO, IP Finance I, IP Finance II and IP Funding (together, the
"Originators") each will own a one fifth equity interest in A.I. Receivables
Transfer Corp. (the "Seller" or "ART"). The Seller initially will own 100%
ownership interest in the Trust which in turn will retain unencumbered ownership
of the "Trust Interest," which represents the remaining interest in the assets
of the Trust not securing the Notes, any other Series of notes or the other
interests in the Trust or other obligations of the Trust. The Trust Interest is
not subordinated to the Notes, although a portion of collections from
Receivables otherwise allocable to the Trust Interest provides yield enhancement
for your Series and other outstanding Series. See "Description of Series
Provisions--Yield Enhancement Account."
In addition, under the circumstances described under "Description of Series
Provisions--Excess Funding Account; Minimum Trust Interest; Excess Receivables
Amount," a portion of losses on Receivables exceeding specified concentration
levels (based on the identity of the related Insured or insurer to whom financed
premiums were paid or are due) that would otherwise be allocable to the Notes
may be allocated to the Trust Interest. See "Description of Series
Provisions--Yield Enhancement Account," "--Excess Funding Account; Minimum Trust
Interest; Excess Receivables Amount" and "--Defaulted Receivables; Investor
Charge-Offs."
TRUST ASSETS
RECEIVABLES
The Trust assets include the entire beneficial interest in receivables
transferred to the Trust (the "Receivables") related to loans to Insureds to
finance commercial property and casualty insurance premiums ("Loans") and
deferred payments to become due from Insureds to finance commercial property and
casualty insurance premiums ("Deferred Payment Obligations" and, together with
the Loans, the "Premium Finance Obligations"). See "Business of A.I. Receivables
Transfer Corp. and the Originators--General" and "--Premium Finance Obligations"
in the Prospectus. However, the total outstanding principal balance of
Receivables related to Deferred Payment Obligations will initially be limited to
[ __ ]% of the total outstanding principal balance of all Receivables
transferred to the Trust. Such percentage may be increased subsequently upon
satisfaction of the Rating Agency Condition.
The Receivables consist of both Principal Receivables and Finance Charge
Receivables.
"Principal Receivables" are, generally, (a) with respect to Loans, amounts
borrowed by Insureds to pay premiums for property and casualty insurance and (b)
with respect to Deferred Payment Obligations, the portion of the deferred
payments equal to the purchase price paid by the Originator for the rights to
such Deferred Payment Obligations.
"Finance Charge Receivables" are (a) with respect to Loans, the related finance
charges and certain fees and (b) with respect to Deferred Payment Obligations,
the portion of the deferred payments in excess of the purchase price of the
payments, which excess is deemed finance charges.
See "Business of A.I. Receivables Transfer Corp. and the Originators--General"
and "--Premium Finance Obligations" in the Prospectus.
3
<PAGE>
AIC TRUST TRANSFEROR CERTIFICATE
The Trust assets will also include the transferor certificate of AIC Premium
Finance Loan Master Trust (the "AIC Trust") which represents a beneficial
interest in receivables which make up the assets of the AIC Trust which in turn
represent a beneficial interest in premium finance loans funded by AIC and AICCO
(the "AIC Trust Receivables"). Until the final maturity (the "AIC Trust
Termination Date") of all outstanding series of certificates of the AIC Trust,
AIC and AICCO will continue to sell AIC Trust Receivables to the transferor of
the AIC Trust, A.I. Receivables Corp. ("AIR") and not to ART. After the AIC
Trust Termination Date, the remaining AIC Trust Receivables in the AIC Trust
will be transferred directly to the Trust and AIC and AICCO thereafter will sell
Receivables originated by them directly to ART. The final maturity of the AIC
Trust is expected to be [November 15, 2000]. See "--Trust Assets--Receivables."
COLLECTIONS BY THE SERVICER
The Servicer will collect payments on the Receivables and will deposit those
collections in an account. The Servicer will keep track of those collections
that are Finance Charge Receivables and those collections that are Principal
Receivables.
ALLOCATIONS AND PAYMENTS TO YOU AND YOUR SERIES
Each month, the Servicer will allocate collections and the amount of Receivables
that are not collected and are written off as uncollectible, called the "Default
Amount," among:
o your Series, based on the size of the Investor Interest (initially
$[ ______ ]);
o other outstanding Series, based on the size of the investor interests in
the Trust securing such Series; and
o the Trust, based on the size of the Trust Interest.
The Trust assets allocated to your Series will be allocated to the following,
based on varying percentages:
o holders of the Class A Notes, based on the Class A Investor Interest
(initially $[ ______ ]);
o holders of the Class B Notes, based on the Class B Investor Interest
(initially $[ ______ ]); and
o the holders of the Class C Notes, based on the Class C Investor Interest
(initially $[ ____ ]).
See the following chart and "Description of Series Provisions--Allocation
Percentages" in this Prospectus Supplement. The following chart illustrates the
Trust's general allocation structure only and does not reflect the relative
percentages of collections or other amounts allocated to the Trust Interest, to
any Series, including your Series, or to holders of the Class A Notes, the Class
B Notes or the Class C Notes.
4
<PAGE>
ALLOCATION OF TRUST ASSETS
------------
Trust Assets
------------
|
--------------|-----------------
| | |
V V V
------ ------ --------
Other Your Trust
Series Series Interest
------ ------ --------
|
--------------|-----------------
| | |
V V V
------- ------- -------
Class A Class B Class C
Notes Notes Notes
------- ------- -------
You are entitled to receive payments of interest and principal based upon
allocations to your Series. The Investor Interest, which is the basis for
allocations to your Series, is the sum of (a) the Class A Investor Interest, (b)
the Class B Investor Interest and the Class C Investor Interest. The Class A
Investor Interest, the Class B Investor Interest and the Class C Investor
Interest will initially equal the outstanding principal amount of the Class A
Notes, the Class B Notes and the Class C Notes. The Investor Interest will
decline as a result of principal payments and may decline due to the writing off
of Receivables or other reasons. If the Investor Interest declines, amounts
allocated and available for payment to your Series and to you will be reduced.
For a description of the events which may lead to these reductions, see
"Description of Series Provisions--Reallocation of Cash Flows" in this
Prospectus Supplement.
ALLOCATIONS OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES
The chart on the following page demonstrates the manner in which collections of
Finance Charge Receivables are allocated and applied to your Series. THE CHART
IS A SIMPLIFIED DEMONSTRATION OF CERTAIN ALLOCATION AND PAYMENT PROVISIONS AND
IS QUALIFIED BY THE FULL DESCRIPTIONS OF THESE PROVISIONS IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
Step 1: Collections of Finance Charge Receivables for your Series are allocated,
based on varying percentages, among the Class A Investor Interest, the Class
B Investor Interest and the Class C Investor Interest.
Step 2: Collections of Finance Charge Receivables allocated to the Class A
Investor Interest are applied to cover, in the following priority:
o the interest payment due to the Class A Noteholders;
o the Class A Noteholders' portion of servicing fees due to the Servicer, if
any; and
o the Class A Noteholders' portion of the Default Amount, if any.
Collections of Finance Charge Receivables allocated to the Class B Investor
Interest are applied to cover, in the following priority:
o the interest payment due to the Class B Noteholders; and
o the Class B Noteholders' portion of servicing fees due to the Servicer, if
any.
Collections of Finance Charge Receivables allocated to the Class C Investor
Interests are applied to cover the Class C Noteholders' portion of servicing
fees due to the Servicer, if any.
Remaining collections of Finance Charge Receivables allocated to the Class B
Investor Interest and the Class C Investor Interest are applied in Step 3
because of their subordinated status.
Step 3: Collections of Finance Charge Receivables allocated to your Series and
not used in Step 2 are treated as Excess Spread and together with amounts on
deposit in the Yield Enhancement Account are applied, in the following
priority, to cover:
o the interest payment due to the Class A Noteholders, the Class A
Noteholders' portion of the servicing fee due to the Servicer, if any, and
the Class A Noteholders' portion of the Default Amount, each to the extent
not covered in Step 2;
o reimbursement of certain reductions of the Class A Investor Interest and
the Class A Notes;
o Class A Prior Period Interest, if any;
5
<PAGE>
o the interest payment due to the Class B Noteholders and the Class B
Noteholders' portion of the servicing fee due to the Servicer, if any, to
the extent not covered in Step 2;
o the Class B Noteholders' portion of the Default Amount;
o reimbursement of certain reductions of the Class B Investor Interest and
the Class B Notes;
o Class B Prior Period Interest, if any;
o the Class C Noteholders' portion of the servicing fee due to the Servicer,
if any, to the extent not covered in Step 2;
o the interest payment due to the Class C Noteholders;
o the Class C Noteholders' portion of the Default Amount;
o reimbursement of certain reductions of the Class C Investor Interest and
the Class C Notes;
o funding of the Yield Enhancement Account up to the 91 Day Delinquency
Amount; and
o Class C Prior Period Interest, if any.
Remaining amounts are deposited in the Yield Enhancement Account. Amounts on
deposit in the Yield Enhancement Account are paid to the Trust to the extent
that amounts on deposit in the Yield Enhancement Account exceed the 91 Day
Delinquency Amount.
ALLOCATIONS OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES
------------------------------------
Collections of Finance Charge
Receivables Allocated to Your Series
------------------------------------
|
|
----------------------------------------------
| | |
V V V
------ ----------------- ----------------- -----------------
Step 1 Class A Class B Class C
------ Investor Interest Investor Interest Investor Interest
----------------- ----------------- -----------------
| | |
| | |
V V V
------ ------------------- ------------------- -----------------
Step 2 1. Class A Interest 1. Class B Interest 1. Class C
------ Payment Payment Servicing Fee
2. Class A 2. Class B
Servicing Fee Servicing Fee
3. Class A Default
Amount
------------------- ------------------- -----------------
| | |
| | |
----------------------------------------------
|
|
V
------ ----------------- -------------
Step 3 Excess Spread Yeild
------ <-- Enhancement
Amount
----------------- -------------
|
|
V
-----------------------------------------
1. Class A Interest Payment
2. Class A Servicing Fee
3. Class A Default Amount
4. Reimburse Class A Investor Interest
5. Class A Prior Period Interest
6. Class B Interest Payment
7. Class B Servicing Fee
8. Class B Default Amount
9. Reimburse Class B Investor Interest
10. Class B Prior Period Interest
11. Apply Remaining Excess Spread to
Class C Investor Interest and Trust
Interest and Other Items as Described
Above in the Accompanying Text
-----------------------------------------
6
<PAGE>
ALLOCATIONS OF COLLECTIONS OF PRINCIPAL RECEIVABLES
The chart on the following page demonstrates the manner in which collections of
Principal Receivables are allocated and applied to your Series. THE CHART IS A
SIMPLIFIED DEMONSTRATION OF CERTAIN ALLOCATION AND PAYMENT PROVISIONS AND IS
QUALIFIED BY THE FULL DESCRIPTIONS OF THESE PROVISIONS IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
Step 1: Collections of Principal Receivables for your Series are allocated,
based on varying percentages, among the Class A Investor Interest, the Class
B Investor Interest and the Class C Investor Interest.
Step 2: Collections of Principal Receivables allocated to the Class C Investor
Interest and the Class B Investor Interest may be reallocated and made
available to pay amounts due to the Class A Notes that have not been paid by
either the Class A Investor Interest's share of collections of Finance Charge
Receivables, Excess Spread or amounts withdrawn from the Yield Enhancement
Account. If required Class A amounts are satisfied, the Class C Investor
Interest also provides the same type of protection to the Class B Investor
Interest. Certain collections which are reallocated to pay amounts usually
paid out of Finance Charge Receivables for Class A or Class B will not be
made part of Available Investor Principal Collections.
Step 3: Collections of Principal Receivables allocated to your Series and not
used in Step 2 are combined with shared principal collections from other
Series, to the extent necessary and available, and treated as Available
Investor Principal Collections.
Available Investor Principal Collections may be paid to you as payments of
principal. The amount, priority and timing of your principal payments, if any,
depend on whether your Series is in the Revolving Period, the Controlled
Amortization Period, or a Rapid Amortization Period, as described below.
The Class A Notes will be paid in full before the Class B Notes and the Class C
Notes receive any payments of principal. The Class B Notes will be paid in full
before the Class C Notes receive any payments of principal.
See "Maturity Assumptions" and "Description of Series Provisions--Application of
Collections" in this Prospectus Supplement.
Step 4: Collections of Principal Receivables allocated to your Series and not
used in Steps 2 and 3 above may be paid to other Series to the extent necessary
or to the Trust.
7
<PAGE>
ALLOCATIONS OF COLLECTIONS OF PRINCIPAL RECEIVABLES
-----------------------------------
Colections of Principal Receivables
Allocated to your Series
-----------------------------------
|
---------------------|----------------------
| | |
V V V
------ ----------------- ----------------- -----------------
Step 1 Class A Class B Class C
------ Investor Interest Investor Interest Investor Interest
----------------- ----------------- -----------------
| | |
| | |
| V V
------ | ---------------- -----------------
Step 2 | Reallocation for Reallocation for
------ | Class A if any Class A & Class B
| if any
| ---------------- -----------------
| | |
---------------------|----------------------
|
V
------ ---------------- -----------------
Step 3 Available Shared
------ Investor Principal
Principal <-- Collections
Collections from Other
Series
---------------- -----------------
|
|
V
----------------------------
1. Class A Principal Payment
2. Class B Principal Payment
3. Class C Principal Payment
----------------------------
|
|
V
------ ---------------------------
Step 4 Shared Principal Colections
------ to Other Series
---------------------------
8
<PAGE>
REVOLVING PERIOD: Series [ __ ]-1 will have a period of time, called the
"Revolving Period," when the Trust will not pay, or accumulate, principal for
Noteholders. In general, during the Revolving Period the Trust will pay
available principal to other Series or the Trust. See "Description of Series
Provisions--Principal Payments" and "--Application of Collections" in this
Prospectus Supplement.
The Revolving Period starts on the Closing Date and ends on the earlier to begin
of:
o the Controlled Amortization Period;
o a Rapid Amortization Period; or
o the refinancing of the Notes.
CONTROLLED AMORTIZATION PERIOD: During the period called the "Controlled
Amortization Period," each month the Servicer will deposit on the Transfer Date
a specified amount in the Principal Account which is applied in the following
priority to cover:
o the principal payment due to Class A Noteholders;
o if the Class A Notes are paid in full, the specified principal payment due
to Class B Noteholders; and
o if the Class B Notes are paid in full, the specified principal payment due
to Class C Noteholders.
Each month, the Servicer will deposit principal not required to be paid as
specified above in the Principal Account to be paid to other Series, to the
extent necessary, or to the Trust. Each month, if the amount actually deposited
in the Principal Account is less than the required deposit, the amount of this
deficiency will be carried forward as a shortfall and included in the next
month's required deposit.
If, at the end of any Monthly Period, the Trust Interest is less than the
largest required Minimum Trust Interest of any outstanding Series, excess
principal collections otherwise payable to the Trust, will instead be deposited
into the Excess Funding Account.
For information about the application of money on deposit in the Principal
Account, including any net investment earnings, see "Description of Series
Provisions--Principal Payments" and "--Application of Collections" in this
Prospectus Supplement.
You should be aware that there may not be sufficient amounts available to pay
principal in full for the Class A Notes, the Class B Notes and the Class C
Notes. In addition, if the money on deposit in the Principal Account is
insufficient to pay these amounts on the Legal Final Maturity Date or if a Trust
Pay Out Event or a Series [ __ ]-1 Pay Out Event occurs, a Rapid Amortization
Period will begin and the timing of your principal payments could change. See
"Maturity Assumptions" in this Prospectus Supplement and in the accompanying
Prospectus.
The Controlled Amortization Period is scheduled to begin at the close of
business on [ ______ ], 20[ __ ][, but in some cases may be delayed to no later
than the close of business on [ ______ ], 20[ __ ]. See "Description of Series
Provisions--Postponement of Controlled Amortization Period" in this Prospectus
Supplement.]
The Controlled Amortization Period will end when any one of the following
occurs:
o the Notes are paid in full;
o a Rapid Amortization Period begins;
o the termination of the Trust; or
o the Series [ __ ]-1 Termination Date.
RAPID AMORTIZATION PERIOD: If a period called the "Rapid Amortization Period"
begins, the Trust will use any available principal collections allocated to your
Series to pay (a) the principal payment due to the Class A Notes, (b) if the
Class A Notes are paid in full, the principal payment due to the Class B Notes,
and (c) if the Class B Notes are paid in full, the principal payment due to the
Class C Notes. These payments will begin on the Payment Date in the month after
the Rapid Amortization Period begins.
9
<PAGE>
The Rapid Amortization Period will begin on the earlier to occur of (a) a Trust
Pay Out Event or (b) a Series [ __ ]-1 Pay Out Event. The Rapid Amortization
Period will end when any one of the following occurs:
o the Notes are paid in full;
o the Series [ __ ]-1 Termination Date; or
o the Trust Termination Date.
PAY OUT EVENTS: Certain adverse events called Pay Out Events might lead to the
start of a Rapid Amortization Period and the end of the Revolving Period or the
Controlled Amortization Period.
A Series [ __ ]-1 Pay Out Event will include the following events:
o any of the Originators, the Trust or the Seller does not make any required
payment or deposit (within the applicable grace period);
o any of the Originators, the Trust or the Seller materially violates any
other obligation or agreement causing you to be adversely affected, if (a)
the related Originator, the Trust or the Seller, as applicable, does not
remedy the violation within 60 days after it has received written notice
and (b) you continue to be materially and adversely affected for the
60-day period;
o any of the Originators, the Trust or the Seller provides certain
representations, warranties or other information which were materially
incorrect at the time they were provided causing you to be adversely
affected, if (a) they continue to be materially incorrect as of a date 60
days after the related Originator, the Trust or the Seller, as applicable,
has received written notice and (b) you continue to be materially and
adversely affected for the 60-day period; provided, however, that a Series
[ __ ]-1 Pay Out Event will not be deemed to have occurred if the Seller
has accepted reassignment of, or paid its portion of principal due on, any
affected Receivables;
o the Seller fails to transfer additional assets to the Trust when the Trust
Interest is less than the largest required Minimum Trust Interest of any
outstanding Series when required;
o certain defaults by the Servicer that have a material adverse effect on
you;
o if the Monthly Payment Rate is less than [ __ ]% for three consecutive
Monthly Periods;
o if the Financed Premium Percentage exceeds [ __ ]% for three consecutive
Monthly Periods;
o if the Annualized Monthly Excess Spread Amount is less than [ __ ]% for
three consecutive Monthly Periods;
o if the Unconcentrated 240+ Day Delinquency Percentage is greater than[ __
]% for three consecutive monthly periods;
o upon an Event of Default;
o if the Notes have not been paid in full on the Expected Final Payment
Date;
o if an Insolvency Event (as defined in the Indenture) occurs with respect
to AIG; or
o if the Indenture Trustee shall fail to have a valid first priority
perfected interest in any portion of the Trust assets, which has a
material adverse effect on the interests of the Noteholders and the Trust
fails to repurchase such affected assets within one Business day's notice.
A Trust Pay Out Event for your Series will include the following events:
o certain events of bankruptcy or insolvency relating to any Originator, the
Servicer or the Seller;
o the Seller is unable to transfer Receivables to the Trust as required
under the Sale and Servicing Agreement;
o the Trust or the Seller becomes an "investment company" under the
Investment Company Act of 1940; or
10
<PAGE>
o AIG fails to meet its obligations under the AIG Support Agreement or the
AIG Support Agreement is modified, amended or terminated other than as
permitted in the AIG Support Agreement.
Upon the occurrence of a Pay Out Event, if more than [ ___ ]% of the principal
balance of the Receivables have a remaining term of more than twelve months, the
Seller will make a payment to the Trust to either purchase from the Trust a
sufficient amount of the portion of such Receivables or in a sufficient amount
in respect of such Receivables, in each case, that represents all amounts to be
paid by the related Insured after twelve months from the occurrence of such Pay
Out Event, at a price equal to par plus interest accrued to the time of
purchase, so that the percentage of Receivables having a remaining term as of
the date of purchase of more than twelve months shall be no more than [ __ ]% of
the principal balance of Receivables after giving effect to such purchase or
payment.
For a more detailed discussion of these Pay Out Events, see "Description of
Series Provisions--Pay Out Events" in this Prospectus Supplement. In addition,
see "Description of the Transfer and Servicing Agreements--Pay Out Events" in
the accompanying Prospectus for a discussion of the consequences of an
insolvency or receivership of the Seller.
[REFINANCING OF THE NOTES
The Seller may redeem the Notes on any Payment Date following[ _____ ], [ _____
](the "Refinancing Date") in whole [or in part] (including accrued and unpaid
interest), without premium (a "Refinancing"), upon prior written notice to the
Trustee. A Refinancing will be funded solely from the proceeds of a refinancing
of any outstanding Series of notes. Such proceeds will be used first to redeem
all the Class A Notes, next to redeem all the Class B Notes and finally to
redeem all the Class C Notes.]
SHARED PRINCIPAL COLLECTIONS
This Series is the [______] Series in a group of Series designated as "Group
One". The Trust may issue additional Series in the future which may be included
in Group One. Each Series identified under the caption "Annex I: Other Series
Issued and Outstanding" included at the end of this Prospectus Supplement is and
other Series in the future may be included in Group One. To the extent that
collections of Principal Receivables allocated to your Series are not needed to
make payments or deposits to the Principal Account for your Series, these
collections, called Shared Principal Collections, will be applied to cover
principal payments for other Series within Group One. Any reallocation for this
purpose will not reduce your Series' Investor Interest. In addition, you may
receive the benefits of collections of Principal Receivables and certain other
amounts allocated to other Series in Group One, to the extent those collections
are not needed for those other Series. See "Description of Series
Provisions--Shared Principal Collections" in this Prospectus Supplement and
"Description of the Transfer and Servicing Agreements--Shared Principal
Collections" in the accompanying Prospectus.
DENOMINATIONS
Beneficial interests in the Notes will be offered in minimum denominations of
$[100,000] and integral multiples of $[1,000] for amounts in excess of the
minimum denominations.
REGISTRATION, CLEARANCE AND SETTLEMENT
Your Notes will be registered in the name of Cede & Co., as the nominee of the
Depository Trust Company ("DTC"). You will not receive a definitive note
representing your interest, except in limited circumstances described in the
accompanying Prospectus when Notes in fully registered form are issued. See
"Certain Information Regarding the Securities--Definitive Notes" in the
accompanying Prospectus.
You may elect to hold your Notes through DTC, in the United States, or
Cedelbank, societe anonyme ("Cedelbank") or the Euroclear System ("Euroclear"),
in Europe. Transfers within DTC, Cedelbank or Euroclear, as the case may be,
will be made in accordance with the usual rules and operating procedures of
those systems. Cross-market transfers between persons holding directly or
indirectly through DTC and counterparties holding directly or indirectly through
Cedelbank or Euroclear will be made in DTC through the relevant depositaries of
Cedelbank or Euroclear. See "Certain Information Regarding the
Securities--Book-Entry Registration" in the accompanying Prospectus. We expect
11
<PAGE>
that the Notes will be delivered in book-entry form through the facilities of
DTC, Cedelbank and Euroclear on or about the Closing Date.
TAX STATUS
Special Counsel to the Issuer is of the opinion that, although there is no
direct authority with respect to notes similar to the Offered Notes, under
existing law the Offered Notes will be characterized as debt for federal income
tax purposes. Under the Indenture, you and the Issuer will agree to treat your
Notes as debt for federal, state and local income tax purposes and franchise tax
purposes. See "Certain United States Federal Income Tax Consequences" in the
accompanying Prospectus for additional information concerning the application of
federal income tax laws to an investment in the Offered Notes.
ERISA CONSIDERATIONS
Subject to important considerations described under "ERISA Considerations" in
this Prospectus Supplement and in the accompanying Prospectus, the Class A Notes
and Class B Notes are eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts.
NOTE RATINGS
The Class A Notes are required to be rated in the highest rating category by at
least one nationally recognized rating organization.
The Class B Notes are required to be rated in one of the three highest rating
categories by at least one nationally recognized rating organization. See "Note
Ratings" in the accompanying Prospectus for a discussion of the primary factors
upon which the ratings are based.
[EXCHANGE LISTING
We will apply to list the Offered Notes on the Luxembourg Stock Exchange. We
cannot guaranty that the application for the listing will be accepted. You
should consult with Bankers Trust Luxembourg S.A., the Luxembourg listing agent
for the Notes, 14 Boulevard F.D. Roosevelt, L-2450 Luxembourg, phone number
(352) 46 02 41, to determine whether or not the Offered Notes are listed on the
Luxembourg Stock Exchange.]
12
<PAGE>
RISK FACTORS
You should consider the following risk factors and the risk
factors described in the accompanying Prospectus in deciding whether to purchase
the Notes.
POSSIBLE EFFECT OF
INDIRECT OWNERSHIP
INTEREST IN AIC TRUST
RECEIVABLES VIA
TRANSFEROR CERTIFICATE
OF AIC TRUST Prior to the AIC Trust Termination Date, the Trust will
own the Transferor Certificate of the AIC Trust which is
generally a pro rata interest in the AIC Trust
Receivables. After the AIC Trust Termination date, the
Trust will directly own the AIC Trust Receivables. Under
periods of high delinquencies and/or losses on AIC Trust
Receivables and at any date of determination, if any,
when the Transferor's ownership interest is reduced
below its required minimum, the Trust, as owner of the
Transferor Certificate, will receive less than its
otherwise pro rata interest in the collections of the
AIC Trust Receivables. Such reduction in collections
would be the result of a condition that (a) during
periods of high delinquencies and/or losses on AIC Trust
Receivables, causes a portion of collections otherwise
allocated to the Transferor Certificate to be made
available to support payments due investors of the AIC
Trust in the form of yield enhancement and (b) at times
when the Transferor's ownership interest falls below its
required minimum for the AIC Trust, causes all losses
related to AIC Trust Receivables to be allocated to the
Transferor Certificate.
POSSIBLE EFFECTS OF
LACK OF HISTORICAL
EXPERIENCE WITH
DEFERRED PAYMENT
OBLIGATIONS Since AIGC has only recently begun to originate Deferred
Payment Obligations, there is no historical information
to determine what the loss experience will be with
respect to Deferred Payment Obligations as compared to
the loss experience of Loans. It is expected that the
loss experience of the Deferred Payment Obligations will
be comparable to that experienced by the Loans, due to
the use of the same underwriting and collection policies
and procedures in originating Deferred Payment
Obligations as is used in originating Loans. However,
there can be no assurance that the Receivables related
to Deferred Payment Obligations will not perform more
poorly than the Receivables related to Loans.
POSSIBLE EFFECT OF
GEOGRAPHIC
CONCENTRATION AND
ADVERSE ECONOMIC
FACTORS ON
ORIGINATION Significant percentages of Premium Finance Obligations
underlying the Receivables were originated in
[California, New York and Texas]. These percentages may
increase or decrease as Receivables are added to the
Trust. Economic factors such as a recession, the rate of
inflation, and relative interest rates, may have an
adverse impact on the performance of the Receivables and
on the ability of the Originators to generate new
Receivables. In particular, negative economic
developments in California, New York and Texas could
have an adverse impact on the timing and amounts of
payments collected by the Trust in respect of the
Receivables and could cause such Insureds to become
bankrupt or insolvent. Such developments could lead to a
Pay Out Event which could cause the early retirement of
the Offered Notes and result in reinvestment risk. See
"Description of Series Provisions--Pay Out Events" and
"Maturity Assumptions."
13
<PAGE>
THE AIGC PREMIUM FINANCE PORTFOLIOS
GENERAL
The receivables (the "Receivables") will be purchased from
time to time by ART under a receivables purchase agreement (as amended from time
to time, the "Purchase Agreement") among A.I. Credit Corp. ("AIC"), AICCO, Inc.
("AICCO"), Imperial Premium Finance Inc., a Delaware corporation ("IP Finance
I"), Imperial Premium Finance, Inc., a California corporation ("IP Finance II")
and Imperial Premium Funding, Inc., a Delaware corporation ("IP Funding" and
together with IP Finance I and IP Finance II, the "Imperial Originators"), as
original sellers (collectively, the "Originators") and ART. The Receivables will
be subsequently conveyed to the Trust by ART pursuant to the sale and servicing
agreement (as amended from time to time, the "Sale and Servicing Agreement")
among ART as seller (the "Seller"), AIC, AICCO, IP Finance I, IP Finance II and
IP Funding, each as a servicer (collectively, the "Servicer"), AIG Credit
Premium Finance Master Trust (the "Trust"), as purchaser, Chase Manhattan Bank
Delaware, as owner trustee (the "Owner Trustee") and the Indenture Trustee. The
Loan Portfolio and the Obligations Portfolio (together the "AIGC Portfolio")
have been or will be generated from loans to Insureds to finance commercial
property and casualty insurance premiums (the "Loans") (the "Loan Portfolio")
and deferred payments to become due from Insureds to finance commercial casualty
and property insurance premiums (the "Deferred Payment Obligations" and together
with Loans, "Premium Finance Obligations") (the "Obligations Portfolio").
On the Closing Date, the Receivables purchased by ART and
transferred to the Trust will be Receivables originated only by the Imperial
Originators. Prior to the AIC Trust Termination Date, Receivables originated by
AIC and AICCO will be transferred to the AIC Trust. The Trust will own a partial
pro rata portion of the AIC Trust Receivables through its ownership of the
transferor's certificate of the AIC Trust. After the AIC Trust Termination Date,
the Trust will own directly all the AIC Trust Receivables originated by AIC and
AICCO; and thereafter, the Receivables purchased by ART and transferred to the
Trust will include Receivables originated by all the Originators, including AIC
and AICCO. As used in the following discussion of the Originator's commercial
premium finance business is deemed to include each of the Originators'
businesses, without further reference and the term AIGC is deemed to include
each of the Originators.
PREMIUM FINANCE OBLIGATION ORIGINATION; COLLECTION POLICY
The Receivables and related Premium Finance Obligations
will be originated by AIGC under its origination procedures described more fully
in the Prospectus. See "Business of A.I. Receivables Transfer Corp. and the
Originators--Premium Finance Loan Origination; Collection Policy" and
"--Deferred Payment Obligation Origination; Collection Policy." AIGC generally
locates Insureds through either independent insurance agents and brokers that
are licensed under state laws or through insurance companies, who offer premium
finance programs to enable their commercial customers to purchase the full
amount of insurance coverage needed and spread out the cost of premium payments
over time. Thus, origination is usually dependent on relationships with
insurance brokers, agents and insurance companies and knowledge of the insurance
marketplace. The financing by AIGC of insurance premiums is commonly commenced
by an agent, broker or insurance company contacting AIGC to initiate the
financing process and outlining to AIGC the proposed transaction, including
Insured and insurance company information and coverage types and amounts. AIGC
then reviews the information submitted in light of its underwriting procedures.
See "Business of A.I. Receivables Transfer Corp. and the Originators--Premium
Finance Obligations Underwriting Procedures" in the accompanying Prospectus.
After AIGC approval, (a) in the case of a Loan, the Insured executes a standard
premium finance loan agreement, which contains a promise to repay the Loan, a
limited power of attorney giving AIGC the authority in the event of default on
the Loan to contact the insurance company directly and cancel coverage, and a
collateral assignment to AIGC of the unearned insurance premium, if any,
returnable following such cancellation and may, in some cases, include an
assignment of additional collateral (which may take the form of a letter of
credit or surety bond) to secure the Loan and (b); in the case of Deferred
Payment Obligations, AIGC executes a purchase agreement with the insurance
14
<PAGE>
company, which contains an assignment of the Insured's promise to pay the
premium due in predetermined installments, the obligation of the insurance
company upon notification by AIGC of a non-payment by the Insured to cancel the
coverage, and a collateral assignment to AIGC of the unearned insurance premium,
if any, returnable following such cancellation, and/or a collateral assignment
of other collateral, if any, pledged by the insurance company acceptable to
AIGC.
Following receipt and acceptance of the signed agreement,
in the case of Loans, AIGC either sends the proceeds to the insurance company to
pay the premium balance due or releases funds to the insurance agent or broker
who then pays the insurance company and in the case of Deferred Payment
Obligations, AIGC pays the purchase price directly to the insurance company.
AIGC bills the Insured directly on a monthly basis. Each Insured is directed to
remit payments to the appropriate regional lockbox account maintained by AIGC.
In the case of Loans, upon a default of a Loan, AIGC will
generally notify the Insured of the default and cancel the policy as required
under the applicable regulations and its limited power of attorney. See
"Business of A.I. Receivables Transfer Corp. and the Originators--Premium
Finance Loan Origination; Collection Policy" in the Prospectus. Once a policy
has been cancelled (a) in the case of Loans, AIGC will customarily proceed to
take steps to collect any unearned premium available from the insurance company
and, if applicable, realize on any collateral and apply it to the outstanding
Loan balance. If the returned premium and amounts realized from collateral, if
any, do not retire the Loan balance, AIGC will customarily seek payment from the
Insured pursuant to the terms of the loan agreement and (b) in the case of
Deferred Payment Obligations, AIGC will, if the insurance company has agreed to
return unearned premiums upon cancellation, take steps to collect such unearned
premiums from the insurance company and if that fails, is otherwise insufficient
or unavailable, to realize on any collateral securing the insurance company's
repayment obligation, if any.
Generally, the policy cancellation date occurs within one
month of the related payment default. The current policy of AIGC is to charge
off as a loss the unpaid defaulted Premium Finance Obligation one year after the
cancellation or cancellability as applicable, of the related policy. Following
such date, AIGC will process the collection of any unearned premium with the
appropriate insurance company, will realize on any collateral, if any, or, in
the case of a Loan, may pursue collection against the Insured if sufficient
unearned premium is unavailable and amounts realized on any collateral prove
insufficient. If during this period AIGC determines the unpaid Premium Finance
Obligation is not likely to be collected, AIGC may charge off the obligation
prior to such first anniversary. Under the terms of the Indenture, any
recoveries with respect to the Premium Finance Obligations that have been
written off will be included in the assets of the Trust and considered Finance
Charge Receivables. See "The Receivables." See "Business of A.I. Receivables
Transfer Corp. and the Originators--Premium Finance Loan Origination; Collection
Policy" in the Prospectus.
THE ORIGINATORS PREMIUM FINANCE PORTFOLIO
Certain information regarding the performance and
composition of the portfolio of premium finance obligations of the Originators
(the "Originator's Portfolio") is set forth below. The Imperial Originators will
transfer to the Seller for transfer to the Trust the Eligible Receivables
resulting from all eligible Premium Finance Obligations funded or purchased by
them since the initial Cut-Off Date and prior to the Closing Date, and expect
thereafter to transfer the Eligible Receivables resulting from all eligible
Premium Finance Obligations financed or purchased by them to the Seller for
transfer to the Trust pursuant to the Sale and Servicing Agreement. Upon the AIC
Trust Termination Date, AIC and AICCO will transfer AIC Trust Receivables to the
Seller for transfer to the Trust. There can be no assurance that the performance
experience of the Receivables relating to the Premium Finance Obligations
transferred to the Trust will be comparable to that set forth below. In
addition, there are many legal, economic and competitive factors that could
adversely affect the amount and collectability of the Premium Finance
Obligations related to the Receivables, including Insureds' decisions to use new
sources of credit, which would affect the ability of the Originators to generate
Additional Receivables, and changes in usage of credit, payment patterns and
15
<PAGE>
general economic conditions. Because the impact of these and other factors
(including the composition of the Receivables and the interest rates, fees and
charges assessed on the related Premium Finance Obligations thereon) may change
in the future, the text and tables set forth below are not necessarily
indicative of the future performance of the Receivables that are transferred to
the Trust.
The following tables set forth certain summary information
regarding the Originator's Portfolio, which comprises all premium finance
obligations to domestic Insureds funded and purchased by the Originators. The
Originator's Portfolio as of June 30, 1999 has consisted exclusively of loans
and has never contained any deferred payment obligations. At [June 30, 1999] in
excess of [30%] of the aggregate outstanding account balance (as defined herein
in the table entitled "Outstanding Premium Finance Account Balances by Size"
under "The Receivables") represented obligations funded by the Originators to
finance premiums on policies issued by insurance affiliates of AIG. As of such
date, no other insurance company group, domestic or foreign, accounted for more
than [6%] of the outstanding obligations funded by the Originators. As of June
30, 1999, the total premium finance obligation account balance in the
Originator's Portfolio was $1,478,854,758. The average premium finance
obligation account balance was approximately $10,100. The average premium
finance obligation account balance remaining term was approximately 10 months.
The Originator's Portfolio includes obligations originated in all 50 states and
the District of Columbia [and Puerto Rico]. During each of the calendar years
1996, 1997 and 1998 and the six months ended [June 30,] 1999, the average yield
on the Originator's Portfolio has exceeded the monthly average of the daily
rates in the London interbank market for offers of one-month United States
dollar deposits by at least 300 basis points for each monthly period. Due to
future changes in the interest rate environment, competition from other lenders
and other relevant factors, there can be no assurance the average spread between
the yield on the Originator's Portfolio and one-month LIBOR will not be lower in
the future. Also, during each of the calendar years 1996, 1997 and 1998 and the
six months ended June 30, 1999, the average monthly payment rate on premium
finance obligations in the Originator's Portfolio was approximately 18% or
higher. There can be no assurance, however, that the monthly payment rate on the
Premium Finance Obligations will not be less than 18% since the payment rate
will vary depending on a variety of factors, including, maturities, interest
rates, delinquency rates and default rates of the Premium Finance Obligations in
the Trust. Lower payment rates will result in lower yield enhancement amounts.
See "Description of Series Provisions--Yield Enhancement Account."
16
<PAGE>
OUTSTANDING PREMIUM FINANCE OBLIGATION ACCOUNT BALANCES BY SIZE
AS OF JUNE 30, 1999
-------------------------------------------------------------
<TABLE>
<CAPTION>
% OF AGGREGATE
OUTSTANDING
PREMIUM
NO. PREMIUM % OF PREMIUM FINANCE
FINANCE FINANCE OUTSTANDING PREMIUM OBLIGATION
OUTSTANDING PREMIUM FINANCE OBLIGATION OBLIGATION FINANCE OBLIGATION ACCOUNT
OBLIGATION ACCOUNT BALANCE(1)(3) ACCOUNTS(2) ACCOUNTS ACCOUNT BALANCE BALANCE (4)
-------------------------------- ----------- -------- --------------- -----------
<S> <C> <C> <C> <C>
$5,000 or less......................... 115,148 78.97% $160,692 10.87%
$5,001 to $10,000...................... 14,030 9.62% 98,420 6.66%
$10,001 to $25,000..................... 9,785 6.71% 150,745 10.19%
$25,001 to $50,000..................... 3,435 2.36% 119,331 8.07%
$50,001 to $75,000..................... 1,208 0.83% 73,109 4.94%
$75,001 to $100,000.................... 552 0.38% 47,765 3.23%
$100,001 to $250,000................... 1,015 0.70% 154,673 10.46%
$250,001 to $500,000................... 343 0.24% 118,801 8.03%
$500,001 to $1,000,000................. 160 0.11% 111,684 7.55%
$1,000,001 to $5,000,000............... 124 0.09% 234,045 15.83%
$5,000,001 to $10,000,000.............. 9 0.01% 64,239 4.34%
$10,000,001 to 15,000,000.............. 5 0.00% 58,767 3.97%
Greater than $15,000,000............... 4 0.00% 86,586 5.85%
--------- --------- -------------- ---------
Total(3)............................... 145,818 100.00% $1,478,855 100.00%
========= ========= ============== =========
</TABLE>
------------------------------------------
(1) Account balances include outstanding principal balances (including
committed but unfunded amounts) and unearned finance charges.
(2) A premium finance obligation account is generally a single Insured that
may have premium finance obligations with respect to one or more
commercial insurance policies outstanding at the time of determination.
(3) The average outstanding account balance as of June 30, 1999 was
approximately $10,100.
(4) Dollar amounts and percentages may not sum exactly to the totals because
of rounding.
17
<PAGE>
COMPOSITION OF PREMIUM FINANCE OBLIGATION ACCOUNTS BY REMAINING
INSTALLMENT TERM
AS OF JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OUTSTANDING % OF AGGREGATE
NO. OF PREMIUM PREMIUM FINANCE OUTSTANDING PREMIUM
FINANCE OBLIGATION FINANCE OBLIGATION ACCOUNT
OBLIGATION ACCOUNT BALANCE (2)
REMAINING INSTALLMENT TERM(1) ACCOUNTS BALANCE (1)(2) --------------------------
----------------------------- -------- --------------
<S> <C> <C> <C>
3 months or less..................................... 67,229 $ 228,939 15.48%
4 to 6 months........................................ 46,165 380,603 25.74%
7 to 9 months........................................ 28,769 381,513 25.80%
10 to 12 months...................................... 2,604 151,694 10.26%
13 to 18 months...................................... 493 89,201 6.03%
More than 18 months.................................. 558 246,905 16.70%
----------- ------------- -----------
Total............................................ 145,818 $ 1,478,855 100.00%
=========== ============= ===========
</TABLE>
------------------------------------------
(1) Terms of the premium finance obligations commonly provide for level
payments of principal and finance charges on a monthly basis, although
certain premium finance obligations do not have a level repayment
requirement.
(2) Dollar amounts and percentages may not sum exactly to the totals due to
rounding.
18
<PAGE>
GEOGRAPHIC DISTRIBUTION
AS OF JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Outstanding Premium % Of Aggregate Outstanding
Finance Obligation Premium Finance Obligation
Account Balance (3) Account Balance (1)(3)
------------------- ----------------------
<S> <C> <C>
California............................................ $ 349,773 23.65%
New York.............................................. 234,627 15.87%
Texas................................................. 135,287 9.15%
New Jersey............................................ 72,541 4.91%
Illinois.............................................. 50,634 3.42%
Florida............................................... 50,585 3.42%
Pennsylvania.......................................... 45,787 3.10%
Louisiana............................................. 35,507 2.40%
Ohio.................................................. 34,262 2.32%
Maryland.............................................. 29,924 2.02%
Massachusetts......................................... 29,867 2.02%
Other (2)............................................. 410,060 27.73%
------------------ -------------
Total........................................... $1,478,855 100.00%
================== =============
</TABLE>
------------------------------------------
(1) Significant percentages of the premium finance obligations funded by the
Originators are originated in California, New York and Texas, and
accordingly, adverse economic developments in such areas could adversely
affect collections of Receivables related to obligations originated in
such areas.
(2) States with 2% or less of the total premium finance obligation account
balances.
(3) Dollar amounts and percentages may not sum exactly to the totals due to
rounding.
19
<PAGE>
PREMIUM FINANCE OBLIGATION LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
The following table sets forth loss experience with respect
to payments by Insureds on premium finance obligations for each of the periods
shown. This table does not include deferred payment obligations, because AIGC
only recently began to originate premium finance obligations in this form. There
can be no assurance that the loss experience for the Trust with respect to the
Receivables will be similar to the historical experience set forth below.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Aggregate Outstanding Principal Balance (1)............... $1,396,841 $1,447,863 $1,428,515 $1,274,309
Gross Charge-Offs (2)............................................. 6,457 19,196 15,308 11,221
Recoveries (3).................................................... 2,818 4,140 3,210 2,716
Net Charge-Offs................................................... 3,638 15,056 12,098 8,505
Net Charge-Offs as Percentage of Average Aggregate Outstanding
Principal Balance, Net (2)..................................... 0.52% (4) 1.04% 0.85% 0.67%
</TABLE>
------------------------------------------
(1) Calculated as the average of (a) the average monthly beginning receivables
balance and (b) the average monthly ending receivables balance, over the
relevant periods (balances do not include unfunded premium finance
obligations).
(2) A premium finance obligation is generally charged-off one year after
cancellation. The related insurance policy is cancelled generally within
one month following an Insured's failure to make a scheduled installment
payment.
(3) A recovery occurs if, after a premium finance obligation is written off,
the Originator as the case may be, receives additional funds to pay in
whole or in part the outstanding balance due.
(4) Calculated on an annualized basis.
20
<PAGE>
PREMIUM FINANCE OBLIGATION DELINQUENCY EXPERIENCE
FOLLOWING CANCELLATION
The following table sets forth the delinquency experience
with respect to payments by Insureds on premium finance obligations in the
Originator's Portfolio at each of the dates shown. This table does not include
deferred payment obligations, because AIGC only recently began to originate
premium finance obligations in this form. In conformity with state requirements
regarding cancellation notification, insurance policies are generally cancelled
within one month following an Insured's failure to make a related scheduled
obligation installment payment. Cancellation occurs on an automated basis unless
the obligation is carried in the "hold" category by AIGC. The "hold" category
includes primarily obligations that require manual servicing procedures and
obligations where cancellation of the related policy is stayed due to the
Insured's bankruptcy, some of which obligations may be delinquent. At June 30,
1999 "hold" category obligations represented approximately 0.02% of the
aggregate principal balance (excluding unearned finance charges) of the
Originator's Portfolio. The delinquency data presented in the following table
are measured from the date of insurance policy cancellation. The percentages
presented for each aging category reflect the sum of the balance of principal
and unearned finance charges (including the overdue installment(s) as well as
all of the remaining installment payments not yet due) on all cancelled
obligations within each category divided by the aggregate principal balance
(excluding unearned finance charges) of the Originator's Portfolio. Since the
table reflects percentages calculated by including unearned finance charges in
the cancelled obligations but not including such amounts in the aggregate
balances, the resulting percentages may reflect higher percentages of
delinquencies than actually experienced. Variations from one measurement date to
another measurement date within aging categories are primarily a reflection of
the variability of time required to collect the unearned insurance premium from
the insurance carrier or, alternatively, the remaining obligation balance from
the Insured, on a revolving pool of obligations. There can be no assurance that
the delinquency experience with respect to the Receivables will be similar to
the historical experience set forth below.
PREMIUM FINANCE OBLIGATION DELINQUENCY EXPERIENCE FOLLOWING CANCELLATION
<TABLE>
<CAPTION>
NUMBER OF DAYS A PREMIUM FINANCE
OBLIGATION REMAINS OVERDUE
AFTER CANCELLATION OF THE
RELATED INSURANCE POLICY: AT JUNE 30, AT DECEMBER 31,
----------- -------------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
1-30 days........................................... 1.07% 1.47% 1.82% 2.05%
31-60 days.......................................... 0.53% 0.74% 0.80% 0.78%
61-90 days.......................................... 0.34% 0.47% 0.69% 0.61%
91-120 days......................................... 0.32% 0.40% 0.76% 0.43%
121-150 days........................................ 0.39% 0.39% 0.31% 0.31%
151 days or greater(1).............................. 1.40% 1.11% 0.95% 1.09%
--------- -------- -------- -------
Total .......................................... 4.05% 4.59% 5.33% 5.26%
========= ======== ======== =======
</TABLE>
(1) A premium finance obligation is generally charged-off one year after
cancellation of the related insurance policy.
21
<PAGE>
THE RECEIVABLES
The Receivables transferred to the Trust arose from Premium
Finance Obligations selected from the AIGC Portfolio on the basis of criteria
set forth in the Purchase Agreement as applied on October 31, 1999 (the "Cut-Off
Date" and, with respect to Additional Receivables, as of the related date of
their transfer. The aggregate amount of Principal Receivables as of the Closing
Date was no less than $[___]. Pursuant to the Sale and Servicing Agreement, the
Seller has the right, subject to certain limitations and conditions set forth
therein, to transfer Additional Receivables to the Trust from time to time. Any
Additional Receivables transferred pursuant to the Sale and Servicing Agreement
must be Eligible Receivables as of the date of the transfer of such Additional
Receivables. In addition, the Seller will be required to transfer Additional
Receivables, to the extent available and subject to limitations and conditions
set forth in the accompanying Prospectus (See "Description of the Transfer and
Servicing Agreements--Addition of Trust Assets") to maintain the Trust Interest
so that as of any date of determination, the Trust Interest is at least equal to
the Minimum Trust Interest as of the immediately preceding Monthly Period. Such
Additional Receivables shall be transferred to the Trust on or before the
Transfer Date immediately following such date of determination. For a definition
of the Minimum Trust Interest and Excess Receivable Amount, see "Description of
Series Provisions--Excess Funding Account; Minimum Trust Interest; Excess
Receivables Amount." Further, pursuant to the Sale and Servicing Agreement, on
each date of determination on which the Trust Interest exceeds the Minimum Trust
Interest, the Seller will have the right (subject to certain limitations and
conditions set forth in the accompanying Prospectus, see "Description of the
Transfer and Servicing Agreements--Removal of Receivables") to designate certain
Receivables for removal from the Trust and release from the lien of the
Indenture (the "Removed Receivables") and to require the Indenture Trustee to
reconvey all such Removed Receivables to the Seller for cash. Throughout the
term of the Trust, the Receivables will be Receivables transferred by the Seller
on the Cut-Off Date plus any Additional Receivables minus any Removed
Receivables as of the related date.
The assets of the Trust will include (i) the entire
beneficial interest in Receivables from Premium Finance Obligations, which
interest will be transferred to the Trust by the Seller pursuant to the Sale and
Servicing Agreement on or before the Closing Date, (ii) to the extent described
under "Description of the Transfer and Servicing Agreements--Addition of Trust
Assets" in the accompanying Prospectus, the entire beneficial interest in
Receivables originated by the Originators from time to time thereafter other
than AIC Trust Receivables until the AIC Trust Termination Date (including after
the Closing Date), including (A) all amounts due and to become due and all
collections and recoveries on such Premium Finance Obligations and (B) the
proceeds of certain collateral security securing such Premium Finance
Obligations and (iii) the ownership interest of A. I. Receivables Corp. ("AIR")
in the AIC Trust. The beneficial interests described above are herein referred
to as the "Receivables." The Trust assets will not include, as of any date of
determination, (a) with respect to any Receivable arising under a Premium
Finance Obligation which is not a Defaulted Obligation, any collections received
by the Servicer on such Premium Finance Obligation in excess of the sum of (i)
the amounts due and payable on such Premium Finance Obligation during the month
in which such date occurs and (ii) all accrued and unpaid amounts, if any, on
such Premium Finance Obligation in respect of any month or months prior to the
month in which such date occurs or (b) with respect to any Receivable arising
under a Defaulted Obligation, any collections received by the Servicer on such
Defaulted Obligation in excess of all amounts due thereon (each, a "Credit
Balance").
Each Premium Finance Obligation has been directly financed
by the Originators or Third Party Originators. Neither the Loans, the Deferred
Payment Obligations nor the Receivables are guaranteed by the Seller, the
Originators, AIGCC, AIG or any affiliate thereof, and the Trust, as holder of
the Receivables, has no recourse against the Seller, the Originators, AIGCC, AIG
or any affiliate thereof for the non-collectability of the Receivables, except
that, under certain limited circumstances, the Seller and the Servicer will be
required to repurchase certain Receivables from the Trust. AIC, AICCO, IP
Finance I, IP Finance II and IP Funding will each act as Servicer with respect
to the Receivables relating to the Premium Finance Obligations it sold to ART
22
<PAGE>
for transfer to the Trust. As set forth in the Sale and Servicing Agreement,
each Receivable to be transferred to the Trust must satisfy certain eligibility
criteria. See "Description of the Transfer and Servicing
Agreements--Representations and Warranties" in the accompanying Prospectus.
AIC TRUST INTEREST
The Trust's assets will include a certificate (the
"Transferor Certificate") which represents an ownership interest in AIC Premium
Finance Loan Master Trust (the "AIC Trust"), whose assets are the beneficial
interest in a pool of Loans funded by AIC and AICCO to Insureds to finance
premiums on property and casualty insurance polices governed by the laws of the
United States or the District of Columbia, including the right to receive all
amounts due and to become due and all collections and recoveries on the Loans,
together with the proceeds of collateral securing such Loans (the "AIC Trust
Receivables"). The AIC Trust Receivables, and new receivables to be transferred
to the AIC Trust, were and will be purchased by A.I. Receivables Corp. ("AIR")
from AIC and AICCO. Each of AIC and AICCO owns 50% of AIR. The Transferor
Certificate represents an interest in the AIC Trust Receivables that is
economically similar in many respects to the unencumbered interest in the Trust
assets that is retained by the Trust and is referred to herein as the Trust
Interest.
AIC and AICCO originated the Loans underlying the AIC Trust
Receivables using the same origination policy as described herein with respect
to the Receivables originated by AIGC. AIC and AICCO utilize the collection
policy and procedures with respect to the AIC Trust Receivables as is described
herein for the Receivables. [The AIC Trust Receivables are and will be serviced
by AIC and AICCO in the same manner and using the same servicing polices
described herein for the Receivables.]
The AIC Trust is a master trust. As of the Cut-Off Date,
the outstanding principal balance of the Receivables in the AIC Trust was [___].
It has issued three series of floating rate certificates, with various classes,
representing an undivided interest in the assets of the AIC Trust not
represented by the Transferor Certificate. As of the Cut-Off Date, the
outstanding principal amount of the certificates issued by the AIC Trust was
[___]. The Transferor Certificate represents the right to collections with
respect to the AIC Trust Receivables not allocated to any outstanding series of
certificates. Collections on AIC Trust Receivables will be allocated among the
holders of each outstanding series of certificates and the Trust, as holder of
the Transferor Certificate, based generally on their respective ownership
interests in the AIC Trust. As additional AIC Trust Receivables are added to the
AIC Trust and as collections with respect to principal receivables and default
amounts, if any, are allocated to the Transferor's ownership interest in the AIC
Trust, the size of the Transferor's ownership interest will fluctuate. The
certificates issued by the AIC Trust are expected to be fully paid no later than
[November 15, 2000]. At that time, all AIC Trust Receivables will be transferred
to the Trust.
Under the terms of the underlying agreements for each
series of certificates issued by the AIC Trust, amounts otherwise allocable to
the Trust, as holder of the Transferor Certificate, are diverted to fund a yield
enhancement account, similar to the Yield Enhancement Account, to support
payments on the outstanding series of certificates of the AIC Trust. In
addition, under certain circumstances, if on any date the Transferor's ownership
interest equals or is less than the minimum Transferor's ownership interest,
funds (to the extent available therefor) otherwise payable to the Trust, as the
holder of the Transferor Certificate, on such date will be deposited into an
account similar to the Excess Funding Account to support principal payments on
the outstanding series of certificates.
As a result of the foregoing obligations, under periods of
high delinquencies and/or losses on AIC Trust Receivables and at any date of
determination, if any, when the Transferor's ownership interest is reduced below
its required minimum, the Trust, as owner of the Transferor Certificate, will
receive less than its otherwise pro rata interest in the collections of the AIC
Trust Receivables. Such reduction in collections would be the result of a
condition that (a) during periods of high delinquencies and/or losses on AIC
Trust Receivables, causes a portion of collections otherwise allocated to the
23
<PAGE>
Transferor Certificate to be made available to support payments due investors of
the AIC Trust in the form of yield enhancement and (b) at times when the
Transferor's ownership interest falls below the required minimum Transferor's
ownership interest for the AIC Trust and results in a Pay Out Event, causes all
losses related to AIC Trust Receivables to be allocated to the Transferor
Certificate.
As a means of protecting the AIC Trust from the effects of
the bankruptcy of AIC, AICCO and AIR, AIG entered into support agreements in
which AIG has agreed to cause each of AIC, AICCO and AIR to have a minimum net
worth of at least $1 and to provide AIC, AICCO and AIR with sufficient funds on
a timely basis to meet when due their respective obligations under the AIC Trust
transaction documents. AIG, AIC, AICCO and AIR have not, however, agreed to
guarantee payment of any outstanding series of certificates issued by the AIC
Trust, the underlying Loans or the AIC Trust Receivables.
In connection with the issuance of the Series 1999-1
Floating Rate Class A Asset Backed Certificates issued on May 28, 1999 by the
AIC Trust, AIG also provided indemnification to the AIC Trust, in the form of an
indemnity agreement, dated as of June 3, 1999 (the "Indemnity Agreement") to
indemnify the AIC Trust for all losses in respect of defaulted receivables
related to defaulted Loans in excess of certain insurer and Insured
concentration limits. The effect of such indemnification is the exclusion of
such excess concentration amounts from the minimum Transferor's ownership
interest. Any future collections with respect to such concentration amounts so
indemnified will be allocated to the AIC Trust and AIG pro rata to the extent of
such indemnification.
MATURITY ASSUMPTIONS
The Indenture provides that the Class A Noteholders will
not receive payments of principal until the first Payment Date of the Class A
Controlled Amortization Period, which is scheduled to be the [ _______ ] Payment
Date, or earlier in the event of a Pay Out Event which results in the
commencement of the Rapid Amortization Period [or in connection with a
Refinancing]. [However, the Trust may elect (upon notice to the Indenture
Trustee, given no later than 5 days prior to a Payment Date) to delay the
Controlled Amortization Period to a Payment Date specified by the Trust, but,
not later than the [ _____ ] Payment Date.] Class A Noteholders will receive
payments of principal on each Payment Date during the Rapid Amortization Period,
to the extent of funds available therefor, until the Class A Notes have been
paid in full or the Series [ __ ]-1 Termination Date has occurred. The Class B
Noteholders will not begin to receive payments of principal until the Class A
Notes are paid in full.
CONTROLLED AMORTIZATION PERIOD
On each Payment Date during the Controlled Amortization
Period, unless the Class A Notes have been paid in full or the Rapid
Amortization Period commences, the Class A Noteholders will be entitled to
receive for each related Monthly Period an amount equal to the least of (i)
Available Investor Principal Collections on deposit in an account established by
the Indenture Trustee (the "Principal Account"), with respect to the related
Transfer Date, (ii) the Controlled Distribution Amount and (iii) the outstanding
principal balance of the Class A Notes. After payment in full of the Class A
Notes, the Class B Noteholders will be entitled to receive on each Payment Date
during the Class B Controlled Amortization Period the least of (i) the amount of
Available Investor Principal Collections on deposit in the Principal Account
with respect to the related Transfer Date (minus the portion of such Available
Investor Principal Collections applied to the Class A Monthly Principal on such
Transfer Date), (ii) the Controlled Distribution Amount (minus the portion of
such Controlled Distribution Amount applied to the Class A Monthly Principle on
such Transfer Date) and (iii) the outstanding principal balance of the Class B
Notes. Although it is anticipated that collections of Principal Receivables will
be available on each Payment Date during the Controlled Amortization Period to
make the distributions described in the foregoing and that the outstanding
principal balance of the Class A Notes will be paid to the Class A Noteholders,
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the outstanding principal balance of the Class B Notes will be paid to the Class
B Noteholders and the outstanding principal balance of the Class C Notes will be
paid to the Class C Noteholders on the Payment Date relating to the expected
maturity, no assurance can be given in this regard.
RAPID AMORTIZATION PERIOD
If either (a) a Trust Pay Out Event occurs or (b) a Series
[ ]-1 Pay Out Event occurs, the Rapid Amortization Period will commence.
On each Payment Date during the Rapid Amortization Period,
the Class A Noteholders will be entitled to receive Available Investor Principal
Collections deposited in the Principal Account for the related Monthly Period
until the earlier of the date the outstanding principal balance of the Class A
Notes is paid in full, the Series [ __ ]-1 Termination Date and the discharge of
the Indenture. After payment in full of the Class A Notes, the Class B
Noteholders will be entitled to receive on each Payment Date during the Rapid
Amortization Period, Available Investor Principal Collections (minus the portion
of such Available Investor Principal Collections applied to the Class A Monthly
Principal on such date) until the earlier of the date the outstanding principal
balance of the Class B Notes is paid in full, the Series [ __ ]-1 Termination
Date and the discharge of the Indenture. See "--Pay Out Events" below for a
discussion of events which might lead to the commencement of the Rapid
Amortization Period.
PAY OUT EVENTS
A Series[ __ ]-1 Pay Out Event occurs, either automatically
or after specified notice, upon (a) the failure of any Originator, the Trust or
the Seller to make certain payments or transfers of funds for the benefit of the
Noteholders within the time periods stated in the Indenture, (b) certain
material breaches of certain representations, warranties or covenants of any
Originator, the Trust or the Seller, (c) the Trust Interest as of the end of the
preceding Monthly Period does not at least equal the largest required Minimum
Trust Interest of any outstanding Series at the end of the preceding Monthly
Period and the Seller has failed to transfer Additional Receivables and/or
decrease the outstanding amount of any variable funding notes to increase the
Trust Interest, (d) the occurrence of a Servicer Default which would have a
material adverse effect on the Noteholders, (e) if the Monthly Payment Rate is
less than [ __ ]% for three consecutive Monthly Periods, (f) a Financed Premium
Percentage of more than [ __ ]% for three consecutive Monthly Periods, (g) if
the Annualized Monthly Excess Spread Amount is less than [ __ ] % for three
consecutive Monthly Period, (h) the Unconcentrated 240+ Day Delinquency
Percentage is greater than [ __ ]% for three consecutive Monthly Periods, (i)
upon an Event of Default, (j) the Notes have not been paid in full on the
Expected Final Payment Date, (k) an Insolvency Event (as defined in the
Indenture) occurs with respect to AIG, or (l) the Trustee fails to have a valid
first priority perfected interest in any portion of the Trust assets, which
materially and adversely affects the interest of the Noteholders and the Trust
does not repurchase such affected portion of the Trust assets within one
business day's notice of such failure. A Trust Pay Out Event occurs
automatically upon (a) certain bankruptcy or insolvency events involving any
Originator, the Servicer or the Seller, (b) the Trust or the Seller becoming an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or (c) the Seller becoming unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of the Sale and
Servicing Agreement or (d) AIG fails to meet its support obligations under the
AIG Support Agreement or the support obligations are amended, modified or
terminated, other than as permitted under the AIG Support Agreement. See
"Description of Series Provisions--Pay Out Events" in this Prospectus Supplement
and "Description of the Transfer and Servicing Agreements--Pay Out Events" in
the accompanying Prospectus.
OTHER CONSIDERATIONS
Because there may be a slowdown in the payment rate of the
Receivables below the payment rates used to determine the Controlled
Distribution Amounts, or a Pay Out Event may occur which would initiate the
Rapid Amortization Period, there can be no assurance that the respective final
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Payment Dates of the Class A Notes and the Class B Notes will be as indicated
herein. See "Risk Factors--Possible Effect of Insufficiency of Additional
Receivables."
Your ability to receive payments of principal during the
Controlled Amortization Period or any Rapid Amortization Period depends on the
amount and schedule of installments of outstanding Receivables, delinquencies,
charge-offs, the generation and transfer of Additional Receivables and the
potential issuance by the Trust of additional Series. There can be no assurance
as to the actual rate of payment of principal of your Notes. See "Description of
Series Provisions--Principal Payments."
In addition, the amount of outstanding Receivables, as well
as delinquencies, charge-offs and the generation of new Receivables may vary
from month to month due to seasonal variations, regulatory factors, general
economic conditions and conditions in the markets for the services offered by
the Originators. There can be no assurance that collections of Receivables with
respect to the Trust, and thus the rate at which you could expect to receive
payments of principal on your Notes, will be as indicated in this Prospectus
Supplement. In addition, the Trust, as a master trust, may issue additional
Series from time to time, and there can be no assurance that the terms of any
such Series would not have an impact on the timing or amount of payments
received by you. Further, if a Pay Out Event occurs, the average life and
maturity of your Notes could be significantly reduced. No prepayment premium
will be payable on account of any prepayment of the Offered Notes as the result
of the occurrence of the Rapid Amortization Period [or a Refinancing].
If an event of bankruptcy relating to any Originator, the
Servicer or the Seller were to occur, then a Pay Out Event could occur with
respect to all Series then outstanding and, pursuant to the Indenture, the
Seller would immediately cease to transfer Receivables to the Trust. If the
Trust becomes the subject of a bankruptcy proceeding, then the Indenture Trustee
may, upon the direction of holders of more than 50% of the investors' interests
of each Series issued and outstanding, including any notes held by the Seller if
no bankruptcy-related event has occurred as to the Seller (or, with respect to
any Series with two or more classes, more than 50% of each class), declare the
Notes to be due and payable and proceed to sell all the Receivables of the Trust
in accordance with the Indenture in a commercially reasonable manner and on
commercially reasonable terms, which may cause early termination of the Trust.
However, in a bankruptcy proceeding with respect to any Originator, the Servicer
or the Seller, neither the Indenture Trustee nor the Seller may be permitted to
suspend transfers of Receivables to the Trust and the Seller, respectively, and
the instructions to sell or not to sell the Receivables may not be given effect.
However, the likelihood of a bankruptcy proceeding related to any Originator,
the Servicer or the Seller is significantly reduced by the AIG Support
Agreement. See "Risk Factors--Possible Effects of Insolvency or Bankruptcy of
the Originators or the Seller" in the Prospectus. The proceeds from the sale of
the Receivables would be treated as collections on the Receivables and allocated
accordingly among noteholders of each Series. If the proceeds from such early
sale allocable to such Series, if any, and the amounts available under any
Enhancement applicable to such Series were insufficient to pay noteholders of
such Series fully, a loss to noteholders of each such Series, including your
Series, would result.
THE TRUST, THE SELLER, THE ORIGINATORS AND THE SERVICER
AIG Credit Premium Finance Master Trust ("Trust") was
created in Delaware on November 5, 1999 and is wholly owned by A.I. Receivables
Transfer Corp. (the "Seller"). The Seller was formed in Delaware on September 1,
1999 and is wholly owned by the Originators, each of which owns an equal one
fifth equity interest in the Seller. Receivables relating to Premium Finance
Obligations financed or purchased by the Originators, as described below, will
be transferred to the Seller pursuant to the Purchase Agreement for subsequent
transfer to the Trust pursuant to the Sale and Servicing Agreement The Trust
will exist only for the transactions described herein, including the collection
of payments with respect to the Receivables and holding such Receivables, the
issuance of the Notes and notes representing additional Series and related
activities and making payments thereon. As a consequence, the Trust is not
expected to have any additional capital resources.
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A.I. Credit Corp. ("AIC") was incorporated in New Hampshire
in 1973 and is a wholly-owned subsidiary of AIG Credit Corp., a Delaware
corporation ("AIGCC") which in turn is a wholly-owned subsidiary of American
International Group, Inc., a Delaware corporation ("AIG"). AIG is a holding
company which through its subsidiaries is primarily engaged in a broad range of
insurance and insurance related activities in the United States and abroad. The
principal business of AIC consists of financing premium finance obligations to
commercial insureds ("Insureds") and insurance companies to finance property and
casualty insurance premiums throughout the United States, other than in
California and including the Commonwealth of Puerto Rico. AICCO, Inc. ("AICCO"),
a wholly-owned subsidiary of AIGCC that was incorporated in California in 1974,
conducts such premium financing activities in California. Imperial Premium
Finance, Inc. ("IP Finance I") was incorporated in Delaware in 1994 and is a
wholly-owned subsidiary of AIGCC. IP Finance I conducts the same premium
financing activities as AIC throughout the United States, other than California.
Imperial Premium Finance, Inc. ("IP Finance II"), a wholly-owned subsidiary of
AIGCC that was incorporated in California in 1994, conducts the same premium
financing activities in California as AICCO. Imperial Premium Funding, Inc. ("IP
Funding") was incorporated in Delaware in 1995 and is a wholly-owned subsidiary
of AIGCC that conducts similar premium financing activities in certain States.
IP Finance I, IP Finance II and IP Funding were until January 1, 1999,
subsidiaries of SunAmerica Corporation which was acquired by AIG in January
1999. AIGC finances premiums for most lines of property and casualty insurance.
AIC believes that it is one of the largest insurance premium finance companies
in the United States. AIGC financed insurance premiums during each of 1997 and
1998 in excess of $3 billion. The principal executive office of AIC is located
at 160 Water Street, New York, New York 10038, telephone number (212) 428-5400,
of AICCO is located at 777 South Figueroa Street, Los Angeles, California 90017,
telephone number (213) 689-3600, of the IP Finance I is located at 15303 Ventura
Blvd., Suite 1600, Sherman Oaks, California 91403, telephone number (818)
906-1200, of IP Finance II is located 15303 Ventura Blvd., Suite 1600, Sherman
Oaks, California 91403, telephone number (818) 906-1200 and of IP Funding is
located 15303 Ventura Blvd., Suite 1600, Sherman Oaks, California 91403,
telephone number (818) 906-1200.
DESCRIPTION OF SERIES PROVISIONS
The Offered Notes and the Class C Notes will be issued
pursuant to the Indenture, as supplemented by the supplement relating to the
Notes (the "Series [ ____ ]-1 Supplement"). Pursuant to the Indenture, the Trust
and the Indenture Trustee may execute further Series Supplements in order to
issue additional Series. The following summary of Series [ ____ ]-1 does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Master Trust Agreement, the Sale and
Servicing Agreement, the Indenture and the Series [ ____ ]-1 Supplement. See
"Description of the Notes" in the accompanying Prospectus for additional
information concerning the Offered Notes and the Class C Notes, the Series [
____ ]-1 Supplement, the Indenture, the Sale and Servicing Agreement and the
Master Trust Agreement.
GENERAL
The Class A Notes, the Class B Notes and the Class C Notes
will be secured by the Class A Investor Interest, the Class B Investor Interest
and the Class C Investor Interest, respectively, each a partial, undivided
interest in the assets of the Trust, including the right to the applicable
allocation percentage of all payments on the Receivables in the Trust. Each
Class A Note represents the right to receive payments of interest at the Class A
Note Rate for the related Interest Period and payments of principal on each
Payment Date with respect to the Controlled Amortization Period or the Rapid
Amortization Period, to the extent of the Class A Investor Interest, funded from
collections of Finance Charge Receivables and Principal Receivables, allocated
to the Class A Investor Interest [and certain other available amounts]. Each
Class B Note represents the right to receive payments of interest at the Class B
Note Rate for the related Interest Period, and payments of principal on each
Payment Date with respect to the Controlled Amortization Period or the Rapid
Amortization Period, after the Class A Notes have been paid in full, funded from
collections of Finance Charge Receivables and Principal Receivables allocated to
the Class B Investor Interest [and certain other available amounts]. In addition
to representing the right to payment from collections of Finance Charge
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Receivables and Principal Receivables, each Class A Note also represents the
right to receive payments from Excess Spread, funds on deposit in the Yield
Enhancement Account, funds on deposit in the Excess Funding Account (in an
amount not to exceed the Class A Investor Interest), Reallocated Principal
Collections and Shared Principal Collections and certain other available
amounts. In addition to representing the right to payment from collections of
Finance Charge Receivables and Principal Receivables, each Class B Note also
represents the right to receive payments from Excess Spread, funds on deposit in
the Yield Enhancement Account, funds on deposit in the Excess Funding Account
(to the extent such funds exceed the Class A Investor Interest and in an amount
not to exceed the Class B Investor Interest), Reallocated Collateral Principal
Collections and Shared Principal Collections and certain other available
amounts. Payments of interest and principal will be made on each Payment Date on
which such amounts are due to Noteholders in whose names the Notes were
registered on the fifth business day preceding such Payment Date (each, a
"Record Date").
The Notes are secured by the Investor Interest. The Notes
generally are not secured by the remaining undivided interest in the assets of
the Trust, which is referred to as the "Trust Interest." The Trust's right to
receive the proceeds of trust assets allocable to the Trust Interest is not
subordinate to the Noteholders' right to receive payment on the Notes from the
proceeds of Trust assets allocable to the Investor Interest, except to the
limited extent described below. The Trust will receive certain payments from the
assets of the Trust, including a percentage (the "Trust Percentage") of all
obligors payments on the Receivables in the Trust equal to 100% minus the sum of
the applicable Investor Percentages for all Series of notes then outstanding. It
is anticipated that amounts paid to the Trust in respect of the Trust Interest
will be distributed to the Seller as holder of the beneficial interest in the
Trust and will not be available to make payments on the Notes. The beneficial
interest, which represents equity ownership of the Trust, may be transferred in
whole or in part subject to certain limitations and conditions set forth in the
Master Trust Agreement. See "Description of the Transfer and Servicing
Agreements--Certain Matters Regarding the Seller and the Servicer" in the
accompanying Prospectus.
[Application will be made to list the Offered Notes on the
Luxembourg Stock Exchange; however, no assurance can be given that such listing
will be obtained. Noteholders should consult with [Bankers Trust Luxembourg
S.A., the Luxembourg listing agent for the Notes, 14 Boulevard F.D. Roosevelt,
L-2450 Luxembourg, phone number (352) 46 02 41], for the status of such
listing.]
The Class A Notes and the Class B Notes initially will be
represented by notes registered in the name of Cede, as nominee of DTC. Unless
and until Definitive Notes are issued, all references in this Prospectus
Supplement to actions by Class A Noteholders and/or Class B Noteholders shall
refer to actions taken by DTC upon instructions from its Participants and all
references in this Prospectus Supplement to distributions, notices, reports and
statements to Class A Noteholders and/or Class B Noteholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Class A Notes and the Class B Notes, as the case may be, for
distribution to Noteholders in accordance with DTC procedures. Noteholders may
hold their Notes through DTC (in the United States) or Cedelbank or Euroclear
(in Europe) if they are customers or participants of such systems, or indirectly
through organizations that are customers or participants in such systems. Cede,
as nominee for DTC, will hold the global Notes. Cedelbank and Euroclear will
hold omnibus positions on behalf of the Cedelbank Customers and the Euroclear
Participants, respectively, through customers' securities accounts in
Cedelbank's and Euroclear's names on the books of their respective Depositaries
which in turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. See "Description of the
Notes--General," and "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Definitive Notes" in the accompanying Prospectus.
NEW ISSUANCES
The Indenture provides that the Trust may issue one or more
new Series by notifying the Indenture Trustee as described under "Description of
the Notes--New Issuances" in the accompanying Prospectus.
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INTEREST PAYMENTS
Interest will accrue on the Class A Notes at the Class A
Note Rate and on the Class B Notes at the Class B Note Rate from the Closing
Date. Interest will be paid on [ ________ ]and on the 15th day of each month
thereafter (or, if such 15th day is not a business day, the next succeeding
business day) (each, a "Payment Date"). For purposes of this Prospectus
Supplement and the accompanying Prospectus, a "business day" is, unless
otherwise indicated, any day other than a Saturday, a Sunday or a day on which
banking institutions in New York, New York, Los Angeles, California, Wilmington,
Delaware, Chicago, Illinois, Charlotte, North Carolina, or the city in which the
Corporate Trust office is located, are authorized or obligated by law or
executive order to be closed. Interest payments on the Class A Notes and the
Class B Notes on any Payment Date will be calculated on the outstanding
principal balance of the Class A Notes and the outstanding principal balance of
the Class B Notes, as applicable, as of the end of the preceding Interest
Period, [except that interest for the first Payment Date will accrue at the
applicable Note Rate on the initial outstanding principal balance of the Class A
Notes and the initial outstanding principal balance of the Class B Notes, as
applicable, from the Closing Date]. Interest due on the Notes but not paid on
any Payment Date will be payable on the next succeeding Payment Date together
with additional interest (the "Additional Interest") on such amount at the
applicable Note Rate plus 2% per annum (such amount with respect to the Class A
Notes, the "Class A Additional Interest", and such amount with respect to the
Class B Notes, the "Class B Additional Interest"). Such Additional Interest
shall accrue on the same basis as interest on the Notes, and shall accrue from
the Payment Date such overdue interest became due, to but excluding the Payment
Date on which such Additional Interest is paid. Interest payments on the Class A
Notes on any Payment Date will be paid from Class A Available Funds for the
related Monthly Period and, to the extent such Class A Available Funds are
insufficient to pay such interest, from Excess Spread, funds on deposit in the
Yield Enhancement Account and Reallocated Principal Collections (to the extent
available) for such Monthly Period. Interest payments on the Class B Notes on
any Payment Date will be paid from Class B Available Funds for the related
Monthly Period and, to the extent such Class B Available Funds are insufficient
to pay such interest, from Excess Spread, funds on deposit in the Yield
Enhancement Account and Reallocated Principal Collections (to the extent
available) remaining after certain other payments have been made with respect to
the Class A Notes.
"Class A Available Funds" means, with respect to any
Monthly Period, an amount equal to the Class A Floating Allocation of
collections of Finance Charge Receivables allocated to the Investor Interest and
recoveries and the Class A Default Amounts allocated to the Investor Interest
and deposited in the Finance Charge Account with respect to such Monthly Period.
"Class B Available Funds" means, with respect to any
Monthly Period, an amount equal to the Class B Floating Allocation of
collections of Finance Charge Receivables allocated to the Investor Interest and
recoveries and the Class B Default Amounts allocated to the Investor Interest
and deposited in the Finance Charge Account with respect to such Monthly Period.
The Class A Notes will accrue interest from the Closing
Date through [ ________ ], 2000 and with respect to each Interest Period
thereafter at a variable rate of [ __ ]% above one-month LIBOR prevailing on the
related LIBOR Determination Date with respect to each such period (the "Class A
Note Rate"). Interest payments on the Class A Notes on any Payment Date will be
an amount equal to the actual number of days in the related Interest Period
divided by 360 times the product of the Class A Note Rate and the outstanding
principal balance of the Class A Notes, as of the end of such Interest Period[,
except that interest for the first Payment Date will include accrued interest on
the initial outstanding principal balance of the Class A Notes at the Class A
Note Rate from and including the Closing Date through but excluding [ _____ ]].
The Class B Notes will accrue interest from the Closing
Date through [ ______ __ ] and with respect to each Interest Period thereafter
at a variable rate of [ __ ]% above one-month LIBOR prevailing on the related
LIBOR Determination Date with respect to each such period (the "Class B Note
Rate" Interest payments on the Class B Notes on any Payment Date will be an
amount equal to the actual number of days in the related Interest Period divided
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by 360 times the product of the Class B Note Rate and the outstanding principal
balance of the Class B Notes as of the end of such Interest Period, except that
interest for the first Payment Date will include accrued interest on the initial
outstanding principal balance of the Class B Notes at the Class B Note Rate from
and including the Closing Date through but excluding [ _____ ].
"LIBOR" means the rate determined by the Indenture Trustee
based on the rate shown on page 3750 of the Telerate screen or any successor
page as the composite London interbank offered rate for one-month United States
dollar deposits, determined on a LIBOR Determination Date.
The Indenture Trustee will determine LIBOR for each
Interest Period on the second business day prior to the Payment Date on which
such Interest Period commences or, in the case of the initial Interest Period,
the second business day prior to the Closing Date (each such business day, a
"LIBOR Determination Date"). For purposes of calculating LIBOR, a business day
is any day other than a day on which banking institutions in London, England
trading in United States dollar deposits in the London, interbank market are
authorized or obligated by law or executive order to be closed. The Indenture
Trustee will determine LIBOR in accordance with the following provisions:
(i) On each LIBOR Determination Date, the
Indenture Trustee will determine LIBOR on the basis of the
rate for deposits in United States dollars for a period
equal to one month (commencing on the first day of the
applicable Interest Period) which appears on Telerate Page
3750 as of 11:00 a.m. (London time) on such LIBOR
Determination Date (or such other page as may replace that
page on the Dow Jones Telerate Service for the purpose of
displaying London interbank offered rates of major banks).
(ii) If, on any LIBOR Determination Date, such
rate does not appear on Telerate Page 3750 (or such other
page), then LIBOR for the applicable Interest Period shall
be determined on the basis of the rates at which deposits
in United States dollars are offered by four major banks in
the London interbank market selected by the Servicer (the
"Reference Banks") as of approximately 11:00 a.m. (London
time) on such LIBOR Determination Date. LIBOR as determined
by the Indenture Trustee is the arithmetic mean of such
quotations (rounded, if necessary, to the nearest multiple
of [ _______ ]%) if at least two such quotations are
provided.
(iii) If, on the LIBOR Determination Date, only
one or none of the Reference Banks provides such offered
quotations, LIBOR will be:
(a) the rate per annum (rounded as aforesaid)
that the Indenture Trustee determines to be the arithmetic
mean of the offered quotations that leading banks in The
City of New York selected by the Servicer are quoting at or
about 11:00 a.m. (New York time) on the relevant LIBOR
Determination Date to leading European banks for one-month
United States dollar deposits (commencing on the first day
of the applicable Interest Period); or
(b) if the banks selected as aforesaid by the
Servicer are not quoting as described in clause (a) above,
LIBOR for such Interest Period will be LIBOR as determined
on the previous LIBOR Determination Date (or [ _____ ]%, in
the case of the first LIBOR Determination Date).
The Class A Note Rate and Class B Note Rate applicable to
the then current and immediately preceding Interest Period may be obtained by
telephoning the Indenture Trustee at its Corporate Trust Office at (800)
524-9472 or (312) 407-4660.
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PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing
Date and ends at the commencement of the earliest to occur of the Controlled
Amortization Period or the Rapid Amortization Period [or the Refinancing Date]),
collections of Principal Receivables allocable to the Investor Interest will not
be paid to Noteholders, but instead will, subject to certain limitations,
including the allocation of any Reallocated Principal Collections with respect
to the related Monthly Period to pay the Class A Required Amount and the Class B
Required Amount, be treated as Shared Principal Collections.
During the Controlled Amortization Period, which is
scheduled to begin on the [ _____ ] Payment Date, and during the Rapid
Amortization Period, which will begin upon the occurrence of a Pay Out Event,
and until the Series [ _____ ]-1 Termination Date occurs, principal will be paid
first to the Class A Noteholders until the Class A Notes have been paid in full,
then to the Class B Noteholders until the Class B Notes have been paid in full
and then to the Class C Noteholders until the Class C Notes have been paid in
full. The Seller may elect, at its sole discretion, to begin the Class A
Controlled Amortization Period on a date earlier than the scheduled starting
date, upon notice to the Indenture Trustee and the Administrative Agent (given
not later than 5 days prior to a Payment Date), but not later than the [ ______
] Payment Date.
On each Payment Date during the Class A Controlled
Amortization Period, unless the Class A Notes have been paid in full or the
Rapid Amortization Period commences, Class A Noteholders will be entitled to
receive for each related Monthly Period an amount equal to the least of (i)
Available Investor Principal Collections on deposit in the Principal Account
with respect to the related Transfer Date, (ii) the Controlled Distribution
Amount, (iii) the Class A Investor Interest and (iv) the outstanding principal
balance of the Class A Notes. After payment in full of the Class A Notes, Class
B Noteholders will be entitled to receive on each Payment Date during the Class
B Controlled Amortization Period the least of (i) the amount of Available
Investor Principal Collections on deposit in the Principal Account with respect
to the related Transfer Date (minus the portion of such Available Investor
Principal Collections applied to Class A Monthly Principal on such Transfer
Date), (ii) the Controlled Distribution Amount (minus the portion of such
Controlled Distribution Amount applied to Class A Monthly Principal on such
Transfer Date), (iii) the Class B Investor Interest and (iv) the outstanding
principal balance of the Class B Notes. After payment in full of the Class A
Notes and the Class B Notes, the Class C Noteholders will be entitled to receive
on each Payment Date during the Class C Controlled Amortization Period the least
of (i) the amount of Available Investor Principal Collections on deposit in the
Principal Account with respect to the related Transfer Date (minus the portion
of such Available Investor Principal Collections applied to Class A Monthly
Principal and Class B Monthly Principal on such Transfer Date), (ii) the
Controlled Distribution Amount (minus the portion of such Controlled
Distribution Amount applied to Class A Monthly Principal and Class B Monthly
Principal on such Transfer Date), (iii) the Class C Investor Interest and (iv)
the outstanding principal balance of the Class C Notes.
"Available Investor Principal Collections" means, with
respect to any Monthly Period, an amount generally equal to the sum of (a)(i)
collections of Principal Receivables received during such Monthly Period
allocable to the Investor Interest minus (ii) the amount of Reallocated
Principal Collections with respect to such Monthly Period used to fund the Class
A Required Amount and the Class B Required Amount as described under
"--Reallocation of Cash Flows" below, plus (iii) any Shared Principal
Collections with respect to any other Series in Group One that are allocated to
Series of the Trust represented by the Notes ("Series [ ____ ]-1"), and [(b)
amounts withdrawn from the Excess Funding Account allocable to the Investor
Interest (as more fully described under "--Excess Funding Account; Minimum Trust
Interest; Excess Receivables Amount" below)].
"Controlled Distribution Amount" means, for any Payment
Date during the Controlled Amortization Period, an amount equal to the sum of
the Controlled Amortization Amount for such Payment Date and any Deficit
Controlled Amortization Amount for the immediately preceding Payment Date.
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"Controlled Amortization Amount" means for any Payment Date
during the Controlled Amortization Period, $[ ------- ].
"Deficit Controlled Amortization Amount" means (a) on the
first Payment Date during the Class A Controlled Amortization Period, the Class
B Controlled Amortization Period or the Class C Controlled Amortization Period,
the excess, if any, of the Controlled Amortization Amount for such Payment Date
over the amount distributed from the Payment Account as Class A Monthly
Principal, Class B Monthly Principal or Class C Monthly Principal, as the case
may be, for such Payment Date and (b) on each subsequent Payment Date during the
Class A Controlled Amortization Period, the Class B Controlled Amortization
Period or the Class C Controlled Amortization Period, the excess, if any, of the
Controlled Distribution Amount for such subsequent Payment Date over the amount
distributed from the Payment Account as Class A Monthly Principal, Class B
Monthly Principal or Class C Monthly Principal, as the case may be, for such
subsequent Payment Date.
On each Payment Date during the Rapid Amortization Period,
the Class A Noteholders will be entitled to receive Available Investor Principal
Collections for the related Monthly Period in an amount up to the Class A
Investor Interest until the earliest of the date the Class A Notes are paid in
full, the legal final Payment Date and the Trust Termination Date, such date
called the "Series [__] - 1 Termination Date". After payment in full of the
Class A Notes, the Class B Noteholders will be entitled to receive, on each
Payment Date during the Rapid Amortization Period, Available Investor Principal
Collections for the related Monthly Period in an amount up to the Class B
Investor Interest until the earliest of the date the Class B Notes are paid in
full, the Series [ ____ ]-1 Termination Date and the Trust Termination Date. See
"--Pay Out Events" below for a discussion of events which might lead to the
commencement of the Rapid Amortization Period.
[POSTPONEMENT OF CONTROLLED AMORTIZATION PERIOD
Upon written notice to the Indenture Trustee, the Servicer
may elect to postpone the commencement of the Controlled Amortization Period,
and extend the length of the Revolving Period, subject to certain conditions
including those set forth below. The Servicer may make such election only if the
Amortization Period Length (determined as described below) is less than twelve
months. On the Determination Date immediately preceding the [ ________ ] Payment
Date, and each Determination Date thereafter, until the Controlled Amortization
Period begins, the Servicer will determine the "Amortization Period Length,"
which is the number of whole months expected to be required to fully pay the
Notes no later than the legal final Payment Date, based on (a) the expected
monthly collections of Principal Receivables expected to be distributable to the
noteholders of all Series (excluding certain other Series), assuming a principal
payment rate no greater than the lowest monthly principal payment rate on the
Receivables for the preceding twelve months and (b) the amount of principal
expected to be distributable to noteholders of all Series (excluding certain
other Series) which are not expected to be in their revolving periods during the
Controlled Amortization Period; provided, however, that the calculation of
Amortization Period Length may be changed at any time if the Rating Agency
Condition is satisfied. If the Amortization Period Length is less than twelve
months, the Servicer may, at its option, postpone the commencement of the
Controlled Amortization Period such that the number of months included in the
Controlled Amortization Period will be equal to or exceed the Amortization
Period Length. The effect of the foregoing calculation is to permit the
reduction of the length of the Controlled Amortization Period based on the
investor interest of certain other Series which are scheduled to be in their
revolving periods during the Controlled Amortization Period and on increases in
the principal payment rate occurring after the Closing Date. The length of the
Controlled Amortization Period will not be determined to be less than one month.
"Rating Agency Condition" means the notification in writing
by each Rating Agency to the Trust, the Seller, the Servicer and the Indenture
Trustee that a proposed action will not result in any Rating Agency reducing or
withdrawing its then existing rating of the investor Notes of any outstanding
Series or Class of a Series with respect to which it is a Rating Agency.]
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SUBORDINATION
The Class B Notes and the Class C Notes will be
subordinated to the extent necessary to fund certain payments with respect to
the Class A Notes. In addition, the Class C Notes will be subordinated to the
extent necessary to fund certain payments with respect to the Class B Notes.
Certain principal payments otherwise allocable to the Class B Noteholders may be
reallocated to cover amounts in respect of the Class A Notes and the Class B
Investor Interest and the outstanding principal balance of the Class B Notes may
be reduced if the Class C Investor Interest is equal to zero. Similarly, certain
principal payments allocable to the Class C Notes may be reallocated to cover
amounts in respect of the Class A Notes and the Class B Notes and the Class C
Investor Interest and the outstanding principal balance of the Class C Notes may
be reduced. To the extent the Class B Investor Interest and Class B Notes are
reduced, the percentage of collections of Finance Charge Receivables allocated
to the Class B Notes in subsequent Monthly Periods will be reduced. Moreover, to
the extent the amount of such reduction in the Class B Investor Interest and the
outstanding principal balance of the Class B Notes are not reimbursed, the
amount of principal distributable to, and the amounts available to be
distributed with respect to interest on, the Class B Notes will be reduced. See
"--Allocation Percentages," "--Reallocation of Cash Flows" and "--Application of
Collections--Excess Spread" in this Prospectus Supplement.
ALLOCATION PERCENTAGES
Pursuant to the Sale and Servicing Agreement and in
accordance with the Indenture and the [ __ ] Series Supplement, with respect to
each Monthly Period the Servicer will allocate among the Investor Interest, the
investor interest for all other Series issued and outstanding and the Trust
Interest, all amounts collected on Finance Charge Receivables, all amounts
collected on Principal Receivables and all Default Amounts with respect to such
Monthly Period. Each "Monthly Period" will be the period from and including the
first day of a calendar month to and including the last day of such calendar
month (other than the initial Monthly Period, which will commence on and include
the [first day of the month on which the] Closing Date occurs and end on and
include [ _____ ].
Collections of Finance Charge Receivables, which include
recoveries with respect to Premium Finance Obligations that have been written
off, and Default Amounts at any time and collections of Principal Receivables
during the Revolving Period will be allocated to the Investor Interest based on
the Floating Investor Percentage. The "Floating Investor Percentage" means, with
respect to any Monthly Period, the percentage equivalent of a fraction, the
numerator of which is the Investor Interest as of the end of the day on the
Payment Date occurring during such Monthly Period and the denominator of which
is the greater of (x) the aggregate amount of Principal Receivables in the Trust
plus the outstanding balance of the Transferor Certificate as of the close of
business on the last day of the preceding Monthly Period ending before the
immediately preceding Payment Date minus Principal Receivables that have been
removed from the Trust pursuant to the Sale and Servicing Agreement or from the
AIC Trust pursuant to corresponding provisions of the pooling and servicing
agreement, and (y) the sum of the numerators used to calculate the respective
investor percentages used for allocations with respect to Finance Charge
Receivables, investor Default Amounts or Principal Receivables, as applicable,
for all outstanding Series on such date of determination. Such amounts so
allocated will be further allocated between the Class A Notes, Class B Notes and
the Class C Notes based on the Class A Floating Allocation, the Class B Floating
Allocation and the Class C Floating Allocation, respectively. The "Class A
Floating Allocation" means, with respect to any Transfer Date, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Investor Interest as of the close of
business on such day and the denominator of which is equal to the Investor
Interest as of the close of business on such day. The "Class B Floating
Allocation" means, with respect to any Transfer Date, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is equal to the Class B Investor Interest as of the close of business on such
day and the denominator of which is equal to the Investor Interest as of the
close of business on such day. The "Class C Floating Allocation" means, with
respect to any Transfer Date, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the numerator of which is equal to the Class C
Investor Interest as of the close of business on such day and the denominator of
which is equal to the Investor Interest as of the close of business on such day.
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Collections of Principal Receivables during the Controlled
Amortization Period and Rapid Amortization Period will be allocated to the
Investor Interest based on the Fixed Investor Percentage. The "Fixed Investor
Percentage" means, with respect to any Monthly Period, the percentage equivalent
of a fraction, the numerator of which is the Investor Interest as of the close
of business on the last day of the Revolving Period and the denominator of which
is the greater of (x) the aggregate amount of Principal Receivables in the Trust
plus the outstanding balance of the Transferor Certificate as of the close of
business on the last day of the prior Monthly Period and (y) the sum of the
numerators used to calculate the respective investor percentages for allocations
with respect to Principal Receivables for all outstanding Series for such date
of determination.
"Class A Investor Interest" for any date means an amount
equal to (a) the aggregate initial principal amount of the Class A Notes [$_____
] (the "Class A Initial Investor Interest"), minus (b) the aggregate amount of
principal payments in respect of an amortization period made to Class A
Noteholders prior to such date, minus (c) the aggregate amount of Class A
Investor Charge-Offs for all Transfer Dates preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for all
Transfer Dates preceding such date, plus (d) the aggregate amount of Excess
Spread and funds on deposit in the Yield Enhancement Account allocated on all
prior Transfer Dates for the purpose of reimbursing amounts deducted pursuant to
the foregoing clause (c).
"Class B Investor Interest" for any date means an amount
equal to (a) the aggregate initial principal amount of the Class B Notes [$_____
] (the "Class B Initial Investor Interest"), minus (b) the aggregate amount of
principal payments in respect of an amortization period made to Class B
Noteholders prior to such date, minus (c) the aggregate amount of Class B
Investor Charge-Offs for all prior Transfer Dates, minus (d) the aggregate
amount of Reallocated Principal Collections for all prior Transfer Dates for
which the Class C Investor Interest has not been reduced, minus (e) an amount
equal to the aggregate amount by which the Class B Investor Interest has been
reduced to fund the Class A Investor Default Amount on all prior Transfer Dates
as described under "--Defaulted Receivables; Investor Charge-Offs" in this
Prospectus Supplement, and plus (f) the aggregate amount of Excess Spread and
funds on deposit in the Yield Enhancement Account allocated and available on all
prior Transfer Dates for the purpose of reimbursing amounts deducted pursuant to
the foregoing clauses (c), (d) and (e).
"Class C Investor Interest" for any date means an amount
equal to (a) $[ _____ ] (the "Class C Initial Investor Interest"), minus (b) the
aggregate amount of principal payments made in respect of an amortization period
to Class C Noteholders prior to such date, minus (c) the aggregate amount of
Class C Investor Charge-Offs for all prior Transfer Dates, minus (d) the
aggregate amount of Reallocated Principal Collections for all prior Transfer
Dates for which the Class C Investor Interest has been reduced, minus (e) an
amount equal to the aggregate amount by which the Class C Investor Interest has
been reduced to fund the Class A Investor Default Amount and the Class B
Investor Default Amount on all prior Transfer Dates as described under
"--Defaulted Receivables; Investor Charge-Offs" in this Prospectus Supplement,
and plus (f) the aggregate amount of Excess Spread and funds on deposit in the
Yield Enhancement Account allocated and available on all prior Transfer Dates
for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (c), (d) and (e).
"Investor Interest," for any date of determination, means
an amount equal to the sum of (a) the Class A Investor Interest, (b) the Class B
Investor Interest and (c) the Class C Investor Interest.
REALLOCATION OF CASH FLOWS
With respect to each Transfer Date, the Servicer will
determine the amount (the "Class A Required Amount"), which will be equal to the
amount, if any, by which the sum of (a) Class A Monthly Interest due on the
related Transfer Date and overdue Class A Monthly Interest and Class A
Additional Interest, if any, (b) the Class A Servicing Fee, if any, for the
prior Monthly Period and overdue Class A Servicing Fee, if any, and (c) the
Class A Investor Default Amount, if any, for the related Monthly Period exceeds
the Class A Available Funds for the prior Monthly Period. If the Class A
Required Amount is greater than zero, Excess Spread and funds on deposit in the
Yield Enhancement Account allocated to Series [ __ ] and available for such
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<PAGE>
purpose will be used to fund the Class A Required Amount with respect to such
Transfer Date. If such Excess Spread and funds on deposit in the Yield
Enhancement Account are insufficient to fund the Class A Required Amount, first,
Reallocated Class C Principal Collections and, then, Reallocated Class B
Principal Collections will be used to fund the remaining Class A Required
Amount. If Reallocated Principal Collections with respect to the related Monthly
Period, together with Excess Spread and funds on deposit in the Yield
Enhancement Account are insufficient to fund the remaining Class A Required
Amount for such related Monthly Period, then the Class C Investor Interest
(after giving effect to reductions for any Class C Investor Charge-Offs and
Reallocated Principal Collections on such Transfer Date) will be reduced by the
amount of such excess (but not by more than the Class A Investor Default Amount
for such Monthly Period). In the event that such reduction would cause the Class
C Investor Interest to be a negative number, the Class C Investor Interest will
be reduced to zero, and the Class B Investor Interest (after giving effect to
reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections for which the Class C Investor Interest was not reduced on
such Transfer Date) will be reduced by the amount by which the Class C Investor
Interest would have been reduced below zero (but not by more than the excess of
the Class A Investor Default Amount, if any, for such Monthly Period over the
amount of such reduction, if any, of the Class C Investor Interest with respect
to such Monthly Period). [In the event that such reduction would cause the Class
B Investor Interest to be a negative number, the Class B Investor Interest will
be reduced to zero and the Class A Investor Interest will be reduced by the
amount by which the Class B Investor Interest would have been reduced below zero
(but not by more than the excess, if any, of the Class A Investor Default Amount
for such Monthly Period over the amount of the reductions, if any, of the Class
C Investor Interest and the Class B Investor Interest with respect to such
Monthly Period). Any such reduction in the Class A Investor Interest will have
the effect of slowing or reducing the return of principal and interest to the
Class A Noteholders. In such case, the Class A Noteholders will bear directly
the credit and other risks associated with their interests in the Trust assets.]
See "--Defaulted Receivables; Investor Charge-Offs" in this Prospectus
Supplement.
With respect to each Transfer Date, the Servicer will
determine the amount (the "Class B Required Amount"), which will be equal to the
sum of (a) the amount, if any, by which the sum of (i) Class B Monthly Interest
due on the related Transfer Date and overdue Class B Monthly Interest and Class
B Additional Interest, if any, and (ii) the Class B Servicing Fee, if any, for
the prior Monthly Period and overdue Class B Servicing Fee, if any, exceeds the
Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the prior Monthly Period. If the Class B
Required Amount is greater than zero, Excess Spread and funds on deposit in the
Yield Enhancement Account allocated to Series [ ] not required to pay the Class
A Required Amount or reimburse Class A Investor Charge-Offs and Class A Prior
Period Interest will be used to fund the Class B Required Amount with respect to
such Transfer Date. If such Excess Spread and funds on deposit in the Yield
Enhancement Account are insufficient to fund the Class B Required Amount,
Reallocated Class C Principal Collections not required to fund the Class A
Required Amount for the related Monthly Period will be used to fund the
remaining Class B Required Amount. If such Reallocated Class C Principal
Collections with respect to the related Monthly Period are insufficient to fund
the remaining Class B Required Amount, then the Class C Investor Interest (after
giving effect to reductions for any Class C Investor Charge-Offs and Reallocated
Principal Collections on such Transfer Date and after any adjustments made
thereto for the benefit of the Class A Noteholders) will be reduced by the
amount of such deficiency (but not by more than the Class B Investor Default
Amount for such Monthly Period). In the event that such a reduction would cause
the Class C Investor Interest to be a negative number, the Class C Investor
Interest will be reduced to zero, and the Class B Investor Interest will be
reduced by the amount by which the Class C Investor Interest would have been
reduced below zero (but not by more than the excess of the Class B Investor
Default Amount for such Monthly Period over the amount of such reduction of the
Class C Investor Interest), and the Class B Noteholders will bear directly the
credit and other risks associated with their interests in the Trust. See
"--Defaulted Receivables; Investor Charge-Offs" in this Prospectus Supplement.
[Reductions of the Class A Investor Interest or Class B
Investor Interest described above shall be reimbursed by, and the Class A
Investor Interest or Class B Investor Interest increased to the extent of,
Excess Spread and funds on deposit in the Yield Enhancement Account available
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<PAGE>
for such purposes on each Transfer Date. See "--Application of
Collections--Excess Spread" in this Prospectus Supplement. When such reductions
of the Class A Investor Interest and Class B Investor Interest have been fully
reimbursed, reductions of the Class C Investor Interest shall be reimbursed
until reimbursed in full in a similar manner.]
"Required Amount" for any Monthly Period means the sum of
(a) the Class A Required Amount and (b) the Class B Required Amount, each for
such Monthly Period.
"Reallocated Class B Principal Collections" for any
Transfer Date means collections of Principal Receivables allocable to the Class
B Investor Interest for such Monthly Period in an amount not to exceed the
amount applied to fund the Class A Required Amount, if any; provided, however,
that such amount will not exceed the Class B Investor Interest after giving
effect to any Class B Investor Charge-Offs for the related Transfer Date.
"Reallocated Class C Principal Collections" for any
Transfer Date means collections of Principal Receivables allocable to the Class
C Investor Interest for such Monthly Period in an amount not to exceed the
amount applied to fund the Class A Required Amount and the Class B Required
Amount, if any; provided, however, that such amount will not exceed the Class C
Investor Interest after giving effect to any Class C Investor Charge-Offs for
the related Transfer Date.
"Reallocated Principal Collections" for any Transfer Date
means the sum of (a) the Reallocated Class B Principal Collections for such
Monthly Period, if any, and (b) the Reallocated Class C Principal Collections
for such Monthly Period, if any.
APPLICATION OF COLLECTIONS
ALLOCATIONS
Except as otherwise provided below, the Servicer will
deposit into the Collection Account, no later than the second business day
following the date of processing, any payment collected by the Servicer on the
Receivables. On the same day as any such deposit is made, the Servicer will make
the deposits and payments to the accounts and parties as indicated below;
provided, however, that for as long as AIC, AICCO, IP Finance I, IP Finance II
or IP Funding or an affiliate remains the Servicer under the Sale and Servicing
Agreement and (a)(1) the AIG Support Agreement remains in effect with respect to
the Servicer and is not terminated, amended or modified other than in accordance
with its terms and (2) AIG or AIC has and maintains a long-term rating of at
least Aa3 by Moody's and of at least AA by Standard & Poor's or (b) AIG or AIC
has and maintains a commercial paper rating of P-1 by Moody's and of at least
A-1 by Standard & Poor's, then the Servicer may make such deposits and payments
on the business day immediately prior to the Payment Date (the "Transfer Date")
in an amount equal to the net amount of such deposits and payments which would
have been made had the conditions of this proviso not applied.
With respect to Series [ __ ]-1, and notwithstanding
anything in the Sale and Servicing Agreement to the contrary, whether the
Servicer is required to make monthly or daily deposits from the Collection
Account into the Finance Charge Account or the Principal Account, with respect
to any Monthly Period, (a) the Servicer will only be required to deposit
collections from the Collection Account into the Finance Charge Account or the
Principal Account up to the required amount to be deposited into any such
deposit account or, without duplication, distributed on or prior to the related
Payment Date to the Noteholders or to the Trust and (b) if at any time prior to
such Payment Date the amount of collections deposited in the Collection Account
exceeds the amount required to be deposited pursuant to clause (a) above, the
Servicer, subject to certain limitations, will be permitted to withdraw the
excess from the Collection Account.
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PAYMENT OF INTEREST, FEES AND OTHER ITEMS
On each Transfer Date, the Trustee, acting pursuant to the
Servicer's instructions, will apply the Class A Available Funds, Class B
Available Funds and Class C Available Funds in the Finance Charge Account in the
following priority:
(a) On each Transfer Date, an amount equal to the
Class A Available Funds will be distributed in the
following priority:
(i) an amount equal to Class A Monthly Interest
for such Transfer Date, plus the amount of any overdue
Class A Monthly Interest and Class A Additional Interest
thereon, if any, will be deposited into the Payment Account
for payment to Class A Noteholders on the related Payment
Date;
(ii) an amount equal to the Class A Servicing
Fee, if any, for the related Monthly Period, plus the
amount of any overdue Class A Servicing Fee, if any, will
be paid to the Servicer;
(iii) an amount equal to the Class A Investor
Default Amount for the preceding Monthly Period will be
treated as a portion of [Available] Investor Principal
Collections and deposited into the Principal Account for
such Transfer Date; and
(iv) the balance, if any, will constitute a
portion of Excess Spread and will be allocated and
distributed as described under "-- Excess Spread" in this
Prospectus Supplement.
(b) On each Transfer Date, an amount equal to the
Class B Available Funds will be distributed in the
following priority:
(i) an amount equal to Class B Monthly Interest
for such Transfer Date, plus the amount of any overdue
Class B Monthly Interest and Class B Additional Interest
thereon, if any, will be deposited into the Payment Account
for payment to Class B Noteholders on the related Payment
Date;
(ii) an amount equal to the Class B Servicing Fee
for the related Monthly Period, plus the amount of any
overdue Class B Servicing Fee, if any, will be paid to the
Servicer; and
(iii) the balance, if any, will constitute a
portion of Excess Spread and will be allocated and
distributed as described under " - Excess Spread" in this
Prospectus Supplement.
(c) On each Transfer Date, an amount equal to the
Class C Available Funds will be distributed in the
following priority:
(i) an amount equal to the Class C Servicing Fee,
if any, plus the amount of any overdue Class C Servicing
Fee, if any, for the related Monthly Period will be paid to
the Servicer; and
(ii) the balance, if any, will constitute a
portion of Excess Spread and will be allocated and
distributed as described under "- Excess Spread" in this
Prospectus Supplement.
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"Class A Monthly Interest" with respect to any Transfer
Date will equal the product of (i) the Class A Note Rate for the related
Interest Period, (ii) the actual number of days in such Interest Period divided
by 360 and (iii) the outstanding principal balance of the Class A Notes at the
end of such Interest Period[; provided, however, with respect to the first
Payment Date, Class A Monthly Interest will be equal to the interest accrued on
the Class A initial Investor Interest at the applicable Class A Note Rate for
the period from and including the Closing Date through but excluding [________],
2000].
"Class B Monthly Interest" with respect to any Transfer
Date will equal the product of (i) the Class B Note Rate for the related
Interest Period, (ii) the actual number of days in such Interest Period divided
by 360 and (iii) the outstanding principal balance of the Class B Notes at the
end of such Interest Period[; provided, however, with respect to the first
Payment Date, Class B Monthly Interest will be equal to the interest accrued on
the Class B initial Investor Interest at the applicable Class B Note Rate for
the period from and including the Closing Date through but excluding [________],
2000].
"Class C Monthly Interest" with respect to any Transfer
Date will equal the product of (i) the Class C Note Rate for the related
Interest Period, (ii) the actual number of days in such Interest Period divided
by 360, and (iii) the outstanding principal balance of the Class C Notes at the
end of such Interest Period[; provided, however, with respect to the first
Payment Date, Class C Monthly Interest will be equal to the interest accrued on
the Class C initial Investor Interest at the applicable Class C Note Rate for
the period from and including the Closing Date through but excluding [________],
2000].
"Class C Available Funds" means, with respect to any
Monthly Period, an amount equal to the Class C Floating Allocation of
collections of Finance Charge Receivables allocated to the Investor Interest and
deposited in the Finance Charge Account with respect to such Monthly Period.
"Excess Spread" means, with respect to any Transfer Date,
an amount equal to the sum of the amounts described in clause (a)(iv), clause
(b)(iii) and clause (c)(ii) above plus the income and earnings on amounts on
deposit in the Yield Enhancement Account and the Excess Funding Account.
EXCESS SPREAD
On each Transfer Date, the Indenture Trustee, acting
pursuant to the Servicer's instructions, will apply Excess Spread in the Finance
Charge Account and, to the extent necessary, funds on deposit in the Yield
Enhancement Account (including the Available Yield Enhancement Amount) with
respect to the related Monthly Period, to make the following distributions in
the following priority:
(a) an amount equal to the Class A Required
Amount, if any, with respect to such Transfer Date will be
used to fund the Class A Required Amount; provided,
however, that in the event the Class A Required Amount for
such Transfer Date exceeds the amount of Excess Spread and
funds on deposit in the Yield Enhancement Account
(including the Available Yield Enhancement Amount), such
amounts will be applied first to pay amounts due with
respect to such Transfer Date pursuant to clause (a)(i)
above under "- Payment of Interest, Fees and Other Items,"
second to pay amounts due with respect to such Transfer
Date pursuant to clause (a)(ii) above under " - Payment of
Interest, Fees and Other Items," third to pay amounts due
with respect to such Transfer Date pursuant to clause
(a)(iii) above under " - Payment of Interest, Fees and
Other Items," and fourth to pay amounts due with respect to
such Transfer Date pursuant to clause (a)(iv) above under
"- Payment of Interest, Fees and Other Items;"
(b) an amount equal to the aggregate amount of
Class A Investor Interest that have been reduced below the
initial Class A Investor Interest for reasons other than
the payment of principal to the Class A Noteholders (but
not in excess of the aggregate amount of such reductions
that have not been previously reimbursed) will be deposited
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into the Principal Account and treated as a portion of
Available Investor Principal Collections for such Transfer
Date as described under "- Payments of Principal" below;
(c) an amount equal to the Class A Prior Period
Interest, if any, will be paid to the Class A
Noteholders;
(d) an amount equal to the Class B Required
Amount, if any, with respect to such Transfer Date will be
used to fund the Class B Required Amount and will be
applied first to pay amounts due with respect to such
Transfer Date pursuant to clause (b)(i) above under "-
Payment of Interest, Fees and Other Items," second to pay
amounts due with respect to such Transfer Date pursuant to
clause (b)(ii) above under "- Payment of Interest, Fees and
Other Items"; third to pay amounts due with respect to such
Transfer Date pursuant to clause (b)(iii) above under " -
Payment of Interest, Fees and Other Items," and fourth,
amounts remaining, up to the Class B Investor Default
Amount, will be deposited into the Principal Account and
treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under " -
Payments of Principal" below;
(e) an amount equal to the aggregate amount by
which the Class B Investor Interest have been reduced below
the initial Class B Investor Interest for reasons other
than the payment of principal to the Class B Noteholders
(but not in excess of the aggregate amount of such
reductions that have not been previously reimbursed) will
be deposited into the Principal Account and treated as a
portion of Available Investor Principal Collections for
such Transfer Date as described under "- Payments of
Principal" below;
(f) an amount equal to the Class B Prior Period
Interest, if any, will be paid to the Class B
Noteholders;
(g) an amount equal to the Class C Required
Amount, if any, with respect to such Transfer Date will be
used to fund the Class C Required Amount and will be
applied first to pay amounts due with respect to such
Transfer Date pursuant to clause (c)(i) above under " -
Payment of Interest, Fees and Other Items," second to
payments due with respect to such Transfer Date pursuant to
clause (c)(ii) above under " - Payment of Interest, Fees
and Other Items," and third, amounts remaining, to pay, in
order of priority, the Class C Monthly Interest for such
Transfer Date plus the amount of any overdue Class C
Monthly Interest plus Class C Additional Interest, if any,
will be deposited into the Payment Account for the payment
to the Class C Noteholders on the related Payment Date;
(h) an amount equal to the aggregate Class C
Investor Default Amount for such Transfer Date will be
deposited into the Principal Account and treated as a
portion of Available Investor Principal Collections for
such Transfer Date as described under "- Payments of
Principal" below;
(i) an amount equal to the aggregate amount by
which the Class C Investor Interest have been reduced below
the initial Class C Investor Interest for reasons other
than the payment of principal to the Class C Noteholders
(but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will
be deposited into the Principal Account and treated as a
portion of Available Investor Principal Collections for
such Transfer Date as described under " - Payments of
Principal" below;
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(j) any remaining Excess Spread, after giving
effect to the payments made pursuant to clauses (a) through
(i) above, will be deposited in the Yield Enhancement
Account to the extent necessary to cause the funds therein
to equal the 91 Day Delinquency Amount;
(k) an amount equal to the Class C Prior Period
Interest, if any, will be paid to the Class C
Noteholders; and
(l) the balance in the Yield Enhancement Account,
if any, in excess of the 91 Day Delinquency Amount, after
giving effect to the payments made pursuant to
subparagraphs (a) through (k) above, shall be paid to the
Trust and will not be available for any future payment to
Noteholders, provided that a Pay Out Event has not
occurred; provided, however, that such amount shall be paid
to the Trust only to the extent that the Trust Interest as
of the end of the immediately preceding Monthly Period is
greater than the largest required minimum Minimum Trust
Interest (after giving effect to the inclusion in or
removal from the Trust of all Receivables transferred to or
from the Trust on or prior to such date, the application of
collections received and/or any reduction or increase of
any outstanding notes since the end of such prior Monthly
Period or on or prior to the following Payment Date) and
otherwise shall be deposited into the Excess Funding
Account.
The "91 Day Delinquency Amount" will equal, as of
each Transfer Date, the product of (a) the Floating Investor
Percentage and (b) the aggregate outstanding principal amount as of
the end of the preceding Monthly Period of the Premium Finance
Obligations relating to Receivables in the Trust that are then
overdue 91 days or more (i) after cancellation of the related
insurance policies or (ii) if cancellation is delayed, whether due to
a stay by reason of an Insured's bankruptcy or other reason, after
the date the policy would have been cancelled in the absence of such
delay. Funds remaining on deposit in the Yield Enhancement Account
under clause (l) above shall be available on the next Transfer Date
for application, together with any additional amounts required to be
deposited therein on such Transfer Date, in accordance with clauses
(a) through (i) above.
"Class A Prior Period Interest," the sum, with respect to
each Interest Period in which the Class A Notes would have accrued interest on
the Class A Investor Interest had such Class A Investor Interest not been
reduced for reasons other than the payment of principal to the Class A
Noteholders, of an amount equal the product of (i) the Class A Note Rate in
effect during such Interest Period plus 2% per annum, (ii) the actual number of
days in such Interest Period divided by 360 and (iii) the amount by which the
Class A Investor Interest was less than the Class A Investor Interest during
such Interest Period for reasons other than the payment of principal to the
Class A Noteholders; provided, however, that Class A Prior Period Interest will
not be distributed until the Payment Date(s) following the Transfer Date on
which the Class A Investor Interest has been reimbursed in full for any
reductions.
"Class B Prior Period Interest" with respect to each
Interest Period in which the Class B Notes would have accrued interest on the
outstanding principal balance of the Class B Notes had the outstanding principal
balance of the Class B Notes not been reduced for reasons other than the payment
of principal to the Class B Noteholders, will equal the sum of (a) the product
of (i) the Class B Note Rate in effect during such Interest Period, (ii) the
actual number of days in such Interest Period divided by 360 and (iii) the
amount by which the outstanding principal balance of the Class B Notes was less
than the outstanding principal balance of the Class B Notes during such Interest
Period for reasons other than the payment of principal to the Class B
Noteholders and (b) all unpaid Class B Prior Period Interest from prior Interest
Periods; provided, however, that Class B Prior Period Interest will not be
distributed until the Payment Date(s) following the Transfer Date on which the
Class B Investor Interest has been reimbursed in full for any reductions.
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"Class C Prior Period Interest" with respect to each
Interest Period in which the Class C Notes would have accrued interest on the
outstanding principal balance of the Class C Notes had the outstanding principal
balance of the Class C Notes not been reduced for reasons other than the payment
of principal to the Class C Noteholders, will equal the sum of (a) the product
of (i) the Class C Note Rate in effect during such Interest Period, (ii) the
actual number of days in such Interest Period divided by 360 and (iii) the
amount by which the outstanding principal balance of the Class C Notes was less
than the outstanding principal balance of the Class C Notes during such Interest
Period for reasons other than the payment of principal to the Class C
Noteholders and (b) all unpaid Class C Prior Period Interest from prior Interest
Periods; provided, however, that Class C Prior Period Interest will not be
distributed until the Payment Date(s) following the Transfer Date on which the
Class C Investor Interest has been reimbursed in full for any reductions.
PAYMENTS OF PRINCIPAL
On each Transfer Date, the Indenture Trustee, acting
pursuant to the Servicer's instructions, will distribute Available Investor
Principal Collections (see "-Principal Payments" above) on deposit in the
Principal Account in the following priority:
(a) on each Transfer Date during the Revolving
Period, all such Available Investor Principal Collections
will be treated as Shared Principal Collections and applied
as described under "--Shared Principal Collections" below
and "Description of the Transfer and Servicing
Agreements--Shared Principal Collections" in the
accompanying Prospectus;
(b) on each Transfer Date during the Controlled
Amortization Period or the Rapid Amortization Period, all
such Available Investor Principal Collections will be
distributed or deposited in the following priority:
(i) an amount equal to Class A Monthly Principal
will be deposited in the Payment Account (during the
Controlled Amortization Period or the Rapid Amoritization
Period) and paid (on the related Payment Date) to the Class
A Noteholders;
(ii) after an amount equal to the Class A Monthly
Principal has been paid (on the related Payment Date) to
the Class A Noteholders (during the Controlled Amortization
Period or Rapid Amortization Period), [after the Class A
Notes are paid in full,] an amount equal to Class B Monthly
Principal will be deposited in the Payment Account and paid
(on the related Payment Date) to the Class B Noteholders;
(iii) after giving effect to the distributions in
clauses (i) and (ii) above, to the Servicer, the
Class C Servicing Fee; and
(iv) after an amount equal to the sum of the
Class A Monthly Principal and the Class B Monthly Principal
has been paid to the Class A Noteholders and Class B
Noteholders, respectively (during the Controlled
Amortization Period or Rapid Amortization Period), [after
the Class B Notes are paid in full,] an amount equal to
Class C Monthly Principal will be deposited in the Payment
Account and paid (on such Payment Date) to the Class C
Noteholder.
(c) on each Transfer Date during the Controlled
Amortization Period or the Rapid Amortization Period, the
balance of Available Investor Principal Collections not
applied pursuant to (b) above, if any, will be treated as
Shared Principal Collections and applied as described under
"--Shared Principal Collections" below and "Description of
the Transfer and Servicing Agreements--Shared Principal
Collections" in the accompanying Prospectus; and
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(d) upon a Refinancing, proceeds equal to the
then outstanding principal balance of the Notes will be
distributed on the related Payment Date in the following
order of priority:
(i) to Class A Noteholders, the outstanding
balance of the Class A Notes (plus any interest accrued
thereon);
(ii) to Class B Noteholders, the outstanding
balance of the Class B Notes (plus any interest accrued
thereon); and
(iii) to Class C Noteholders, the outstanding
balance of the Class C Notes (plus any interest accrued
thereon).
"Class A Monthly Principal" for any Transfer Date during
(i) the Class A Controlled Amortization Period will equal the least of (a) the
Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date, (b) the Controlled Distribution Amount for
the related Payment Date, and (c) the Class A Investor Interest on such Transfer
Date, and (ii) the Rapid Amortization Period will equal the lesser of (a)
Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date, and (b) the Class A Investor Interest on
such Transfer Date.
"Class B Monthly Principal" for any Transfer Date during
(i) the Class B Controlled Amortization Period will equal the least of (a) the
Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date (minus the portion of such Available Investor
Principal Collections applied to Class A Monthly Principal on such Transfer
Date), (b) the Controlled Distribution Amount for the related Payment Date
(minus the portion of such Controlled Distribution Amount applied to Class A
Monthly Principal on such Transfer Date), and (c) the Class B Investor Interest
for such Transfer Date, and (ii) the Rapid Amortization Period will equal the
lesser of (a) Available Investor Principal Collections on deposit in the
Principal Account with respect to such Transfer Date (minus the portion of such
Available Investor Principal Collections applied to Class A Monthly Principal on
such Transfer Date), and (b) the Class B Investor Interest on such Transfer
Date.
"Class C Monthly Principal" for any Transfer Date during
(i) the Class C Controlled Amortization Period will equal the least of (a) the
Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date (minus the portion of such Available Investor
Principal Collections applied to Class A Monthly Principal and Class B Monthly
Principal on the related Transfer Date), (b) the Controlled Distribution Amount
for the related Transfer Date (minus the portion of such Controlled Distribution
Amount applied to Class A Monthly Principal and Class B Monthly Principal on
such Transfer Date), and (c) the Class C Investor Interest for such Transfer
Date, and (ii) the Rapid Amortization Period will equal the lesser of (a)
Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date (minus the portion of such Available Investor
Principal Collections applied to Class A Monthly Principal and Class B Monthly
Principal on such Transfer Date), and (b) the Class C Investor Interest on such
Transfer Date.
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables for any Monthly Period
allocated to the Investor Interest will first be used to cover (a) with respect
to the Controlled Amortization Period, deposits of the applicable Controlled
Distribution Amount to the Payment Account and (b) with respect to the Rapid
Amortization Period, payments to Noteholders. The Servicer will determine the
amount of collections of Principal Receivables for any Monthly Period allocated
to the Investor Interest remaining after covering required payments to
Noteholders and any similar amount remaining for any other outstanding Series
("Shared Principal Collections"). The Servicer will allocate the Shared
Principal Collections to cover any scheduled or permitted principal
distributions to noteholders and deposits to principal funding accounts, if any,
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for any Series in Group One which have not been covered out of the collections
of Principal Receivables allocable to such Series and certain other amounts for
such Series ("Principal Shortfalls"). Shared Principal Collections will not be
used to cover investor charge-offs for any Series. If Principal Shortfalls
exceed Shared Principal Collections for any Monthly Period, Shared Principal
Collections will be allocated pro rata among applicable Series in Group One
based on the relative amounts of Principal Shortfalls. To the extent that Shared
Principal Collections exceed Principal Shortfalls, the balance will, subject to
certain limitations, be paid to the Trust; provided, however, that such amount
shall be paid to the Trust only to the extent that the Trust Interest on such
date is greater than the largest required Minimum Trust Interest as of the
immediately preceding Monthly Period (after giving effect to the inclusion in
the Trust of all Receivables transferred to the Trust on or prior to such date
and the application of collections received and/or any reduction of any variable
funding notes on the related Payment Date) and otherwise shall be deposited in
the Excess Funding Account, provided further, that in no event shall the amount
payable to the Trust be greater than the Trust Interest.
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
Losses resulting from the charge-off of Receivables in each
Monthly Period ("Default Amounts") are generally shared between the investor
interests of each outstanding Series, based on their respective floating
investor allocation percentages (see "-- Allocation Percentages" above with
respect to Series [ __ ]), and the Trust Interest. Certain losses resulting from
charge-offs of Receivables in excess of specified levels will be allocated
entirely to the Trust Interest. Accordingly, such excess losses will not be
borne by the Investor Interest and will not be taken into account in calculating
the Investor Default Amount (defined below). The circumstances under which
excess losses will be allocated entirely to the Trust Interest will occur when
there are losses on Receivables relating to Loans to a single Insured exceeding
the Single Insured Concentration Percentage of the aggregate principal balances
of Receivables at the end of any Monthly Period, or when losses on Receivables
resulting from the insolvency of certain insurance carriers (to the extent not
taken into account as a result of the single Insured excess loss allocation)
exceed a specified percentage of the aggregate principal balances of Receivables
at the end of any Monthly Period (see the definition of Excess Receivables
Amount under "--Excess Funding Account;Minimum Trust Interest; Excess
Receivables Amount" below) under clause (d) of "--Pay Out Events" below or after
the Trust Interest falls below the Minimum Trust Interest following the
occurrence of any other Pay Out Event.
On the fourth business day preceding each Transfer Date
(the "Determination Date"), the Servicer will calculate the Investor Default
Amount for the preceding Monthly Period. The term "Investor Default Amount"
means, for any Monthly Period, and any Receivable under a Premium Finance
Obligation that became a Defaulted Obligation during such Monthly Period, an
amount equal to the product of (a) the unpaid amount (including both principal
and unpaid finance charges) of such Receivable as of the date that such Premium
Finance Obligation became a Defaulted Obligation and (b) the Floating Investor
Percentage for such Monthly Period. The term "Defaulted Obligation" shall mean
any Premium Finance Obligation which (1) remains in default as of the beginning
of the month immediately following the first anniversary of the cancellation or
cancellability of the related insurance policy, which cancellation or
cancellability results from such default or (2) is overdue and which the
Servicer determines, in accordance with the Servicer's policies and procedures
relating to the operation of its business, is incapable of being collected. A
Premium Finance Obligation will be considered to be a Defaulted Obligation upon
the earlier to occur of (1) or (2) above.
A portion of the Investor Default Amount will be allocated
to the Class A Noteholders (the "Class A Investor Default Amount") on each
Transfer Date in an amount equal to the product of the Class A Floating
Allocation applicable for such Transfer Date and the aggregate Investor Default
Amount for such Monthly Period. A portion of the Investor Default Amount will be
allocated to the Class B Noteholders (the "Class B Investor Default Amount") on
each Transfer Date in an amount equal to the product of the Class B Floating
Allocation applicable for such Transfer Date and the aggregate Investor Default
Amount for such Monthly Period. A portion of the Investor Default Amount will be
allocated to the Class C Noteholders (the "Class C Investor Default Amount") on
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each Transfer Date in an amount equal to the product of the Class C Floating
Allocation applicable for such Transfer Date and the aggregate Investor Default
Amount for such Monthly Period.
On each Transfer Date, if the Class A Investor Default
Amount for such Transfer Date exceeds the amount of Class A Available Funds,
Excess Spread, funds on deposit in the Yield Enhancement Account and Reallocated
Class C Principal Collections available to fund such amount with respect to the
Monthly Period immediately preceding such Transfer Date, as described under
"--Application of Collections--Excess Spread" in this Prospectus Supplement, the
Class C Investor Interest (after giving effect to reductions for any Class C
Investor Charge-Offs and any Reallocated Principal Collections on such Transfer
Date) will be reduced by the amount of such excess, but not by more than the
lesser of the Class A Investor Default Amount and the Class C Investor Interest
(after giving effect to reductions for any Class C Investor Charge-Offs and any
Reallocated Principal Collections on such Transfer Date) for such Transfer Date.
In the event that such reduction would cause the Class C Investor Interest to be
a negative number, the Class C Investor Interest will be reduced to zero, and
the Class B Investor Interest (after giving effect to reductions for any Class B
Investor Charge-Offs and any Reallocated Principal Collections for which the
Class C Investor Interest is not reduced on such Transfer Date) will be reduced
by the amount by which the Class C Investor Interest would have been reduced
below zero. In the event that such reduction would cause the Class B Investor
Interest to be a negative number, the Class B Investor Interest will be reduced
to zero, and the Class A Investor Interest will be reduced (but not below zero)
by the amount by which the Class B Investor Interest would have been reduced
below zero, but not by more than the Class A Investor Default Amount for such
Transfer Date (a "Class A Investor Charge-Off"), which will have the effect of
slowing or reducing the return of principal and interest to the Class A
Noteholders. The Class A Investor Interest will thereafter be reimbursed on any
Transfer Date (but not by an amount in excess of the aggregate Class A Investor
Charge-Offs) by the amount of Excess Spread and funds on deposit in the Yield
Enhancement Account allocated and available for such purpose as described under
"--Application of Collections--Excess Spread" in this Prospectus Supplement.
On each Transfer Date, if the Class B Investor Default
Amount for such Transfer Date exceeds the amount of Excess Spread and funds on
deposit in the Yield Enhancement Account and Reallocated Principal Collections
which are allocated and available to fund such amount with respect to the
Monthly Period preceding such Transfer Date as described under "--Application of
Collections--Excess Spread" in this Prospectus Supplement, the Class C Investor
Interest (after giving effect to reductions for any Class C Investor Charge-Offs
and any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) will be reduced by the amount of such excess but not more than the
lesser of the Class B Investor Default Amount and the Class C Investor Interest
(after giving effect to reductions for any Class C Investor Charge-Offs and any
Reallocated Principal Collections on such Transfer Date and after giving effect
to any adjustments with respect thereto as described in the preceding paragraph)
for such Transfer Date. In the event that such reduction would cause the Class C
Investor Interest to be a negative number, the Class C Investor Interest will be
reduced to zero and the Class B Investor Interest will be reduced (but not below
zero) by the amount by which the Class C Investor Interest would have been
reduced below zero, but not more than the Class B Investor Default Amount for
Transfer Date (a "Class B Investor Charge-Off"). The Class B Investor Interest
will also be reduced (but not below zero) by the amount of Reallocated Principal
Collections in excess of the Class C Investor Interest (after giving effect to
reductions for any Class C Investor Charge-Offs and any Reallocated Principal
Collections on such Transfer Date) and the amount of any portion of the Class B
Investor Interest allocated to the Class A Investor Interest to avoid a
reduction in the Class A Investor Interest. The Class B Investor Interest will
thereafter be reimbursed (but not in excess of the unpaid balance of the Class B
Notes) on any Transfer Date by the amount of Excess Spread and funds on deposit
in the Yield Enhancement Account allocated and available for that purpose as
described under "--Application of Collections--Excess Spread" in this Prospectus
Supplement.
On each Transfer Date, if the Class C Investor Default
Amount for such Transfer Date exceeds the amount of Excess Spread and funds on
deposit in the Yield Enhancement Account allocated and available to fund such
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amount as described under "--Application of Collections--Excess Spread" in this
Prospectus Supplement, the Class C Investor Interest will be reduced by the
amount of such excess, but not more than the lesser of the Class C Investor
Default Amount and the Class C Investor Interest for such Transfer Date (a
"Class C Investor Charge-Off"). The Class C Investor Interest will also be
reduced (but not below zero) by the amount of Reallocated Principal Collections
and the amount of any portion of the Class C Investor Interest allocated to the
Class A Notes to avoid a reduction in the Class A Investor Interest or to the
Class B Notes to avoid a reduction in the Class B Investor Interest. The Class C
Investor Interest will thereafter be reimbursed (but not in excess of unpaid
balance of the Class C Notes) on any Transfer Date by the amount of Excess
Spread and funds on deposit in the Yield Enhancement Account allocated and
available for that purpose as described under "--Application of
Collections--Excess Spread" in this Prospectus Supplement.
YIELD ENHANCEMENT ACCOUNT
The Servicer will establish and maintain or cause to be
maintained with a Qualified Institution in the name of the Indenture Trustee, on
behalf of the Trust, a segregated account, the "Yield Enhancement Account," for
the benefit of the Noteholders. Amounts remaining on deposit in the Yield
Enhancement Account will be invested by the Indenture Trustee in the manner
directed by the Seller in Permitted Investments. Any earnings (net of losses and
investment expenses) on funds in the Yield Enhancement Account will be treated
as Excess Spread. If losses and investment expenses exceed earnings on funds in
the Yield Enhancement Account during a Monthly Period, then such excess shall be
charged against funds on deposit in such account. On each Transfer Date, an
amount equal to the Available Yield Enhancement Amount, to the extent available,
will be deposited into the Yield Enhancement Account out of collections
otherwise payable to the Trust for the Monthly Period immediately preceding such
Transfer Date. Notwithstanding the preceding sentence, if ART is no longer the
Seller or if the AIG Support Agreement is not in effect, then prior to any
payment to the Trust of any collections with respect to Principal Receivables or
Finance Charge Receivables not allocated to Noteholders, there will be deposited
into the Yield Enhancement Account on each date amounts allocable to the Notes
which would otherwise be payable to the Trust, until the amount so deposited
equals the Maximum Yield Enhancement Amount for the next Transfer Date. The
"Maximum Yield Enhancement Amount" means, with respect to any Transfer Date, the
amount calculated pursuant to the proviso to the definition of Available Yield
Enhancement Amount set forth below, determined on the assumption that the Class
A Note Rate, the Class B Note Rate and the Class C Note Rate used in determining
Class A Monthly Interest, Class B Monthly Interest and Class C Monthly Interest,
respectively, equals in each case [ ____ ]% per annum or if then higher, the
highest of the then current Class A Note Rate, Class B Note Rate or Class C Note
Rate.
On each Transfer Date the Servicer will calculate the
"Available Yield Enhancement Amount," which, with respect to any Transfer Date,
means the product of (i) [ __ ]% and (ii) the product of (A) the Receivable
collections for the related Monthly Period and (B) the Floating Investor
Percentage; provided that, in no event shall the Available Yield Enhancement
Amount for any Transfer Date exceed the lesser of (i) the sum of all currently
due and unpaid Class A Monthly Interest, Class A Additional Interest, all
currently due and unpaid Class B Monthly Interest, [Class B Prior Period
Interest,] Class B Additional Interest, all currently due and unpaid Class C
Monthly Interest and Class C Additional Interest for such Transfer Date and (ii)
the aggregate of all amounts otherwise payable to ART on the current Transfer
Date.
During each of the calendar years 1996, 1997 and 1998 and
the six months ended June 30, 1999, the average monthly payment rate on
commercial premium finance loans in the Originator's Portfolio was approximately
18% or higher. Assuming (i) a 18% payment rate each month, (ii) twelve equal
30-day monthly periods, and (iii) ownership by the Trust during each Monthly
Period of at least the Minimum Trust Interest, the amount available during the
Revolving Period for yield enhancement would be 864 basis points on the
outstanding principal of the Notes on an annualized basis and may be greater
during an amortization period (unless the amount of interest due on the
outstanding principal of the Notes during such Monthly Period is less than 864
basis points on an annualized basis, in which case the amount available for
yield enhancement would be such lesser amount). There can be no assurance,
however, that the monthly payment rate on the Receivables will not be less than
18% since the payment rate will vary depending on a variety of factors,
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including maturities, interest rates and delinquency rates and default rates of
the Premium Finance Obligations. Lower payment rates will result in lower yield
enhancement amounts.
On each Transfer Date, the Indenture Trustee, acting
pursuant to the Servicer's instructions, will apply funds on deposit in the
Yield Enhancement Account with respect to the related Monthly Period as set
forth under "--Application of Collections - Excess Spread."
EXCESS FUNDING ACCOUNT; MINIMUM TRUST INTEREST; EXCESS RECEIVABLES AMOUNT
The Servicer has established and will maintain or cause to
be maintained with a Qualified Institution in the name of the Indenture Trustee,
on behalf of the Trust, a segregated account, the "Excess Funding Account," for
the benefit of the noteholders of all outstanding Series in Group One, including
the Noteholders. If, as of the end of the immediately preceding Monthly Periods,
the Trust Interest (as adjusted to give effect to the inclusion or removal from
the Trust of all Receivables transferred to or from the Trust and/or any
reduction or increase in any outstanding notes since the end of such Monthly
Period and on or prior to the following Payment Date [and the application of
collections]) equals or is less than the largest required Minimum Trust Interest
as of the end of the immediately preceding Monthly Period, funds (to the extent
available therefor as described herein) otherwise payable to the Trust on such
date will be deposited in the Excess Funding Account. Funds on deposit in the
Excess Funding Account will be withdrawn and paid to the Trust to the extent
that as of any date of determination the Trust Interest (as adjusted to give
effect to the inclusion or removal from the Trust of all Receivables transferred
to or from the Trust and/or any reduction or increase in any outstanding notes
since the end of such Monthly Period and on or prior to the following Payment
Date [and the application of collections]) exceeds the largest required Minimum
Trust Interest as of the end of the immediately preceding Monthly Period as a
result of the transfer of Additional Receivables to the Trust and/or the
reduction of any variable funding notes on the related Payment Date; provided,
however, that if an Accumulation Period or an Amortization Period commences with
respect to any Series of notes outstanding, any funds on deposit in the Excess
Funding Account, will be deposited in the Principal Account and treated as
Shared Principal Collections to the extent necessary to pay principal due to
such other Series. Such deposits to and withdrawals from the Excess Funding
Account may be made on a daily basis (except, if AIC is the Servicer, under the
circumstances described under "--Application of Collections--Excess Spread").
The allocable portion of funds on deposit in the Excess
Funding Account at the beginning of the Rapid Amortization Period will be paid
to the Noteholders as a payment of principal, and during the Controlled
Amortization Period will be paid to Noteholders as a payment of principal to the
extent that monthly collections received of Principal Receivables and Shared
Principal Collections allocable to the Investor Interest are insufficient to pay
the Controlled Distribution Amount. Funds on deposit in the Excess Funding
Account will be allocated, if necessary, among the investor interests of each
outstanding Series of notes on a pro rata basis in accordance with each such
Series' fixed investor percentage.
Funds on deposit in the Excess Funding Account will be
invested by the Indenture Trustee at the direction of the Seller in Permitted
Investments. All net investment income earned on amounts in the Excess Funding
Account to the extent allocable to this Series will be treated as Excess Spread
and allocated as such. If losses and investment expenses exceed earnings on
funds in the Excess Funding Account during a Monthly Period, then such excess
shall be treated in the same manner as Default Amounts are treated. The Seller
is not required to reimburse the Trust with respect to such excess.
The "Minimum Trust Interest" for any date of determination
will be equal to (a) the product of [ ____ ]% times the greater of (x) the
maximum Amortization Commencement Aggregate Funded Amount of any Series then
outstanding and (y) the aggregate Investor Interest as of such date minus (b)
the aggregate Investor Interest as of such date plus (c) the Excess Receivables
Amount as of such date[; provided, however, that the Minimum Trust Interest
shall be calculated without reference to the Excess Receivables Amount if (i)
prior to such date there shall have been delivered to the Indenture Trustee (a)
a written agreement, in form and substance satisfactory to the Rating Agencies,
executed by a person having a long-term unsecured debt rating of AAA from
Standard & Poor's and Aaa from Moody's pursuant to which such person shall have
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unconditionally agreed to indemnify the Trust for all losses in respect of the
Excess Receivables Amount at any time and (b) written confirmation from each of
the Rating Agencies to the effect that such substitution will not result in such
Rating Agency reducing or withdrawing its rating on the then outstanding class
of notes of any Series, and (ii) the agreement and the rating referred to in
clause (a) above remain in effect on such date of determination].
The "Amortization Commencement Aggregate Funded Amount" for
a given Series is equal to the sum of the investor interests of all outstanding
Series as of the earliest end of a Revolving Period for any Class in that
Series.
"Excess Receivables Amount" as of any date of determination
is the sum of:
(i) the aggregate unpaid principal balance of all
Principal Receivables as of the end of the immediately preceding
Monthly Period having the same Insured but only to the extent such
aggregate balance is in excess of such Insured's Single Insured
Concentration Percentage times the aggregate unpaid principal
balance of all Principal Receivables as of the end of such Monthly
Period (the "Excess Insured Concentration Amounts"); and
(ii) the greater of:
(a) the sum, for each Moody's Non-Investment Grade
Insurer (including for this purpose any affiliated Moody's
Non-Investment Grade Insurer) of, if more than [ ]% of the
aggregate unpaid principal balance of all Principal Receivables
as of the end of such Monthly Period arise from Premium Finance
Obligations made to finance premiums due to such insurer
(including any such affiliated insurer), the aggregate unpaid
principal balance of such Principal Receivables but only to the
extent in excess of such percentage; and
(b) the sum, for each insurer (including any
affiliated insurer) referred to below, of the greater of:
(I) if more than [ __ ]% of the aggregate unpaid
principal balance of all Principal Receivables as of the
end of such Monthly Period arise from Premium Finance
Obligations made to finance premiums due to the same S&P
Non-Investment Grade Insurer (including for this purpose
any affiliated S&P Non-Investment Grade Insurer), the
aggregate unpaid principal balance of such Principal
Receivables but only to the extent in excess of such
percentage; and
(II) if more than [ __ ]% of the aggregate unpaid
principal balance of all Principal Receivables as of the
end of such Monthly Period arise from Premium Finance
Obligations made to finance premiums due to the same S&P
Non-AAA Insurer (including for this purpose any
affiliated S&P Non-AAA Insurer), the aggregate unpaid
principal balance of such Principal Receivables but only
to the extent in excess of such percentage.
For purposes of making any calculation: pursuant to clause (ii) above, an amount
that would be part of the Excess Receivables Amount under such clause shall be
taken into account only to the extent not already taken into account under
clause (i) above.
The "Single Insured Concentration Percentage" for a given
Insured is the percentage calculated by taking the lesser of (i) 3.00% and (ii)
the greater of (a) 1.00% and (b) the weighted average remaining installment term
of the Receivables to such Insured, in months, divided by 1200.
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<PAGE>
"Moody's Non-Investment Grade Insurer" means, on any date
of determination, an insurer that as of the end of the immediately preceding
Monthly Period did not have an insurance financial strength rating of at least
investment grade (i.e., Baa3 or higher) by Moody's, unless Moody's shall have
previously notified the Seller in writing (and the Seller has notified
Noteholders) that such insurer is not to be deemed a "Moody's Non-Investment
Grade Insurer" (and shall not have revoked such notification).
"S&P Non-AAA Insurer" means, on any date of determination,
an insurer that as of the end of the immediately preceding Monthly Period did
not have a claims-paying ability rating at least as high as the then applicable
rating assigned by Standard & Poor's to the Class A Notes, (other than any
affiliate of AIG with a Standard & Poor's rating of at least AA-) unless
Standard & Poor's shall have previously notified the Seller in writing (and the
Seller has notified Noteholders) that such insurer is not to be deemed an "S&P
Non-AAA Insurer" (and shall not have revoked such notification).
"S&P Non-Investment Grade Insurer" means, on any date of
determination, an insurer that as of the end of the immediately preceding
Monthly Period did not have a claims-paying ability rating of at least
investment grade (i.e., in one of the top four generic rating categories,
irrespective of any plus or minus) by Standard & Poor's (other than any
affiliate of AIG with a Standard & Poor's qualified solvency rating of at least
BBBq) unless Standard & Poor's shall have previously notified the Seller in
writing that such insurer is not to be deemed an "S&P Non-Investment Grade
Insurer" (and shall not have revoked such notification).
PAY OUT EVENTS
As described above, the Revolving Period will continue
through [ _____ ], [ ____ ] [(unless such date is postponed as described under
"--Postponement of Controlled Amortization Period" in this Prospectus
Supplement),] unless [(i)] either a Series [ __ ]-1 Pay Out Event or Trust Pay
Out Event (jointly, a "Pay Out Event") occurs [or (ii) the Class A Notes or
Class B Notes are refinanced or reissued prior to a Controlled or Rapid
Amortization Period] prior to such date. A "Series [ __ ]-1 Pay Out Event"
refers to any of the following events:
(a) failure on the part of any of the
Originators, the Trust or the Seller (i) to make any
payment or deposit on the date required under the Purchase
Agreement, the Transferor Certificate Purchase Agreement
(as defined in the Sale and Servicing Agreement), the Sale
and Servicing Agreement, the Indenture or the Series [ __
]-1 Supplement (or within the applicable grace period which
shall not exceed five days) or (ii) to observe or perform
in any material respect any other covenants or agreements
of any of the Originators, the Trust or the Seller set
forth in the Purchase Agreement, the Transferor Certificate
Purchase Agreement (as defined in the Sale and Servicing
Agreement), the Sale and Servicing Agreement, the Indenture
or the Series [ __ ]-1 Supplement, which failure has a
material adverse effect on the Noteholders (which
determination shall be made without reference to whether
any funds are available under the Yield Enhancement Account
or by reason of the subordination of any Class of Notes)
and which continues unremedied for a period of [60] days
after written notice of such failure, requiring the same to
be remedied, and continues to materially and adversely
affect the interests of the Noteholders (which
determination shall be made without reference to whether
any funds are available under the Yield Enhancement Account
or by reason of the subordiantion of any Class of Notes)
for such period;
(b) any representation or warranty made by any of
the Originators, the Trust or the Seller in the Purchase
Agreement, the Transferor Certificate Purchase Agreement
(as defined in the Sale and Servicing Agreement), the Sale
and Servicing Agreement, the Indenture or the Series [ __
]-1 Supplement, or any information required to be given by
any of the Originators or the Seller to the Indenture
Trustee to identify the Receivables proves to have been
incorrect in any material respect when made or delivered
and which continues to be incorrect in any material respect
for a period of [60] days after written notice of such
48
<PAGE>
failure, requiring the same to be remedied, and as a result
of which the interests of the Noteholders are materially
and adversely affected (which determination shall be made
without reference to whether any funds are available under
the Yield Enhancement Account or by reason of the
subordination of any Class of Notes) and continue to be
materially and adversely affected for such period;
provided, however, that a Pay Out Event pursuant to this
subparagraph (b) shall not be deemed to occur thereunder if
the Seller has accepted reassignment of or paid its portion
of principal due under the related Receivable or all such
Receivables, if applicable, during such period (or such
longer period as the Indenture Trustee may specify) in
accordance with the provisions of the Sale and Servicing
Agreement;
(c) the Trust Interest as of the end of the
immediately preceding Monthly Period (adjusted to give
effect to the inclusion in or removal from the Trust of all
Receivables transferred to or from the Trust and/or any
reduction or increase in any outstanding notes since the
end of the immediately preceding Monthly Period and on or
prior to the following Payment Date) does not equal the
largest required Minimum Trust Interest of any outstanding
Series (adjusted to give effect to any reduction or
increase in any outstanding notes on or prior to the
following Payment Date);
(d) any Servicer Default occurs which would have
a material adverse effect on the Noteholders;
(e) if the Monthly Payment Rate is less than
[__]% for three consecutive Monthly Periods;
(f) a Financed Premium Percentage of more than
[__]% for three consecutive Monthly Periods; or
(g) if the Annualized Monthly Excess Spread
Amount is less than [ __ ]% for three consecutive Monthly
Periods;
(h) if the Unconcentrated 240+ Day Delinquency
Percentage is more than [ __ ]% for three consecutive
Monthly Periods;
(i) upon an Event of Default;
(j) the Notes have not been paid in full on the
Expected Final Payment Date;
(k) an Insolvency Event (as defined in the
Indenture) occurs with respect to AIG; or
(l) the Trustee shall fail to have a valid first
priority perfected interest in any portion of the Trust
assets, which has a material adverse effect on the
interests of the Noteholders, and the Trust shall fail to
repurchase such affected portion of the Trust assets
within one business day's notice of such failure.
A "Trust Pay Out Event" refers to any of the following
events:
(a) certain events of bankruptcy or insolvency,
relating to any of the Originators, the Servicer or the
Seller;
(b) the Seller becomes unable for any reason to
transfer Receivables to the Trust in accordance with the
provisions of the Sale and Servicing Agreement;
49
<PAGE>
(c) the Trust or the Seller becomes an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended; or
(d) AIG shall fail to meet its obligations under
the AIG Support Agreement in any respect or such support
obligations are modified, amended or terminated, except as
provided in the AIG Support Agreement.
In the case of any event described in clause (a), (b), (d)
or (l) of the definition of Series [ __ ]-1 Pay Out Event, a Series [ __ ]-1 Pay
Out Event will be deemed to have occurred with respect to the Notes on the tenth
business day thereafter unless prior to such day the Noteholders evidencing
interests aggregating not less than [50]% of the Investor Interest, by written
notice to the Indenture Trustee, the Seller and the Servicer declare that a Pay
Out Event should not occur with respect to the Notes. In the case of any event
described in clause (a), (b) (c) or (d) of the definition of Trust Pay Out
Event, a Trust Pay Out Event with respect to all Series then outstanding, and in
the case of any event described in clause (c), (e), (f), (g), (h) (i), (j) or
(k) of the definition of Series [ __ ]-1 Pay Out Event, a Pay Out Event with
respect to only the Notes, will be deemed to have occurred without any notice or
other action on the part of the Indenture Trustee or the Noteholders or all
noteholders, as appropriate, immediately upon the occurrence of such event. On
the date on which a Series [ __ ]-1 Pay Out Event or a Trust Pay Out Event is
deemed to have occurred, the Rapid Amortization Period will commence.
In the event the Rapid Amortization Period commences,
distributions of principal to the Noteholders will begin on the first Payment
Date following the month in which such Rapid Amortization Period commenced. The
amount on deposit in the Principal Account, if any, will be distributed to the
Class A Noteholders, the Class B Noteholders and the Class C Noteholders to the
extent allocable to each, on the first Payment Date with respect to the Rapid
Amortization Period. If, because of the occurrence of either (a) a Trust Pay Out
Event, or (b) a Series [ __ ]-1 Pay Out Event, the Rapid Amortization Period
begins on or prior to [ _____, __ ], Noteholders may begin receiving
distributions of principal earlier than they otherwise would have, which may
shorten the average life of the Notes.
"Annualized Monthly Excess Spread Amount" for any Monthly
Period is the percentage calculated by dividing (i) an amount equal to the sum
of (A) the amount of collections in respect of Finance Charge Receivables
allocable to Noteholders for such Monthly Period, plus (B) the Available Yield
Enhancement Amount for the immediately succeeding Transfer Date, minus (C) the
aggregate Investor Default Amount for such Monthly Period minus (D) the Investor
Servicing Fee payable on such Transfer Date minus (E) the aggregate amount
payable to Noteholders in respect of interest on the immediately succeeding
Payment Date by (ii) the outstanding principal amount of the Notes at the end of
such Monthly Period and multiplying the resulting quotient by 12.
"Financed Premium Percentage" for any Monthly Period is the
ratio (expressed as a percentage) of the aggregate of the portions of premiums
financed or committed to be financed, as of the respective dates of origination
of the related Premium Finance Obligations, of all Additional Receivables
transferred to the Trust during such Monthly Period to the aggregate of the
premiums paid or committed to be paid with respect to such Premium Finance
Obligations.
"Monthly Payment Rate" for any Monthly Period is a fraction
(expressed as a percentage), the numerator of which is the aggregate of all
collections received in respect of Principal Receivables and Finance Charge
Receivables during such Monthly Period and the denominator of which is the
aggregate amount of Principal Receivables at the end of the preceding Monthly
Period.
The "Unconcentrated 240+ Day Delinquency Percentage" for
any date of determination is the percentage calculated by dividing (a) the sum
of the Unconcentrated Insured Amount for each Receivable relating to a Premium
Finance Obligation that is 240 days or more past cancellation or cancellability
of the related insurance policy, by (b) the aggregate unpaid principal balance
of all Receivables.
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<PAGE>
The "Unconcentrated Insured Amount" for a given Insured is
the product of (i) the difference between such Insured's Single Insured
Concentration Percentage and 1.00% (but such difference cannot be less than
zero) and (ii) the aggregate unpaid principal balance of all Receivables.
Upon the occurrence of a Pay Out Event, if more than [ __
]% of the principal balance of the Receivables have a remaining term of more
than twelve months, the Seller will make a payment to the Trust (i) to purchase
from the Trust a sufficient amount of the portion of such Receivables and/or
(ii) in a sufficient amount in respect of the portion of such Receivables, in
each case, that represents all amounts to be paid by the related Insured after
twelve months from the occurrence of such Pay Out Event, at a price equal to par
plus interest accrued to the time of purchase, so that the percentage of
Receivables (the portions of which have not been purchased or for which a
payment has not been made as provided for herein) having a remaining term as of
the date of purchase of more than twelve months shall be no more than [ __ ]% of
the principal balance of Receivables after giving effect to such purchase or
payment.
See "Description of the Transfer and Servicing
Agreements--Pay Out Events" in the accompanying Prospectus for an additional
discussion of the consequences of a bankruptcy or insolvency of the Seller.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Investor Servicing Fee allocable to the
Class A Noteholders with respect to any Transfer Date in which the Originators
are not the Servicer (the "Class A Servicing Fee") shall be equal to one-twelfth
of the product of (a) the Class A Floating Allocation, (b) [ ]% (the "Net
Servicing Fee Rate") and (c) the Investor Interest for the relevant Interest
Period. The share of the Investor Servicing Fee allocable to the Class B
Noteholders with respect to any Transfer Date in which the Originators are not
the Servicer (the "Class B Servicing Fee") shall be equal to one-twelfth of the
product of (a) the Class B Floating Allocation, (b) the Net Servicing Fee Rate
and (c) the Investor Interest for the relevant Interest Period. The share of the
Investor Servicing Fee allocable to the Class C Investor Interest with respect
to any Transfer Date (the "Class C Servicing Fee") shall be equal to one-twelfth
of the product of (a) the Class C Floating Allocation, (b) the Net Servicing Fee
Rate and (c) the Investor Interest for the relevant Interest Period. The Class A
Servicing Fee, Class B Servicing Fee and Class C Servicing Fee shall be payable
to the Servicer solely to the extent amounts are available for distribution in
respect thereof.
[REFINANCING
The Seller may redeem the Notes (a "Refinancing") from
funds deposited into the Payment Account representing the proceeds of the
refinancing of any outstanding Series of notes on any Payment Date following [
__________ ], 20__ (the Payment Date on which the Notes are to be refinanced,
the "Refinancing Date"), in whole or in part (without premium) from funds
deposited into the Payment Account equal to the Refinancing Price (as defined
below), upon notice to the Trustee of such election.
The "Refinancing Price" is an amount equal to the sum of
the unpaid Investor Interest and accrued and unpaid amounts and Monthly Interest
on the Notes at the respective Note Rates through the day preceding the
Refinancing Date, less amounts, if any, on deposit on the Refinancing Date in
the Payment Account for the payment of accrued and unpaid principal and interest
on the Notes.
The Refinancing Price will be deposited in the Payment
Account by no later than 1:00 p.m. New York City time on the Refinancing Date.
Amounts on deposit in the Payment Account for any such Refinancing will be paid
to the Noteholders, first to redeem all the Class A Notes, next to redeem all
the Class B Notes, and finally to redeem all the Class C Notes.]
REPORTS TO NOTEHOLDERS
On each Payment Date, the Trustee will forward to each
Noteholder of record, a statement prepared by the Servicer setting forth the
items described in "Description of the Notes--Reports to Noteholders" in the
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<PAGE>
accompanying Prospectus. In addition, such statement will include certain
information regarding the Principal Account and the Class C Notes, if any, for
such Transfer Date.
[AMENDMENTS
In addition to being subject to amendment pursuant to any
other provisions relating to amendments in either the Indenture or the Series [
]-1 Supplement, the Series [ ]-1 Supplement may be amended by the Trust without
the consent of the Servicer, any Noteholder or the Trustee if the Trust provides
the Trustee with (a) an opinion of counsel to the effect that such amendment or
modification would reduce the risk that the Trust would be treated as taxable as
a publicly traded partnership pursuant to section 7704 of the Internal Revenue
Code of 1986, as amended (the "Code") and (b) a certificate that such amendment
or modification would not materially and adversely affect any Noteholder,
provided, however, that no such amendment shall be deemed effective without the
Trustee's consent, if the Trustee's rights, duties and obligations under the
Series [ ]-1 Supplement are thereby modified. Promptly after the effectiveness
of any such amendment, the Trust shall deliver a copy of such amendment to each
of the Servicer, the Trustee and each Rating Agency described in the Series [
]-1 Supplement and such amendment complies with the requirements of the Trust
Indenture Act.]
ERISA CONSIDERATIONS
Subject to the discussion below, the Seller believes that
the Class A Notes and the Class B Notes should constitute indebtedness lacking
substantial equity features for purposes of the prohibited transaction rules of
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Code, and accordingly may be purchased with the
assets of employee benefit plans or other plans (including individual retirement
accounts) subject to such sections or of persons which are deemed to be using
assets of such plans (collectively, "Plans"). A non-exempt violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and Section 4975 of the Code for Parties in Interest or other
persons. Plans that are governmental plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements.
The prohibited transaction rules may restrict certain
transactions directly and indirectly involving the assets of Plans and persons
that are "parties in interest" under ERISA or "disqualified persons" under the
Code (collectively, "Parties in Interest") to such Plans, unless an exemption
applies. In particular, a sale or exchange of property or an extension of credit
between a Plan and a Party in Interest to the Plan are transactions, among
others, prohibited under the prohibited transaction rules, unless an exemption
applies. If the Class A Notes and Class B Notes are treated as indebtedness for
purposes of the prohibited transaction rules and the Trust is a Party in
Interest to a Plan holding any such Note, then such extension of credit might
constitute a prohibited transaction unless an exemption applies. If 50% or more
of the beneficial interest in the Trust is owned by a Party in Interest to a
Plan, the Trust might also be treated as a Party in Interest to those same
Plans. The Trust Interest initially will be owned by ART, which is indirectly
owned by AIG. AIG might be a Party in Interest with respect to many Plans, and
accordingly the Trust might be a Party in Interest to those same Plans. Further,
there are no assurances that the Trust Interest represents the sole beneficial
interest in the Trust.
CLASS A NOTES
Under a regulation (the "Plan Asset Regulation") issued by
the Department of Labor ("DOL"), the assets of an entity in which a Plan holds
an equity interest are treated under certain circumstances as "plan assets" of
such Plan. The Plan Asset Regulation defines the term "equity interest" as
excluding any instrument that is treated as indebtedness under applicable local
law and lacks substantial equity features. Because of the traditional debt
features of the Class A Notes, the absence of rights to payment other than
principal and interest on the Class A Notes, the likelihood of the payment of
principal and interest on the Class A Notes (as reflected in its rating in the
highest category by a nationally recognized rating organization) and the
subordination of the Class B Notes and Class C Notes to provide credit
52
<PAGE>
enhancement for the Class A Notes, the Seller believes that the Class A Notes
should initially be treated as indebtedness lacking substantial equity features
for purposes of the prohibited transaction rules and therefore can be purchased
by Plans. See "ERISA Considerations" in the accompanying Prospectus.
CLASS B NOTES
The Seller also believes that the Class B Notes should
initially qualify as indebtedness lacking substantial equity features for
purposes of the prohibited transaction rules by reason of the traditional debt
features of the Class B Notes, the likelihood of payment of principal and
interest on the Class B Notes (as reflected, among other things, by a rating in
one of the three highest categories by a nationally recognized rating agency),
and the availability of the Class C Notes and the Trust Interest to provide
credit enhancement to the Class B Notes. However, credit enhancement for the
Class B Notes is less than the degree of credit enhancement available to the
Class A Notes. A number of exemptions might apply to the purchase and holding of
a Class A or Class B Note by a Plan, including PTEs 84-14, 90-1, 91-38, 95-60
and 96-23.
The Class A Notes and Class B Notes will be issued by the
Trust and acquired by the Underwriter for sale to others. The Underwriter is a
broker-dealer registered under the Securities Exchange Act of 1934 and
customarily purchases and sells securities for its own account in the ordinary
course of its business as a broker-dealer, and is likely to be a Party in
Interest to many Plans. A sale of Class A Notes or Class B Notes by a registered
broker-dealer, acting as a principal, may be exempt from the prohibited
transaction restrictions of Section 406(a) of ERISA and Sections 4975(c)(1)(A)
through (D) of the Code by reason of Prohibited Transaction Class Exemption 75-1
("PTE 75-1"). That exemption, however, does not extend to violations of Section
406(b) of ERISA or Section 4975(c)(1)(E) of the Code.
PTE 75-1. PTE 75-1 permits the purchase or sale of
securities between a Plan and a broker-dealer, acting as a principal, if the
following conditions are satisfied:
(1) the broker-dealer is registered under the
Securities Exchange Act of 1934 and customarily
purchases and sells securities for its own
account in the ordinary course of its business as
a broker-dealer;
(2) the transaction is at least as favorable to the
Plan as an arm's-length transaction with an
unrelated party and, at the time of the
transaction, was not a prohibited transaction
within the meaning of Section 503(b) of the Code;
(3) the broker-dealer is not a fiduciary with respect
to the Plan and is a Restricted Person to the
Plan solely because it or an affiliate provides
services (other than securities custodial
services) to the Plan;
(4) for a period of six years from the date of the
transaction, the Plan maintains or causes to be
maintained such records as are necessary to
determine whether the foregoing conditions have
been met, and such records are unconditionally
available for examination during normal business
hours by the Department of Labor and certain
other persons.
CONSULTATION WITH COUNSEL
In light of the foregoing, fiduciaries or other persons
contemplating purchasing the Class A Notes or Class B Notes on behalf of or with
"plan assets" of any Plan should consult their own counsel regarding whether the
acquisition or holding of such Notes might result in a prohibited transaction,
the consequences that would apply if the Trust's assets were considered "plan
assets," and the possibility of exemptive relief from the prohibited transaction
rules.
Finally, Plan fiduciaries and other Plan investors should
consider the fiduciary standards under ERISA or other applicable law in the
context of the Plan's particular circumstances before authorizing an investment
53
<PAGE>
of a portion of the Plan's assets in the Class A Notes or Class B Notes.
Accordingly, among other factors, Plan fiduciaries and other Plan investors
should consider whether the investment (i) satisfies the diversification
requirement of ERISA or other applicable law, (ii) is in accordance with the
Plan's governing instruments, and (iii) is prudent in light of the "Risk
Factors" and other factors discussed in this Prospectus Supplement and the
accompanying Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an
underwriting agreement as supplemented by a terms agreement relating to the
Class A Notes (together, the "Class A Underwriting Agreement") between the Trust
and the Class A Underwriters named below (the "Class A Underwriters"), and the
terms and conditions set forth in an underwriting agreement as supplemented by a
terms agreement relating to the Class B Notes (together, the "Class B
Underwriting Agreement," and together with the Class A Underwriting Agreement,
the "Underwriting Agreement") between the Trust and the Class B Underwriter
named below (the "Class B Underwriter," and together with the Class A
Underwriters, the "Underwriters"), the Trust has agreed to sell to the
Underwriters, and each of the Underwriters has agreed to purchase, the principal
amount of the Notes set forth opposite its name:
CLASS A UNDERWRITERS PRINCIPAL AMOUNT OF
CLASS A NOTES
-------------
$
.............................
.............................
.............................
.............................
Total -----------------------------
$
=============================
CLASS B UNDERWRITERS PRINCIPAL AMOUNT OF
CLASS B NOTES
-------------
Total -----------------------------
$
=============================
In the Class A Underwriting Agreement, the Class A
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the Class A Notes offered hereby if any of the Class A Notes
are purchased. In the Class B Underwriting Agreement, the Class B Underwriter
has agreed, subject to the terms and conditions set forth therein, to purchase
all of the Class B Notes offered hereby if any of the Class B Notes are
purchased.
The Class A Underwriters propose initially to offer the
Class A Notes to the public at [ _______ ]% of their principal amount and to
certain dealers at such price less concessions not in excess of [ _____ ]% of
the principal amount of the Class A Notes. The Class A Underwriters may allow,
and such dealers may reallow, concessions not in excess of [ ______ ]% of the
principal amount of the Class A Notes to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Class A Underwriters.
The Class B Underwriter proposes initially to offer the
Class B Notes to the public at [ _____ ]% of their principal amount and to
certain dealers at such price less concessions not in excess of [ _____ ]% of
the principal amount of the Class B Notes. The Class B Underwriter may allow,
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<PAGE>
and such dealers may reallow, concessions not in excess of [ _____ ]% of the
principal amount of the Class B Notes to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Class B Underwriter.
We will receive proceeds of approximately $[ _____ ] from
the sale of the Notes (representing [ _____ ]% of the principal amount of each
Class A Note and [ _____ ]% of the principal amount of each Class B Note) after
paying the underwriting discount of $[ _____ ] (representing [ _____ ]% of the
principal amount of each Class A Note and [ _____ ]% of the principal amount of
each Class B Note). Additional offering expenses are estimated to be $[ _____ ].
The Seller will indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof. AIG has
agreed to guarantee payment in respect of such indemnification and contribution
obligations of the Seller.
The Underwriters may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Notes in accordance with Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the Notes so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Notes in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the Underwriters to reclaim
a selling concession from a syndicate member when the Notes originally sold by
such syndicate member are purchased in a syndicate covering transaction. Such
over-allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the prices of the Notes to be higher
than they would otherwise be in the absence of such transactions. Neither the
Seller, the Trust nor any of the Underwriters represents that the Underwriters
will engage in any such transactions or that such transactions, once commenced,
will not be discontinued without notice at any time.
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<PAGE>
ANNEX I
OTHER SERIES ISSUED AND OUTSTANDING
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
91 Day Delinquency Amount..............................40
Additional Interest....................................29
AIC................................................14, 27
AIC Trust...........................................4, 23
AIC Trust Receivables...............................4, 23
AIC Trust Termination Date..............................4
AICCO..............................................14, 27
AIG....................................................27
AIGC Portfolio.........................................14
AIGCC..................................................27
AIR.............................................4, 22, 23
Amortization Commencement Aggregate Funded Amount......47
Amortization Period Length.............................32
Annualized Monthly Excess Spread Amount................51
ART.....................................................3
Available Investor Principal Collections...............31
Available Yield Enhancement Amount......................3
business day...........................................29
Cedelbank..............................................11
Class A Additional Interest............................29
Class A Available Funds................................29
Class A Controlled Amortization Period..................1
Class A Floating Allocation............................33
Class A Initial Investor Interest......................34
Class A Investor Charge-Off............................44
Class A Investor Default Amount........................44
Class A Investor Interest..............................34
Class A Monthly Interest...............................38
Class A Monthly Principal..............................42
Class A Note Rate...................................1, 29
Class A Notes...........................................1
Class A Prior Period Interest..........................40
Class A Required Amount................................35
Class A Servicing Fee..................................52
Class A Underwriters...................................55
Class A Underwriting Agreement.........................55
Class B Additional Interest............................29
Class B Available Funds................................29
Class B Controlled Amortization Period..................1
Class B Controlled Distribution Amount..................1
Class B Floating Allocation............................34
Class B Initial Investor Interest......................34
Class B Investor Charge-Off............................45
Class B Investor Default Amount........................44
Class B Investor Interest..............................34
Class B Monthly Interest...............................38
Class B Monthly Principal..............................42
Class B Note Rate...................................1, 30
Class B Notes...........................................1
Class B Prior Period Interest..........................41
Class B Required Amount................................35
Class B Servicing Fee..................................52
Class B Underwriter....................................55
Class B Underwriting Agreement.........................55
Class C Available Funds................................38
Class C Floating Allocation............................34
Class C Initial Investor Interest......................34
Class C Investor Charge-Off............................45
Class C Investor Default Amount........................44
Class C Investor Interest..............................34
Class C Monthly Interest...............................38
Class C Monthly Principal..............................43
Class C Notes...........................................2
Class C Prior Period Interest..........................41
Class C Servicing Fee..................................52
Closing Date............................................1
Code...................................................52
Controlled Amortization Amount.........................32
Controlled Amortization Period..........................9
Controlled Distribution Amount......................1, 32
Credit Balance.........................................22
Cut-Off Date...........................................22
Default Amount..........................................4
Default Amounts........................................43
Defaulted Obligation...................................44
Deferred Payment Obligations........................3, 14
Deficit Controlled Amortization Amount.................32
Determination Date.....................................44
DOL....................................................53
DTC....................................................11
ERISA..................................................53
Euroclear..............................................11
Excess Funding Account.................................46
Excess Insured Concentration Amounts...................47
Excess Receivables Amount..............................47
Excess Spread..........................................38
Finance Charge Receivables..............................4
Financed Premium Percentage............................51
Fixed Investor Percentage..............................34
Floating Investor Percentage...........................33
56
<PAGE>
Group One..............................................11
Imperial Originators...................................14
Indemnity Agreement....................................24
Insureds...............................................27
Interest Period.........................................1
Investor Default Amount................................44
Investor Interest...................................2, 35
IP Finance I.......................................14, 27
IP Finance II......................................14, 27
IP Funding.........................................14, 27
Legal Final Maturity....................................1
LIBOR..................................................30
LIBOR Determination Date...............................30
Loan Portfolio.........................................14
Loans...............................................3, 14
Maximum Yield Enhancement Amount.......................45
Minimum Trust Interest.................................47
Monthly Payment Rate...................................51
Monthly Period.........................................33
Moody's Non-Investment Grade Insurer...................48
Net Servicing Fee Rate.................................52
Notes...................................................2
Obligations Portfolio..................................14
Offered Notes...........................................1
Originator's Portfolio.................................15
Originators.........................................3, 14
Owner Trustee..........................................14
Parties in Interest....................................53
Pay Out Event..........................................49
Payment Date........................................1, 29
Plan Asset Regulation..................................53
Plans..................................................53
Premium Finance Obligations.........................3, 14
Principal Account......................................24
Principal Receivables...................................3
Principal Shortfalls...................................43
PTE 75-1...............................................54
Purchase Agreement.....................................14
Rapid Amortization Period...............................9
Rating Agency Condition................................33
Reallocated Class B Principal Collections..............36
Reallocated Class C Principal Collections..............36
Reallocated Principal Collections......................36
Receivables.....................................3, 14, 22
Record Date............................................28
Reference Banks........................................30
Refinancing........................................11, 52
Refinancing Date...................................11, 52
Refinancing Price......................................52
Removed Receivables....................................22
Required Amount........................................36
Revolving Period........................................9
S&P Non-AAA Insurer....................................48
S&P Non-Investment Grade Insurer.......................48
Sale and Servicing Agreement...........................14
Seller..........................................3, 14, 26
Series [ __ ]-1 Pay Out Event..........................49
Series [ __ ]-1 Termination Date........................1
Series [ ____ ]-1......................................31
Series [ ____ ]-1 Supplement...........................27
Series [__] - 1 Termination Date.......................32
Servicer...............................................14
Shared Principal Collections...........................43
Single Insured Concentration Percentage................48
Transfer Date..........................................37
Transferor Certificate.................................23
Trust...........................................1, 14, 26
Trust Interest...................................2, 3, 28
Trust Pay Out Event....................................50
Trust Percentage.......................................28
Unconcentrated 240+ Day Delinquency Percentage.........51
Unconcentrated Insured Amount..........................51
Underwriters...........................................55
Underwriting Agreement.................................55
Yield Enhancement Account...........................2, 45
57
<PAGE>
AIG CREDIT PREMIUM FINANCE MASTER TRUST
Issuer
A.I. RECEIVABLES TRANSFER CORP.
Seller
SERIES [ ]-1
$[ _____ ]
CLASS A FLOATING RATE ASSET BACKED NOTES
$[ _____ ]
CLASS B FLOATING RATE ASSET BACKED NOTES
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Underwriters of the Class A Notes and Class B Notes
GOLDMAN, SACHS & CO.
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the accompanying
Prospectus We have not authorized anyone to provide you with different
information
We are not offering the notes in any state where the offer is not permitted
We do not claim the accuracy of the information in this Prospectus
Supplement and the accompanying Prospectus as of any date other than
the dates stated on their respective covers
Dealers will deliver a Prospectus Supplement and Prospectus when acting as
underwriters of the notes and with respect to their unsold allotments or
subscriptions In addition, all dealers selling the notes will deliver a
Prospectus Supplement and Prospectus until [ ______ ], [_______ ].
<PAGE>
Part II
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.............................. $26,414.00*
Legal Fees and Expenses........................... $200,000.00
Accounting Fees and Expenses...................... $50,000.00
Trustee's Fees and Expenses....................... $200,000.00
Blue Sky Qualification Fees
and Expenses.................................... $0.00
Printing and Engraving Fees....................... $0.00
Rating Agency Fees................................ $100,000.00
Miscellaneous..................................... $10,000.00
----------
Total........................................ $566,414.00
* $278 has previously been paid
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Set forth below are certain provisions of law and a brief summary of the
relevant provisions of the Certificate of Incorporation and By-Laws of A.I.
Receivables Transfer Corp. (the "Company"). The general effect of such
provisions is to provide indemnification to officers and directors of the
Company for actions taken in good faith on behalf of the Company.
Section 145 of the General Corporation Law of Delaware empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. If the person indemnified is not wholly successful in such action,
suit or proceeding, but is successful, on the merits or otherwise, in one or
more but less than all claims, issues or matters in such proceeding, such person
may be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with each successfully resolved
claim, issue or matter. In the case of an action or suit by or in the right of
the corporation, no indemnification may be made in respect to any claim, issue
or mater as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that despite the adjudication of liability but in the view of all the
circumstances of the case such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
provides that to the extent a present or former director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
2
<PAGE>
The Certificate of Incorporation of the Company provides that a director of the
Company will not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involved intentional
misconduct or a knowing violation of the law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware or (iv) for any transaction
from which the director derived an improper personal benefit.
The By-laws of the Company provide that each person who was or is made a party
or is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative ("proceeding"), by reason of
the fact that he or she is or was a director, officer, agent or other employee
of the Company (which term includes any predecessor corporation of the Company)
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, will be indemnified by the Company to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended against all expenses, reasonably
incurred in connection therewith and such indemnification will inure to the
benefit of the indemnity's heirs, executors and administrators.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
hereto for provisions relating to the indemnification of directors, officers and
controlling persons against certain liabilities including liabilities under the
Securities Act of 1933, as amended.
ITEM 16. EXHIBITS
(A) EXHIBITS
1.1-- Form of Underwriting Agreement.
3.1-- Certificate of Incorporation of A.I. Receivables Transfer
Corp., as currently in effect.*
3.2-- Bylaws of A.I. Receivables Transfer Corp., as currently in
effect.
4.1-- Master Trust Agreement of AIG Credit Premium Finance Master
Trust between A.I. Receivables Transfer Corp. and the Owner
Trustee.
4.2-- Base Indenture between the Trust and the Indenture
Trustee (including forms of Notes).
4.3 Form of Indenture Supplement
4.4-- Sale and Servicing Agreement, among the Seller, the Servicer
and the Trust.
4.5-- Receivables Purchase Agreement, among the Originators and
the Seller.
4.6-- Transferor Certificate Purchase Agreement
4.7-- Administration Agreement, among the Trust, A.I. Credit
Corp., as Trust
Administrator, the Seller and the Indenture Trustee.
5.1-- Opinion of Weil Gotshal & Manges LLP (as to legality).
8.1-- Opinion of Weil Gotshal & Manges LLP (as to tax matters).
23.1-- Consent of Weil Gotshal & Manges LLP (contained in
Exhibit 5.1 and 8.1).
24.1-- Power of Attorney (included on signature page).*
25.1-- T-1 of Indenture Trustee.
---------------------
* indicates previously filed
(B) FINANCIAL STATEMENTS
All financial Statements, schedules and historical financial
information have been omitted as they are not applicable.
3
<PAGE>
ITEM 17. UNDERTAKINGS
A. Undertaking Pursuant to Rule 415.
--------------------------------
The undersigned Registrant hereby undertakes as follows:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that (a)(i) and (a)(ii) will not apply if the
information required to be included in a post-effective amendment
thereby is contained in periodic reports filed pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Exchange Act of 1933 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
B. Filing Incorporating Subsequent Exchange Act Documents By Reference.
-------------------------------------------------------------------
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Trust's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Undertaking in Respect of Indemnification.
-----------------------------------------
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 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
4
<PAGE>
the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
D. Undertaking in Respect of Acceleration of Effective Date or Filing of
Registration Statement.
----------------------------------------------------------------------
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of 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)
under the Securities Act of 1933 shall be deemed to be part of
this Registrant Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
E. Undertaking in Respect of the Eligibility of the Trustee.
--------------------------------------------------------
The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on June 20, 2000.
A.I. Receivables Transfer Corp.,
as depositor to the Trust
By: /s/ Michael D. Vogen
--------------------
Gerald V. Vitkauskas
By: Michael D. Vogen, Attorney-in-Fact
POWER OF ATTORNEY
The Registrant reasonably believes that the security rating
requirements of the securities will be met at the time of sale of the
securities.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JUNE 20, 2000 BY THE FOLLOWING
PERSON IN THE CAPACITY INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Gerald V. Vitkauskas President and Director June 20, 2000
By: Michael D. Vogen, Attorney-in-Fact
/s/ Michael D. Vogen Chief Financial Officer; June 20, 2000
Michael D. Vogen Treasurer; Director
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of A.I. Receivables Transfer Corp., as
currently in effect.*
3.2 Bylaws of A.I. Receivables Transfer Corp., as currently in effect.
4.1 Master Trust Agreement of AIG Credit Premium Finance Master Trust
between A.I. Receivables Transfer Corp. and the Owner Trustee.
4.2 Base Indenture between the Trust and the Indenture Trustee
(including forms of Notes).
4.3 Form of Indenture Supplement
4.4 Sale and Servicing Agreement, among the Seller, the Servicer and the
Trust.
4.5 Receivables Purchase Agreement, among the Originators and the
Seller.
4.6 Transferor Certificate Purchase Agreement
4.7 Administration Agreement, among the Trust, A.I. Credit Corp., as
Trust Administrator, the Seller and the Indenture Trustee.
5.1 Opinion of Weil Gotshal & Manges LLP (as to legality).
8.1 Opinion of Weil Gotshal & Manges LLP (as to tax matters).
23.1 Consent of Weil Gotshal & Manges LLP (contained in Exhibit 5.1 and
8.1).
24.1 Power of Attorney (included on signature page).*
25.1 T-1 of Indenture Trustee.
---------------------
* indicates previously filed
