As filed with the Securities and Exchange Commission on July 17, 2000
Registration No. 333-37164
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PAINEWEBBER ASSET ACCEPTANCE CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
13-4112735
(I.R.S. Employer Identification Number)
1285 Avenue of the Americas
New York, New York 10019
212-713-2000
(Address and telephone number of Registrant's principal executive offices)
John L. Fearey, Esq.
PaineWebber Asset Acceptance Corporation
1285 Avenue of the Americas
New York, New York 10019
212-713-2000
(Name, address and telephone number of agent for service)
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Copies to:
Michael S. Gambro, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
212-504-6000
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Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of this Registration Statement,
as determined by market conditions.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed maximum
class of maximum aggregate Amount of
securities to be Amount to be offering price offering registration
registered (1) registered per unit (2) price (2) fee (3)
Asset-Backed $300,000,000 100% $300,000,000 $79,200
Certificates and
Asset-Backed
Notes, issued in
series
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(1) This Registration Statement and the registration fee pertain to the initial
offering of the Asset-Backed Certificates and Asset-Backed Notes registered
hereunder by the Registrant and to offers and sales of an indeterminate
number of Asset-Backed Certificates and Asset-Backed Notes in connection with
market-making transactions by PaineWebber Incorporated, an affiliate of the
Registrant. The amount of Asset-Backed Certificates and Asset-Backed Notes
that may be initially offered hereunder and the registration fee shall not be
affected by any offers and sales relating to any such market-making
transactions.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) $264 was previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes two base prospectuses and four forms of
prospectus supplement. Version 1 of the base prospectus may be used in offering
a series of certificates or notes backed by equipment leases and equipment
loans. Version 2 of the base prospectus may be used in offering a series of
certificates or notes backed by receivables consisting of loans and leases on
automobiles, motorcycles, recreational vehicles and light duty trucks. Version 1
of the form of prospectus supplement may be used in offering a series of
certificates backed by equipment leases and equipment loans. Version 2 of the
form of prospectus supplement may be used in offering a series of notes backed
by equipment leases and equipment loans. Version 3 of the form of prospectus
supplement may be used in offering a series of certificates backed by
receivables consisting of loans and leases on automobiles, motorcycles,
recreational vehicles and light duty trucks. Version 4 of the form of prospectus
supplement may be used in offering a series of notes backed by receivables
consisting of loans and leases on automobiles, motorcycles, recreational
vehicles and light duty trucks. Each form of prospectus supplement is meant to
be illustrative of the type of disclosure that might be presented for a series
of certificates or notes, but is not meant to be, and necessarily cannot be,
exhaustive of all possible features that might exist in a particular series.
These forms assume the possibility of credit enhancement in the form of
overcollateralization and a security insurance policy, but as described in each
base prospectus, the types of credit support may vary from series to series.
Each base prospectus used (in either preliminary or final form) will be
accompanied by the applicable prospectus supplement.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until we deliver a final prospectus and prospectus
supplement. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
SUBJECT TO COMPLETION, DATED JULY 17, 2000
PROSPECTUS
_______________, 200_
PAINEWEBBER ASSET ACCEPTANCE CORPORATION,
Depositor
EQUIPMENT CONTRACT BACKED SECURITIES
(Issuable in Series)
PaineWebber Asset Acceptance Corporation from time to time will offer
equipment contract backed certificates or equipment contract backed notes. We
will offer the certificates or notes through this prospectus and a separate
prospectus supplement for each series.
For each series we will establish a trust fund consisting primarily of any
combination of the following receivables:
o finance leases,
o installment sale contracts,
o loan contracts, and
o participation interests in finance leases and installment sale and loan
contracts.
Each trust fund may also include a security interest in the underlying
equipment and any related property and proceeds.
The certificates of a series will represent beneficial ownership interests
in the trust fund. The notes of a series will represent indebtedness of the
trust fund. The certificates or notes of a series may be divided into two or
more classes which may have different interest rates and which may receive
principal payments in differing proportions and at different times. In addition,
the rights of certain holders of classes may be subordinate to the rights of
holders of other classes to receive principal and interest.
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YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 14 IN THIS
PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
The securities will not represent obligations of PaineWebber Asset
Acceptance Corporation or any of its affiliates. No governmental agency will
insure the certificates or the collateral securing the securities.
We suggest that you consult with your own advisors to determine if the
offered securities are appropriate investments for you and to determine the
applicable legal, tax, regulatory and accounting treatment of the offered
securities.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR NOTES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
No secondary market will exist for a series of certificates or notes prior
to its offering. We cannot assure you that a secondary market will develop for
the certificates or notes of any series, or, if it does develop, that it will
continue.
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PAINEWEBBER INCORPORATED
<PAGE>
We may offer the certificates or notes, as applicable, through one or more
different methods, including offerings through underwriters, as more fully
described under "Methods of Distribution" in this prospectus and as may be
described in the related prospectus supplement. Our affiliates may from time to
time act as agents or underwriters in connection with the sale of the offered
certificates or notes, as applicable. We may retain or hold for sale, from time
to time, one or more classes of a series of certificates, or notes, as
applicable. We may offer some classes of the certificates or notes, if so
specified in the related prospectus supplement, in one or more transactions
exempt from the registration requirements of the Securities Act of 1933. These
offerings will not be made under this prospectus or the related registration
statement.
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We will acquire the receivables in the trust fund for a series from one or
more affiliated or unaffiliated receivables sellers. Each receivables seller
will be an entity, including vendors, generally in the business of originating
or acquiring their particular type of receivables. We will acquire the
receivables from the related receivables seller(s) on or prior to the date of
issuance of the related securities, as described in this prospectus and in the
related prospectus supplement. The receivables included in a trust fund will be
serviced by a servicer described in the related prospectus supplement.
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This prospectus may not be used to consummate sales of the offered
certificates or notes, as applicable, unless accompanied by a prospectus
supplement.
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<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS..............................................................1
RISK FACTORS.................................................................14
DEFINED TERMS................................................................21
THE TRUST FUNDS..............................................................21
THE ISSUERS..................................................................24
THE RECEIVABLES..............................................................25
Receivables Pools.........................................................25
Delinquencies, Repossessions, and Net Losses..............................25
Maturity and Prepayment Considerations....................................26
Acquisition of Receivables From Receivables Sellers.......................26
USE OF PROCEEDS..............................................................27
THE DEPOSITOR................................................................27
THE TRUSTEE..................................................................27
DESCRIPTION OF THE SECURITIES................................................28
General...................................................................28
General Payment Terms of Securities.......................................29
Book-Entry Registration...................................................30
Definitive Securities.....................................................33
Reports to Securityholders................................................34
DESCRIPTION OF THE TRUST AGREEMENTS..........................................35
Acquisition of the Receivables Under a Receivables Acquisition
Agreement..............................................................35
Accounts..................................................................35
The Servicer..............................................................36
Servicing Procedures......................................................37
Payments on Receivables...................................................37
Servicing Compensation....................................................37
Distributions.............................................................38
Credit and Cash Flow Enhancements.........................................39
Statements to Indenture Trustees and Trustees.............................40
Evidence as to Compliance.................................................40
Certain Matters Regarding the Servicers...................................40
Servicer Default..........................................................41
Rights Upon Servicer Default..............................................41
Waiver of Past Defaults...................................................42
Amendment.................................................................42
Termination...............................................................42
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.....................................43
General...................................................................43
The Equipment.............................................................43
FEDERAL INCOME TAX CONSIDERATIONS............................................45
FASITs....................................................................46
Issuers Treated as Partnerships...........................................47
Tax Characterization of the Issuer as a Partnership....................47
Tax Consequences to Holders of the Notes...............................47
Tax Consequences to Holders of the Certificates........................50
Issuers Treated as Grantor Trusts.........................................55
Tax Characterization of Grantor Trusts.................................55
Strip Certificates.....................................................59
ERISA CONSIDERATIONS.........................................................63
General...................................................................63
Certain Requirements Under ERISA and the Code.............................63
General................................................................63
Parties in Interest/Disqualified Persons...............................63
Delegation of Fiduciary Duty...........................................64
Applicability to Non-ERISA Plans.......................................65
Non-ERISA Plans and Exempt Plans..........................................65
Unrelated Business Taxable Income--Residual Certificates..................65
METHODS OF DISTRIBUTION......................................................65
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................67
LEGAL MATTERS................................................................68
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FINANCIAL INFORMATION........................................................68
ADDITIONAL INFORMATION.......................................................68
RATING.......................................................................68
GLOSSARY OF TERMS............................................................70
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<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Two separate documents contain information about the offered certificates
or notes, as applicable. These documents progressively provide more detail:
(1) this prospectus, which provides general information, some of which may
not apply to the offered securities; and
(2) the accompanying prospectus supplement for each series, which
describes the specific terms of the offered securities.
The description of terms in the accompanying prospectus supplement will
include:
o details regarding the class or classes of the securities;
o the rate of interest, other applicable rate or the manner of determining
the rate and authorized denominations of each class of the securities;
o information concerning the receivables and insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies, third
party guarantees or other forms of credit enhancement relating to one or
more pools of receivables or the related securities;
o the specified interest of each class of securities in the distributions
from the trust fund and the manner and priority of the distributions from
the trust fund;
o information as to the nature and extent of subordination of a series of
securities;
o the date of payment to securityholders;
o information regarding the servicer(s) for the related receivables;
o information regarding the receivables seller(s) for the related
receivables and the underwriting guidelines used by the receivables
seller(s) for the receivables;
o the circumstances under which each trust fund may be subject to early
termination;
o information regarding tax considerations; and
o additional information with respect to the method of distribution of the
securities.
THE SPECIFIC TERMS OF THE OFFERED SECURITIES WILL BE SET FORTH IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT, WHICH SUPPLEMENTS THIS PROSPECTUS.
You should rely only on the information contained in this prospectus and
the accompanying prospectus supplement. We have not authorized anyone to provide
you with information that is different from that contained in this prospectus
and the related prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
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If you require additional information, the mailing address of our principal
executive offices is PaineWebber Asset Acceptance Corporation, 1285 Avenue of
the Americas, New York, NY 10019 and the telephone number is (212) 713-2000. For
other means of acquiring additional information about us or a series of
securities, see "Incorporation of Certain Information by Reference" in this
prospectus.
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<PAGE>
SUMMARY OF TERMS
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION FROM THIS DOCUMENT. IT DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN
INVESTMENT DECISION. PLEASE READ THIS ENTIRE PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT CAREFULLY TO UNDERSTAND ALL OF THE TERMS OF A SERIES OF
SECURITIES.
RELEVANT PARTIES
Issuer.................... With respect to each series of securities the
issuer will be:
o the depositor;
o a special-purpose company organized and
established by the depositor; or
o a trust to be formed by the depositor.
See "The Issuers" in this prospectus.
Depositor................. PaineWebber Asset Acceptance Corporation, the
depositor, is a corporation organized under the
laws of the state of Delaware. The depositor's
principal executive offices are located at 1285
Avenue of the Americas, New York, New York 10019,
and its telephone number is (212) 713-2000. See
"The Depositor" in this prospectus.
Servicer.................. The servicer for each trust fund will be specified
in the related prospectus supplement. The servicer
will service the receivables comprising each trust
fund and administer each trust fund according to
the related servicing agreement. The servicer may
subcontract all or any portion of its obligations
as servicer under each servicing agreement to
qualified subservicers but the servicer will
remain liable with respect to its obligations. See
"The Servicer" in this prospectus.
Receivables Seller(s)..... The depositor will acquire the receivables from
one or more affiliated or unaffiliated receivables
sellers.
Trustee................... The trustee for each series of securities will be
specified in the related prospectus supplement. In
addition, the issuer may separately enter into an
indenture and may issue notes under the indenture.
If the issuer is a trust and separately enters
into an indenture and then issues notes under the
indenture, the issuer and the indenture will be
administered by separate, independent trustees as
required by the rules and regulations under the
Trust Indenture Act of 1939 and the Investment
Company Act of 1940.
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<PAGE>
SECURITIES
Description of
Securities................ Each class of securities of any series will either
be:
o certificates which evidence beneficial ownership
in a segregated pool of receivables; or
o notes which represent indebtedness of the issuer
secured by the trust fund, as described in this
prospectus and in the related prospectus
supplement.
For each series we will establish a trust fund
consisting primarily of any combination of the
following receivables, together with all related
monies that are received:
o finance leases;
o installment sale contracts;
o loan contracts; or
o participation interests in the finance leases
and installment sale and loan contracts.
Each trust fund also may include a security
interest in the underlying equipment and related
property together with the related proceeds. At
inception, no trust fund will include ownership
interests in the underlying equipment.
The equipment underlying the receivables included
in each trust fund will be limited to personal
property which is leased or financed by the
related receivables seller to a lessee. This lease
or financing will be under installment sale or
loan contracts. These installment sale contracts
or loan contracts are either "chattel paper," as
defined in the Uniform Commercial Code, or would
be "chattel paper" but for a technical
definitional matter, but in any event are not
treated materially differently from "chattel
paper" for purposes of title transfer, security
interests or remedies on default. This equipment
will be further limited to personal property which
is subject to:
o UCC provisions relating to title transfer,
security interests and remedies on default; and
o equipment leased to the related lessee for use
by the lessee in the ordinary course of business
or for home use, including:
(a) information technology equipment, such as:
o computer work stations,
o personal computers,
o data storage devices,
o mainframe and mini-computers; and
o computer related peripheral equipment,
(b) communications equipment, such as
telephone switching and networking
systems,
(c) commercial business and industrial
equipment, such as:
o printing presses,
o machine tools and other manufacturing
equipment,
o photocopiers, facsimile machines and
other office equipment,
o energy savings and control equipment,
o automotive diagnostic equipment; and
o automated testing equipment,
(d) medical equipment, such as diagnostic and
therapeutic examination equipment for
radiology, nuclear medicine and ultrasound
and laboratory analysis equipment,
(e) resources equipment, such as
feller-bunchers and grapplers,
(f) transportation and construction equipment,
such as:
o bulldozers,
o loaders,
o graders,
o excavators,
o forklifts,
o other materials handling equipment,
o golf carts,
o other road and off-road machinery and
electronics manufacturing equipment.
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<PAGE>
No trust fund will include receivables with
respect to which the related finance lease or
installment sale or loan contract or the related
equipment is subject to federal or state
registration or titling requirements which differ
materially from, or replace, standard UCC
provisions governing:
o the manner in which title or security interests
in "chattel paper" or the related equipment is
determined or perfected; or
o remedies on default.
For example, no trust fund will include
receivables for which the underlying finance lease
or installment sale or loan contract or equipment
relate to:
o motor vehicles;
o aircraft;
o ships or boats;
o firearms or other weapons;
o railroad rolling stock;
o facilities such as factories, warehouses or
plants subject to state laws governing the
manner in which title or security interest in
real property is determined or perfected.
However, the receivables may include finance
leases and installment sale and loan contracts and
a security interest in the equipment relating to
individual, discrete components of assets like
those listed above.
The related prospectus supplement will specify if
there is credit enhancement with respect to a
trust fund or any class of securities. Credit
enhancement may include any one or more of the
following:
o a financial guaranty insurance policy issued by
an insurer specified in the related prospectus
supplement;
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<PAGE>
o a reserve account;
o letters of credit;
o credit or liquidity facilities;
o third party payments or other support; or
o cash deposits or other arrangements.
In addition, credit enhancement may be provided by
means of subordination, cross-support among the
receivables or over-collateralization. The
depositor will acquire the receivables from the
related receivables seller(s) on or prior to the
date of issuance of the related securities, as
described in this prospectus and in the related
prospectus supplement.
With respect to securities representing beneficial
ownership interests in a trust, each trust will be
established under a pooling agreement between the
depositor and the trustee named in the pooling
agreement. Each pooling agreement will describe
the related pool of receivables held by the trust.
With respect to securities that represent debt
issued by the issuer, the issuer will enter into
an indenture between the issuer and the trustee
named in the indenture. Each indenture will
describe the related pool of receivables
comprising the trust fund and securing the debt
issued by the related issuer.
The receivables comprising each trust fund will be
serviced by the servicer under a servicing
agreement between the servicer and the related
issuer.
Any individual trust fund may contain in a single
agreement, or in several agreements:
o the contractual arrangements relating to the
establishment of a trust, if any;
o the servicing of the related receivables;
o and the issuance of the related securities.
These agreements may combine certain aspects of
the pooling agreement, the servicing agreement and
the indenture. For example, the agreement may be
in the form of a pooling and servicing agreement,
or a servicing and collateral management
agreement.
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<PAGE>
The trustee is any and all persons acting as
trustee under a trust agreement. For purposes of
this prospectus, the term "trust agreement" as
used with respect to a trust fund means:
o any and all agreements relating to the
establishment of a trust, if any;
o the servicing of the related receivables; and
o the issuance of the related securities.
Securities Will
Be Non-Recourse........... Except for certain non-recourse debt described
under "Federal Income Tax Considerations," the
securities will not be obligations of the
depositor, the related servicer, the related
receivables seller(s) or any person other than the
related issuer in the case of securities issued as
debt. The notes of a given series will represent
obligations of the issuer. The certificates of a
given series represent beneficial interests in the
related issuer only. In each case, the sole source
of payment for the securities will be the
receivables of the issuer. As may be described
further in the related prospectus supplement,
certain types of credit enhancement, including the
following, may constitute a full recourse
obligation of the issuer of the credit
enhancement:
o a letter of credit;
o a financial guaranty insurance policy;
o a reserve fund; or
o any other credit enhancement provided in the
related prospectus supplement.
General Nature of
the Securities as
Investments............... All of the securities offered under this
prospectus and the related prospectus supplement
will be rated in one of the four highest rating
categories by one or more rating agencies.
Additionally, all of the securities offered under
this prospectus and the related prospectus
supplement will be of the fixed-income type. Fixed
income securities generally, but not always, have
a principal balance and a specified interest rate.
Each series or class of fixed income securities
offered under this prospectus and the related
prospectus supplement may have a different
interest rate, which may be a fixed or adjustable
rate. The related prospectus
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<PAGE>
supplement will specify the interest rate for each
series or class of fixed income securities or the
initial interest rate and the method for
determining subsequent changes to the interest
rate.
A series may include one or more classes of fixed
income securities, known as strip securities.
These strip securities will be entitled to:
o principal distributions, with disproportionate,
nominal or no interest distributions; or
o interest distributions, with disproportionate,
nominal or no principal distributions.
In addition, a series of securities may include
two or more classes of fixed income securities:
o that differ as to timing, sequential order,
priority of payment, interest rate, amount of
distribution of principal or interest or both;
or
o as to which distributions of principal or
interest or both on any class may be made upon
the occurrence of specified events, in
accordance with a schedule or formula, or on the
basis of collections from designated portions of
the related pool of receivables.
These series may include one or more classes of
fixed income securities known as accrual
securities. Accrual securities will not have a
portion of their accrued interest distributed.
Rather, the accrued interest will be added to the
principal balance, or nominal balance, in the case
of accrual securities which are also strip
securities, of those classes of fixed income
securities on each payment date, or in the manner
described in the related prospectus supplement.
A series may include one or more other classes of
fixed income securities that are senior to one or
more other classes of fixed income securities in
respect of a portion of the distributions of
principal and interest and allocations of losses
on receivables, if provided for in the related
prospectus supplement. In addition, certain
classes of senior fixed income securities, or
subordinate fixed income securities may be senior
to other classes of senior or subordinate fixed
income securities in respect of these
distributions or losses.
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<PAGE>
General Payment
Terms of Securities....... The holders of the securities will be entitled to
receive payments on their securities on specified
payment dates. Payment dates with respect to fixed
income securities will generally occur monthly,
quarterly or semi-annually, as described in the
related prospectus supplement.
The related prospectus supplement will describe a
record date preceding the payment date, as of
which the trustee or its paying agent will fix the
identity of the securityholders for the purpose of
receiving payments on the next succeeding payment
date. The payment date will be a specified day of
each month described in the related prospectus
supplement.
Each trust agreement will provide for, and the
related prospectus supplement will describe, a
remittance period preceding each payment date. For
example, in the case of monthly-pay securities,
the remittance period may be the calendar month
preceding the month in which a payment date
occurs. Collections received on or with respect to
the related receivables constituting a trust fund
during a remittance period will be required to be
remitted by the servicer to the related trustee
prior to the related payment date and will be used
to fund payments to securityholders on the payment
date.
The related trust agreement may provide that all
or a portion of the payments collected on the
related receivables may be applied by the related
trustee to the acquisition of additional
receivables during a specified period rather than
be used to fund payments of principal to
securityholders during that period. The result of
this application of funds is that the related
securities will possess an interest-only period,
also commonly referred to as a revolving period,
which will be followed by an amortization period.
Any interest only or revolving period may, upon
the occurrence of specified events that may be
described in the related prospectus supplement,
terminate prior to the end of the specified period
and result in the earlier than expected
amortization of the related securities. In
addition, the related trust agreement may provide
that all or a portion of the collected payments
may be retained by the trustee, and held in
certain temporary investments for a specified
period prior to being used to fund payments of
principal to securityholders.
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<PAGE>
The retention and temporary investment by the
trustee of the collected payments may be required
by the related trust agreement for the purpose of:
o slowing the amortization rate of the related
securities relative to the rent payment schedule
of the related receivables; or
o attempting to match the amortization rate of the
related securities to an amortization schedule
established at the time the securities are
issued.
This retention and temporary investment feature
may terminate upon the occurrence of events to be
described in the related prospectus supplement,
resulting in distributions to the specified
securityholders and an acceleration of the
amortization of those securities.
Neither the securities nor the underlying
receivables will be guaranteed or insured by any
governmental agency or instrumentality or the
depositor, the related servicer, the related
receivables seller, any trustee, or any of their
affiliates.
CROSS-COLLATERALIZATION...... The source of payment for securities of each
series will be the receivables of the related
trust fund only. However, a series or class of
securities may include the right to receive monies
from a common pool of credit enhancement which may
be available for more than one series of
securities.
Common pools of credit enhancement include:
o a master reserve account;
o a master insurance policy; or
o a master collateral pool consisting of similar
receivables.
TRUST FUNDS.................. As may be specified in the related prospectus
supplement, each trust fund will consist of the
related finance leases and installment sale and
loan contracts, and may include a security
interest in the related equipment. To the extent
specified in the related prospectus supplement,
credit enhancement with respect to a trust fund or
any class of securities may include any one or
more of the following:
o a policy issued by an insurer specified in the
related prospectus supplement;
o a reserve account;
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o letters of credit;
o credit or liquidity facilities;
o repurchase obligations;
o third party payments or other support; or
o cash deposits or other arrangements.
Credit enhancement also may be provided by means
of subordination, cross-support among the
receivables or over-collateralization. See
"Description of the Trust Agreements--Credit and
Cash Flow Enhancements" in this prospectus. The
finance leases and installment sale and loan
contracts are either obligations for the lease or
purchase of the equipment, or evidence borrowings
used to acquire the equipment. These finance
leases and installment sale and loan contracts
entitle the related lessor to payments of rent and
related payments and to either:
o the return of the equipment at the termination
of the finance leases and installment sale and
loan contracts; or
o with respect to some of the sale and loan
contracts, the payment of a purchase price for
the equipment at the election of the lessee.
The leases will consist of finance leases. Finance
leases usually have a term greater than three
years. In a finance lease, the lessor transfers
substantially all benefits and risks of ownership
to the lessee.
In accordance with Statement of Financial
Accounting Standards No. 13, a lease is classified
as a finance lease if the collectibility of lease
payments are reasonably certain and it meets one
of the following criteria:
o the lease transfers title and ownership of the
equipment to the lessee by the end of the lease
term;
o the lease contains a bargain purchase option;
o the lease term at inception is at least 75% of
the estimated life of the equipment; or
o the present value of the minimum lease payments
is at least 90% of the fair market value of the
equipment at beginning of the lease.
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Installment sale contracts and loan contracts
secured by the related equipment provide for
scheduled payments which fully amortize the amount
financed by an obligor. The related prospectus
supplement will describe the type and
characteristics of the sale and loan contracts
included in each trust fund relating to the
securities offered pursuant to this prospectus and
the related prospectus supplement.
With respect to the receivables comprising each
trust fund, the depositor will acquire the related
receivables from the receivables seller through a
receivables acquisition agreement or another
agreement as may be specified in the related
prospectus supplement. The finance lease or
installment sale or loan contract so acquired may
consist of participation interests in the finance
lease or installment sale or loan contracts that
evidence the obligor's obligation to pay.
The receivables will either be:
o transferred to an issuer under a pooling
agreement; or
o pledged to a trustee on behalf of
securityholders under an indenture.
The rights and benefits of the depositor or
transferor under a receivables acquisition
agreement will be assigned to the trustee on
behalf of the related securityholders.
PRE-FUNDING ACCOUNT.......... In addition, if specified in the related
prospectus supplement, the trust fund will include
monies on deposit in a pre-funding account to be
established with the trustee. The pre-funding
account will be used to acquire additional
receivables from time to time during the
pre-funding period specified in the related
prospectus supplement. The amount in the
pre-funding account, if any, will be reduced
during the related pre-funding period by the
amount used to purchase additional receivables.
Any amount remaining in the pre-funding account at
the end of the related pre-funding period will be
distributed to the related securityholders in the
manner described in the related prospectus
supplement.
If specified in the related prospectus supplement,
the depositor may be obligated to acquire from the
related receivables seller(s) and to either
transfer to an issuer or pledge to a trustee on
behalf of securityholders, additional receivables
from time to time during any pre-funding period
specified in the related prospectus supplement.
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REGISTRATION OF SECURITIES... Securities may be represented by global securities
registered in the name of Cede & Co., as nominee
of DTC, or another nominee. In this case,
securityholders will not be entitled to receive
definitive securities representing the
securityholders' interests, except in the
circumstances that may be described in the related
prospectus supplement. See "Description of the
Securities--Book-Entry Registration" in this
prospectus.
CREDIT AND CASH FLOW
ENHANCEMENT.................. Credit enhancement with respect to a trust fund or
any class of securities may include any one or
more of the following:
o a policy issued by an insurer specified in the
related prospectus supplement;
o a reserve account;
o letters of credit;
o credit or liquidity facilities;
o third party payments or other support; and
o cash deposits or other arrangements.
Any form of credit enhancement will have certain
limitations and exclusions from coverage which
will be described in the related prospectus
supplement. See "Description of the Trust
Agreements--Credit and Cash Flow Enhancements" in
this prospectus.
RECEIVABLES ACQUISITION
AGREEMENT.................... The depositor or the related receivables seller
may be obligated to acquire from the related
trust fund any receivable transferred under a
pooling agreement or pledged under an indenture if
the interest of the securityholders in that
receivable is materially and adversely affected by
an uncured breach of any representation or
warranty made by the depositor or the related
receivables seller with respect to that
receivable. To the extent that the depositor
acquires any receivables, the related receivables
seller may be obligated to acquire those
receivables from the depositor under the related
receivables acquisition agreement at the same time
as the depositor's acquisition of the receivables
from the applicable trust fund. The obligation of
the depositor to acquire any receivables for which
the related receivables seller has breached a
representation or warranty may be subject to the
related receivables seller's acquisition of those
receivables from the depositor. In addition, if so
specified in the
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related prospectus supplement, the depositor may
reacquire certain receivables or substitute other
receivables for those receivables held by a trust
fund, subject to specified conditions set forth in
the related trust agreement and receivables
acquisition agreement.
SERVICER'S COMPENSATION...... The servicer will be entitled to receive a fee for
servicing the finance leases and installment sale
and loan contracts of each trust fund equal to a
specified percentage of the value or principal
balance of the receivables held in the related
trust fund, as set forth in the related prospectus
supplement. See "Description of the Trust
Agreements--Servicing Compensation" in this
prospectus.
OPTIONAL TERMINATION......... The related servicer, the related receivables
seller, the depositor, or other entities may cause
early retirement of a series of securities under
the circumstances and in the manner set forth in
this prospectus under "Description of the Trust
Agreements--Termination" and as may be described
in the related prospectus supplement.
MANDATORY TERMINATION........ The trustee, the related servicer or other
entities that may be specified in the related
prospectus supplement may be required to cause the
early retirement of all or any portion of a series
of securities. The applicable party would cause
the early retirement by soliciting competitive
bids for the purchase of the related trust fund or
otherwise, in the manner specified under "The
Trust Agreements-- Termination" in this
prospectus.
TAX CONSIDERATIONS........... Securities of each series offered by this
prospectus will, for federal income tax purposes,
constitute either:
o interests in an issuer treated as a grantor
trust under applicable provisions of the Code;
o debt issued by an issuer or by the depositor; or
o interests in an issuer which is treated as a
partnership.
The prospectus supplement for each series of
securities will summarize federal income tax
considerations relevant to the purchase, ownership
and disposition of the securities. Investors are
advised to consult their tax advisors and to
review "Federal Income Tax Considerations" in this
prospectus and in the related prospectus
supplement.
ERISA CONSIDERATIONS......... The prospectus supplement for each series of
securities will summarize considerations under
ERISA, relevant to
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the purchase of those securities by employee
benefit plans and individual retirement accounts.
See "ERISA Considerations" in this prospectus in
the related prospectus supplement.
RATINGS...................... Each class of securities offered under this
prospectus and the related prospectus supplement
will be rated in one of the four highest rating
categories by one or more rating agencies. The
ratings will address, in the opinion of the rating
agencies, the likelihood that the issuer will be
able to make timely payment of all amounts due on
the related securities in accordance with the
terms of the securities. The ratings will neither
address any prepayment or yield considerations
applicable to any securities nor constitute a
recommendation to buy, sell or hold any
securities.
The ratings expected to be received with respect
to any securities will be set forth in the related
prospectus supplement.
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RISK FACTORS
Before making an investment decision, you should carefully consider the
following risks and the risks described under "Risk Factors" in the prospectus
supplement for the applicable series of securities. We believe these sections
describe the principal factors that make an investment in the securities
speculative or risky. In particular, distributions on your securities will
depend on payments received on and other recoveries with respect to the loans.
Therefore, you should carefully consider the risk factors relating to the loans
and the properties.
LIMITED LIQUIDITY OF SECURITIES MAY ADVERSELY AFFECT THE MARKET VALUE OF YOUR
SECURITIES
We cannot assure you that a secondary market for the securities of any
series will develop or, if it does develop, that it will provide you with
liquidity of investment or will continue for the life of your securities. The
market value of your securities will fluctuate with changes in prevailing rates
of interest. Consequently, if you sell your security in any secondary market
that develops, you may sell it for less than par value or for less than your
purchase price. You will have optional redemption rights only to the extent the
related prospectus supplement so specifies. The prospectus supplement for any
series may indicate that an underwriter intends to establish a secondary market
in the securities, but no underwriter must do so.
COMPETING CLAIMS TO OWNERSHIP OF FINANCE LEASES OR INSTALLMENT SALE OR LOAN
CONTRACTS MAY RESULT IN REDUCED PAYMENTS ON YOUR SECURITIES
In connection with the issuance of any series of securities, the related
receivables seller(s) will transfer finance leases or installment sale or loan
contracts to the depositor.
The related trust agreement may provide either that:
o the trustee will be required to maintain possession of the original
copies of all finance leases and installment sale and loan contracts that
constitute chattel paper; or
o the depositor, the related receivables seller(s) or the related servicer
will retain possession of the finance leases and installment sale and
loan contracts.
If the depositor or a receivables seller retains possession of the related
finance lease or installment sale or loan contract, the servicer may take
possession of the original copies as necessary for its enforcement. If any
finance lease or installment sale or loan contract remains in the possession of
the depositor or a receivables seller, the related prospectus supplement may
describe specific trigger events that will require delivery to the trustee. If
the depositor, the servicer, the trustee, the receivables seller or other third
party, sells or pledges and delivers the finance leases or installment sale or
loan contracts to another party, in violation of the receivables acquisition
agreement or the trust agreement, there is a risk that the other party could
acquire an interest that has a priority over the issuer's interest.
Furthermore, if the depositor, the servicer, a receivables seller or a
third party, while in possession of the finance lease or installment sale or
loan contract, is rendered insolvent, the event of insolvency may result in
competing claims to ownership or security interests in the
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finance lease or installment sale or loan contract. The attempt, even if
unsuccessful, could result in delays in payments on the securities. If
successful, the claim could result in losses to the securityholders or an
acceleration of the repayment of the securities. If provided in the related
prospectus supplement, the related receivables seller(s) and the depositor will
make certain representations and warranties with respect to the ownership of the
finance lease or installment sale or loan contract as of the date of the
transfer to the depositor and the issuer.
SECURITY INTERESTS OF OTHER PERSONS MAY BE SUPERIOR TO THE TRUSTEE'S INTERESTS
WHICH MAY RESULT IN REDUCED PAYMENTS ON YOUR SECURITIES
Pursuant to the trust agreement for a particular series of securities, the
trustee will be granted or assigned a security interest in the related
equipment, and the receivables acquisition agreement will require the
receivables seller to make certain representations and warranties with respect
to the security interest in the equipment.
As described in this prospectus and as may be described in the related
prospectus supplement, because of the administrative burden and expense that
would be entailed in so doing, neither the receivables seller nor the depositor
will file, or necessarily will be required to file, UCC financing statements
identifying the equipment as collateral pledged in favor of the related trustee
on behalf of the securityholders. In the absence of these filings any security
interest in the equipment will not be perfected in favor of the related trustee.
As a result the trustee could lose priority of its security interest in the
equipment. Neither the receivables seller nor the depositor will have any
obligation to reacquire equipment as to which a loss of priority of security
interest results in the loss of lien priority after the date the trust fund
receives an interest in the equipment unless otherwise obligated in the related
prospectus supplement.
ISSUER MAY NOT FULLY RECOVER UPON REPOSSESSION AND DISPOSITION
If the depositor or the trustee must rely on repossession and disposition
of equipment to recover scheduled payments due on defaulted finance lease or
installment sale or loan contracts, the issuer may not receive the full amount
due on a finance lease or sale or loan contract or may not receive the full
amount on a timely basis. Other factors that may affect the ability of the
issuer to receive the full amount due on a finance lease or installment sale or
loan contract include:
o whether financing statements to perfect the security interest in the
equipment were filed;
o depreciation;
o obsolescence;
o damage or loss of any equipment; and
o the application of federal and state bankruptcy and insolvency laws.
As a result, you may be subject to delays in receiving payments and may
suffer losses of your investment in the securities.
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INSOLVENCY AND BANKRUPTCY PROCEEDINGS COULD ADVERSELY AFFECT PAYMENTS ON THE
SECURITIES
The depositor will take steps in structuring the transactions contemplated
by this prospectus that are intended to ensure that the voluntary or involuntary
application for relief by the related receivables seller or the depositor under
insolvency laws like the United States Bankruptcy Code or similar applicable
state laws will not result in the receivables of the related trust fund becoming
property of the estate of the receivables seller or the depositor within the
meaning of those insolvency laws. These steps may involve the creation by the
related receivables seller or the depositor of a separate, limited-purpose
company or trust whose organizational documents contain certain limitations,
including:
o restrictions on the nature of its business; and
o restrictions on its ability to commence a voluntary case or proceeding
under any insolvency law without the prior unanimous affirmative vote of
all its directors.
However, there can be no assurance that the activities of any
limited-purpose company or trust would not result in a court concluding that the
receivables and liabilities of the limited-purpose company or trust should be
consolidated with those of the related receivables seller or depositor in a
proceeding under any insolvency law.
If provided in the related prospectus supplement, the equity interest in a
trust fund, if any, may be transferred to the related limited-purpose
subsidiary.
If the receivables seller is the servicer, cash collections held by the
receivables seller may be commingled and used for the benefit of that
receivables seller prior to each payment date. In the event of the bankruptcy of
that receivables seller, the trustee may not have a perfected interest in those
collections.
In the event of an insolvency of the transferor of receivables, a court,
among other remedies, could attempt to recharacterize the transfer of the
receivables as a borrowing by the transferor of receivables or the related
securityholders, secured by a pledge of the receivables.
The attempt to recharacterize, even if unsuccessful, could result in delays
in payments on the securities. If the attempt to recharacterize were successful,
a court could elect to accelerate payment of the securities and liquidate the
receivables. The securityholders would then be entitled to the then outstanding
principal and interest on the receivables at the applicable interest rate to the
date of payment. As a result, you could lose the right to future payments of
interest and might incur reinvestment losses. The related prospectus supplement
may provide that, in the event the related issuer is rendered insolvent, the
related trustee will promptly:
o sell;
o dispose of; or
o otherwise liquidate the related receivables.
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The proceeds from this sale, disposition or liquidation of the receivables will
be treated as collections on the receivables. If the proceeds from the
liquidation of the receivables and any amount available from any credit
enhancement, if any, are not sufficient to pay securities of the related series
in full, the amount of principal returned to you will be reduced and you will
incur a loss.
Lessees of the equipment may be entitled to assert against the related
receivables seller, the depositor, or the issuer, claims and defenses which they
have against the receivables seller with respect to the receivables.
EQUIPMENT MAY BECOME OBSOLETE
In the event that there is a default on a finance lease or installment sale or
loan contract and the lessee and any guarantor has insufficient assets available
to pay the finance lease or sale or loan contract payments on the scheduled
payment dates, the only other source of moneys, other than the applicable credit
enhancements, if any, for those amounts will be the income and proceeds from the
disposition of the related equipment. Because the market value of equipment
generally declines with age and may be subject to sudden, significant declines
in value because of technological advances, in the event of a repossession and
sale of equipment subject to a default on a finance lease or installment sale or
loan contract, the issuer may not recover the entire amount due on the finance
lease or sale or loan contract. As a result, you may be subject to delays in
receiving payments and suffer losses of your investment in the securities.
LEVELS OF DELINQUENCIES MAY INCREASE
We cannot assure you that:
o the historical levels of delinquencies and losses experienced by the
related receivables seller on its portfolio of finance lease and
installment sale and loan contracts will be the same as the performance
of the finance leases and sale and loan contracts included in any trust
fund; or
o that those levels will continue in the future.
Delinquencies and losses could increase significantly for various reasons,
including changes in the federal income tax laws, changes in the local, regional
or national economies.
SOME CLASSES OF SECURITIES MAY BE SUBORDINATED IN PRIORITY OF PAYMENT
Distributions of interest and principal on one class of securities of a
series may be subordinated in priority of payment to interest and principal due
on other classes of securities of a related series. Moreover, each trust fund
will not have, nor is it permitted or expected to have, any significant assets
or sources of funds other than:
o the related receivables;
o a pre-funding account;
o any related reserve account; and
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o any other credit enhancement.
SECURITYHOLDERS MUST RELY ON LIMITED RECEIVABLES FOR REPAYMENT
The securities solely represent obligations of the related trust or debt
secured by the related trust fund, and will not represent a recourse obligation
to other assets of the related receivables seller(s) or of the depositor. No
securities of any series will be insured or guaranteed by any receivables
seller, the depositor, the servicer, or the applicable trustee. Consequently,
holders of the securities of any series must rely for repayment primarily upon
payments on:
o the related receivables;
o any amounts on deposit in any pre-funding account;
o any reserve account; and
o any other credit enhancement, all as may be specified in the related
prospectus supplement.
BOOK-ENTRY REGISTRATION MAY DECREASE LIQUIDITY AND DELAY PAYMENT
Issuance of the securities in book-entry form may reduce the liquidity of
the securities in the secondary trading market since investors may be unwilling
to purchase securities for which they cannot obtain definitive physical
securities representing the securityholders' interests, except in the
circumstances as may be described in the related prospectus supplement.
Since transactions in securities usually will be effected only through:
o DTC,
o direct or indirect participants in DTC's book-entry system, or
o certain banks,
the ability of a securityholder to pledge a security to persons or entities that
do not participate in the DTC system, or otherwise to take actions in respect to
the securities, may be limited due to lack of a physical security representing
the securities.
Securityholders may experience some delay in their receipt of distributions
of interest on and principal of the securities since distributions may be
required to be forwarded by the trustee to DTC. In this event, DTC will credit
the distributions to the accounts of its participants which then will credit
them to the accounts of the applicable class of securityholders either directly
or indirectly through indirect participants. See "Description of the
Securities--Book-Entry Registration" in this prospectus.
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A REDUCTION IN THE RATING OF A CREDIT ENHANCER COULD RESULT IN A REDUCED RATING
FOR THE SECURITIES
The rating of securities credit enhanced by:
o a letter of credit,
o a financial guaranty insurance policy,
o a reserve fund,
o a credit or liquidity facilities,
o cash deposits, or
o other forms of credit enhancement,
will depend primarily on the creditworthiness of the credit enhancer that is the
issuer of the external credit enhancement device.
Any reduction in the rating assigned to the claims-paying ability of the
related credit enhancer to honor its obligations under any credit enhancement
below the rating initially given to the securities would likely result in a
reduction in the rating of the securities.
YIELD IS SENSITIVE TO RATE OF PRINCIPAL PREPAYMENTS
Because the rate of payment of principal on the securities will depend on
the rate of payment on the related finance leases and installment sale and loan
contracts, the rate of payment of principal on the securities cannot be
predicted. Payments on finance leases and installment sale and loan contracts
will include:
o scheduled payments as well as partial and full prepayments, to the extent
not replaced with substitute finance leases and installment sale and loan
contracts;
o payments upon the liquidation of defaulted finance leases and installment
sale and loan contracts;
o payments upon acquisitions by the related receivables seller, the related
servicer or the depositor of finance leases and installment sale and loan
contracts from the related trust fund on account of a breach of
representations and warranties;
o payments upon an optional acquisition by the related receivables seller,
the related servicer or the depositor of finance leases and installment
sale and loan contracts from the related trust fund; and
o residual payments.
The rate of early terminations of finance leases and installment sale and
loan contracts due to prepayments and defaults may be influenced by a variety of
economic and other factors, including:
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o obsolescence;
o current economic conditions; and
o tax considerations.
The risk of reinvesting distributions of the principal of the securities
will be borne by the securityholders. The yield to maturity on strip securities
or securities purchased at premiums or discounts to par will be extremely
sensitive to the rate of prepayments on the related receivables. In addition,
the yield to maturity on certain other types of classes of securities, including
strip securities, accrual securities, or other classes in a series including
more than one class of securities, may be relatively more sensitive to the rate
of prepayment of the related finance leases and installment sale and loan
contracts than other classes of securities.
The depositor does not have available to it any statistics as to prepayment
rates historically experienced in the equipment leasing industry. The rate of
prepayments of finance leases and installment sale and loan contracts cannot be
predicted and is influenced by a wide variety of economic, social, and other
factors, including:
o prevailing interest rates;
o the availability of alternate financing; and
o local and regional economic conditions.
Therefore, we cannot assure you as to the level of prepayments that a trust
fund will experience.
You should consider the risk that a slower than anticipated rate of
prepayments on the receivables could result in an actual yield that is less than
the anticipated yield, in the case of securities purchased at a discount.
You should also consider the risk that a faster than anticipated rate of
prepayments on the receivables could result in an actual yield that is less than
the anticipated yield, in the case of any securities purchased at a premium.
UCC PROVISIONS MAY AFFECT ENFORCEMENT OF LEASES
Almost every state has adopted a version of Article 2A of the UCC. Although
there is little precedent regarding how Article 2A will be interpreted, it may,
among other things:
o limit enforceability of any "unconscionable" lease or "unconscionable"
provision in a lease; and
o provide a lessee with remedies, including the right to cancel the lease
contract, for certain lessor breaches or defaults.
In addition, Article 2A validates reasonable liquidated damages provisions
in the event of lessor or lessee defaults. Article 2A also recognizes the
concept of freedom of contract and
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permits the parties in a commercial context a wide degree of latitude to vary
provisions of the law.
CONTRACTS RELATED TO SOFTWARE AND SERVICES MAY NOT BE PAID
Some finance leases and installment sale and loan contracts, as described
in the related prospectus supplement, may relate to software and services that
are not owned by the related receivables seller and in which no related interest
will be transferred to the issuer. Accordingly, if there is a default on any of
these finance leases or installment sale or loan contracts, the issuer will not
realize any proceeds from the related software and services from which to
satisfy any unpaid payments under those contracts.
DEFINED TERMS
We define and use capitalized terms in this prospectus to assist you in
understanding the terms of the securities and this offering. We define the
capitalized terms used in this prospectus under the caption "Glossary of Terms"
in this prospectus on page 70.
THE TRUST FUNDS
The property of each trust fund, as will be specified in the related
prospectus supplement, will include:
o a pool of Receivables, including any Receivables conveyed to the issuer
after the applicable closing date;
o all monies, including accrued interest, due under the security interest
in the Receivables on or after the applicable cut-off date;
o the amounts as from time to time may be held in one or more accounts
established and maintained by the servicer under the related Trust
Agreement, as further described in the related prospectus supplement;
o the security interests, if any, in the Equipment relating to the pool of
Receivables;
o the right to proceeds from claims on physical damage policies, if any,
covering the Equipment or the related obligors, as the case may be;
o the proceeds of any repossessed Equipment related to the pool of
Receivables;
o the rights of the depositor under the related Receivables Acquisition
Agreement; and
o interest earned on certain short-term investments held by the trust fund,
unless the related prospectus supplement specifies that the earnings may
be paid to the related servicer or Receivables seller(s).
The trust fund may also include, if so specified in the related prospectus
supplement, monies on deposit in a pre-funding account. The pre-funding account
will be used by the trustee to acquire or receive a security interest in
additional Receivables during the pre-funding period
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specified in the related prospectus supplement. In addition, some combination of
credit enhancements may be issued to or held by the trustee on behalf of the
related trust fund for the benefit of the holders of one or more classes of
securities.
The Receivables comprising a trust fund, as specifically described in the
related prospectus supplement, will be either:
o originated by the related Receivables seller;
o originated by various vendors and acquired by the related Receivables
seller;
o acquired by the related Receivables seller from originators or other
lessors of Receivables.
The Equipment underlying the Contracts included in each trust fund will be
limited to personal property which is leased or financed by the related
Receivables seller to the lessee under Contracts which either:
o are "chattel paper" or
o would be "chattel paper" but for a technical definitional matter, but are
not treated materially differently from "chattel paper" for purposes of
title transfer, security interests or remedies on default.
The Equipment underlying the Contracts will be further limited to personal
property which is subject to UCC provisions relating to title transfer, security
interests and remedies on default and Equipment leased to the related lessee for
use by the lessee in the ordinary course of business or for home use, including:
(a) information technology equipment, such as:
o computer work stations,
o personal computers,
o data storage devices,
o mainframe and mini-computers, and
o computer related peripheral equipment,
(b) communications equipment, such as telephone switching and networking
systems,
(c) commercial business and industrial equipment, such as:
o printing presses,
o machine tools and other manufacturing equipment,
o photocopiers, facsimile machines and other office equipment,
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o energy savings and control equipment,
o automotive diagnostic and
o automated testing equipment,
(d) medical equipment, such as diagnostic and therapeutic examination
equipment for radiology, nuclear medicine and ultrasound and laboratory
analysis equipment,
(e) resources equipment, such as feller-bunchers and grapplers,
(f) transportation and construction equipment, such as:
o bulldozers,
o loaders,
o graders,
o excavators,
o forklifts,
o other materials handling equipment,
o golf carts,
o other road and off-road machinery and electronics manufacturing
equipment.
Each trust fund may also include a security interest in the Equipment subject
to each related Contract, but not ownership interests in the case of leased
equipment and any related property and proceeds.
No trust fund will include Receivables with respect to which the related
Contracts or the related Equipment is subject to federal or state registration
or titling requirements which differ materially from, or supplant, standard UCC
provisions governing:
o the manner in which title or security interests in "chattel paper" or the
related Equipment is determined or perfected or
o remedies on default.
For example, no trust fund will include Receivables with respect to which
the underlying Contracts or Equipment relate to:
o motor vehicles;
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o aircraft;
o ships or boats
o firearms or other weapons;
o railroad rolling stock; or
o facilities such as factories, warehouses or plants subject to state laws
governing the manner in which title or security interest in real property
is determined or perfected.
However, the Receivables may include Contracts and a security interest in
the Equipment relating to individual, discrete components of assets such as
those listed above.
The Receivables will be acquired by the depositor from the related
Receivables seller under a Receivables Acquisition Agreement or under provisions
of the Trust Agreements between the Receivables seller and the depositor. The
Receivables included in each trust fund will be selected from those Receivables
held by the Receivables sellers based on the criteria specified in the
applicable Trust Agreement and described in this prospectus or in the related
prospectus supplement.
With respect to each series of securities, on or prior to the closing date
on which the securities are delivered to securityholders, the depositor will
form a trust fund by either:
o transferring the related Receivables into a trust under a Trust
Agreement; or
o entering into an indenture, or causing a special-purpose company or trust
to enter into an indenture, with an indenture trustee, relating to the
issuance of the securities, secured by the related Receivables.
The Receivables comprising each trust fund will generally have been
originated by the related Receivables seller or acquired by the Receivables
seller from others in accordance with the Receivables seller's specified
underwriting criteria. The underwriting criteria applicable to the Receivables
included in any trust fund will be described in all material respects in the
related prospectus supplement.
THE ISSUERS
With respect to each series of securities, the issuer will be:
o the depositor;
o a special-purpose company organized and established by the depositor; or
o a trust to be formed by the depositor.
For purposes of this prospectus and the related prospectus supplement, the
depositor, if the depositor issues the related securities, the related
special-purpose company, if a special-purpose company issues the related
securities, or the related trust, if a trust issues the related securities, will
be referred to as the "issuer" with respect to those securities.
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Upon the issuance of the securities of a given series, the proceeds from
the issuance will be used by the depositor to acquire the related Receivables
from the related Receivables seller. The related servicer will service the
related Receivables under the applicable servicing agreement, and will be
compensated for acting as the servicer. To facilitate servicing and to minimize
administrative burden and expense, the servicers may be appointed custodians for
the related Receivables by each trustee and the depositor, as may be set forth
in the related prospectus supplement.
The following protection may be provided to the securityholders of a given
class by:
o the subordination of another class of securities of that series;
o the availability of the funds in the reserve account; or
o any other credit enhancement for that series as may be specified in the
related prospectus supplement.
If this protection is insufficient, the issuer must rely solely on the payments
from the obligors on the related Contracts, and the proceeds from the sale of
property which secure or are leased under the defaulted Contracts. It may be
difficult for the issuer to realize on the collateral securing those Contracts,
and thus the proceeds to be distributed to the securityholders of that series.
THE RECEIVABLES
RECEIVABLES POOLS
Information with respect to the Receivables in each trust fund will be set
forth in the related prospectus supplement, including:
o the identity of the related Receivables seller(s);
o the related underwriting criteria and collection policies;
o the composition of the Receivables and the distribution of the
Receivables by geographic location;
o the annual percentage rate; and
o remaining principal balance as of the applicable cut-off date.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Certain information relating to the related Receivables seller's
delinquency, repossession and net loss experience with respect to Contracts it
has originated or acquired will be set forth in each prospectus supplement. This
information may include, among other things, the experience with respect to all
Contracts in the Receivables seller's portfolio during certain specified
periods, including Contracts which may not meet the criteria for selection as a
Receivable for any particular trust fund. We cannot assure you that the
delinquency, repossession and net loss
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experience on any trust fund will be comparable to the related Receivables
seller's prior experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
As may be more fully described in the related prospectus supplement, if a
Contract permits a prepayment, the prepayment, together with accelerated
payments resulting from defaults, will shorten the weighted average life of the
related pool of Receivables and the weighted average life of the related
securities. The rate of prepayments on the Receivables may be influenced by a
variety of economic, financial and other factors. In addition, under certain
circumstances, the depositor or the related Receivables seller will be obligated
to acquire Receivables from the related trust fund under the applicable Trust
Agreement or Receivables Acquisition Agreement as a result of breaches of
representations and warranties. Any reinvestment risks resulting from a faster
or slower amortization of the related securities which results from prepayments
will be borne entirely by the related securityholders.
The related prospectus supplement may set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
securities, together with a description of any applicable prepayment penalties.
ACQUISITION OF RECEIVABLES FROM RECEIVABLES SELLERS
The Receivables underlying a series of securities may be acquired by the
depositor, either directly or through affiliates, from the related Receivables
seller under a Receivables Acquisition Agreement between the depositor or its
affiliate and each related Receivables seller.
The depositor expects that each Receivable so acquired will be one
originated by the Receivables seller in accordance with the underwriting
criteria to be specified in the related prospectus supplement. The related
prospectus supplement may specify that:
o each Receivables seller which is an originator will be an institution
experienced in originating and servicing retail installment sale and
installment loan contracts similar to the Contracts in accordance with
accepted industry practices and prudent guidelines;
o each Receivables seller under the related Receivables Acquisition
Agreement will make certain representations and warranties to the
depositor or the related trustee in respect of the related Receivables;
o in the event the representations and warranties are not made to the
related trustee, the depositor will assign its rights relating to those
representations and warranties, except certain rights of indemnification,
and interest in the related Receivables Acquisition Agreement to the
related trustee for the benefit of the securityholders of that series,
and the Receivables seller will then be liable to the trustee for
defective or missing documents or an uncured breach of the Receivables
seller's representations or warranties.
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USE OF PROCEEDS
The proceeds from the sale of the securities of a given series will be
applied by the depositor to the acquisition of the related Receivables from the
related Receivables seller. The depositor will apply all or substantially all of
the net proceeds from the sale of each series of securities for one or more of
the following purposes:
o to purchase the related assets of the trust fund;
o to repay indebtedness which was incurred to obtain funds to acquire the
assets of the trust fund;
o to establish any reserve funds or other funds described in the related
prospectus supplement; and
o to pay costs of structuring, guaranteeing and issuing the securities,
including the costs of obtaining credit support, if any.
The purchase of the assets of the trust fund for a series may be effected by an
exchange of securities with the seller of the assets of the trust fund.
THE DEPOSITOR
PaineWebber Asset Acceptance Corporation, the depositor, was incorporated
in the State of Delaware on April 19, 2000 as a wholly-owned, limited purpose
finance subsidiary of PaineWebber Group Inc. The depositor's principal executive
offices are located at 1285 Avenue of the Americas, New York, New York 10019.
Its telephone number is (212) 713-2000.
As described in this prospectus under "The Trust Funds," the only
obligations, if any, of the depositor with respect to a series of securities may
be limited representations and warranties and limited undertakings to repurchase
or substitute Receivables under limited circumstances. We do not expect that the
depositor will have any servicing obligations or responsibilities with respect
to any trust fund. The depositor does not have, nor is it expected in the future
to have, any significant assets.
The servicer with respect to any series of securities may be an affiliate
of the depositor. As described in this prospectus under "The Trust Funds," the
depositor may acquire Receivables through or from an affiliate.
Neither the depositor nor PaineWebber Group Inc., nor any of their
respective affiliates, will insure or guarantee the securities of any series.
THE TRUSTEE
The trustee for each series of securities will be specified in the related
prospectus supplement. The trustee's liability in connection with the issuance
and sale of the related securities is limited solely to the express obligations
of the trustee set forth in the related Trust Agreement.
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With respect to each series of securities, no resignation or removal of the
trustee and no appointment of a successor trustee will become effective until
the acceptance of appointment by the successor trustee. The related prospectus
supplement will describe the manner in which the trustee may resign. If no
successor trustee is appointed by the depositor or the securityholders, or if no
successor trustee accepts appointment within a specified period following any
resignation or removal, the trustee or any securityholder may petition any court
of competent jurisdiction for the appointment of a successor trustee.
DESCRIPTION OF THE SECURITIES
GENERAL
The securities will be issued in series. Each series of securities, or,
multiple series of securities, will be issued under a Trust Agreement. All of
the securities offered under this prospectus and the related prospectus
supplement will be rated in one of the four highest rating categories by one or
more rating agencies.
Fixed income securities generally, but not always, have a principal balance
and a specified interest rate.
Each series or class of securities offered under this prospectus may have a
different interest rate, which may be a fixed or adjustable interest rate. The
related prospectus supplement will specify the interest rate for each series or
class of securities described in that prospectus supplement, or the initial
interest rate and the method for determining subsequent changes to the interest
rate.
A series may include one or more classes of Strip Securities entitled to:
o principal distributions with disproportionate, nominal or no principal
distributions; or
o interest distributions with disproportionate, nominal or no interest
distributions.
In addition, a series of securities may include two or more classes of
securities:
o that differ as to timing, sequential order, priority of payment, interest
rate or amount of distribution of principal or interest or both; or
o as to which distributions of principal or interest or both on any class
may be made:
o upon the occurrence of specified events;
o in accordance with a schedule or formula; or
o on the basis of collections from designated portions of the related
pool of Receivables.
A series may include one or more classes of Accrual Securities, as to which
certain accrued interest will not be distributed but rather will be added to its
principal balance, or nominal
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balance, in the case of Accrual Securities which are also Strip Securities, on
each payment date, or in the manner that may be described in the related
prospectus supplement.
If provided in the related prospectus supplement, a series may include one
or more other classes of senior securities that are senior to one or more other
classes of subordinate securities in respect of distributions of principal and
interest and allocations of losses on Receivables.
In addition, certain classes of senior or subordinate securities may be
senior to other classes of senior or subordinate securities in respect of
distributions or losses.
GENERAL PAYMENT TERMS OF SECURITIES
As will be provided in the related Trust Agreement and as will be described
in the related prospectus supplement, securityholders will be entitled to
receive payments on their securities on the specified payment dates. Payment
dates with respect to the securities will occur monthly, quarterly or
semi-annually, as further described in the related prospectus supplement.
The related prospectus supplement will describe the record date preceding
the payment date, as of which the trustee or its paying agent will fix the
identity of the securityholders for the purpose of receiving payments on the
next succeeding payment date.
Each Trust Agreement will provide for a remittance period preceding each
payment date. As more fully provided in the related prospectus supplement,
collections received on the related Receivables during a remittance period will
be required to be remitted by the related servicer to the related trustee prior
to the related payment date and will be used to fund payments to securityholders
on that payment date. The related prospectus supplement may provide that all or
a portion of the payments collected on the related Receivables may be applied by
the related trustee to the acquisition of subsequent Receivables during a
specified period rather than be used to fund payments of principal to
securityholders during that period. This results in securities with an
interest-only period, also commonly referred to as a revolving period, which
will be followed by an amortization period. These interest-only or revolving
periods may, upon the occurrence of events to be described in the related
prospectus supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related securities.
In addition, the related prospectus supplement may provide that all or a
portion of the collected payments may be retained by the trustee for a specified
period prior to being used to fund payments of principal to securityholders.
The retention and temporary investment by the trustee of the collected
payments may be required by the related Trust Agreement for the purposes of:
o slowing the amortization rate of the related securities relative to the
payment schedule of the related Receivables; or
o attempting to match the amortization rate of the related securities to an
amortization schedule established at the time the securities are issued.
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If applicable to any securities, these features may terminate upon the
occurrence of events to be described in the related prospectus supplement,
resulting in distributions to the specified securityholders and an acceleration
of the amortization of the securities.
Neither the securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or the depositor, the
related servicer, the related Receivables seller, any trustee or any of their
respective affiliates unless specifically set forth in the related prospectus
supplement.
As may be described in the related prospectus supplement, securities of
each series covered by a particular Trust Agreement will either represent:
o specified beneficial ownership interests in a separate trust fund created
under the Trust Agreement; or
o debt secured by the related trust fund.
If any trust fund includes certificates of interest or participations or
security interests in Receivables, the related prospectus supplement will
describe the material terms and conditions of the certificates or participations
or describe the security interest.
BOOK-ENTRY REGISTRATION
Securityholders of a given series may hold their securities through DTC in
the United States or Clearstream Banking, societe anonyme or Euroclear in Europe
if they are participants of those systems, or indirectly through organizations
that are participants in those systems.
Cede & Co., as nominee for DTC, will hold the global securities for a given
series. Clearstream and Euroclear will hold omnibus positions on behalf of the
Clearstream Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Clearstream's and Euroclear's names on the
books of their respective depositaries which in turn will hold the positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered under Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and to facilitate the clearance and settlement
of securities transactions between participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream Participants and Euroclear Participants will occur
in the ordinary way in accordance with their applicable rules and operating
procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary. However, these cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system in accordance with its rules and
procedures and within its established deadlines which are in 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
Participants 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 DTC participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and the credits or any transactions in the
securities settled during the processing will be reported to the relevant
Clearstream Participant or Euroclear Participant on that business day. Cash
received in Clearstream or Euroclear as a result of sales of securities by or
through a Clearstream Participant or a Euroclear Participant to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Clearstream or Euroclear cash account only as of the
business day following settlement in DTC.
The securityholders of a given series that are not participants or indirect
participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, securities of a series may do so only through participants
and indirect participants. In addition, securityholders of a given series will
receive all distributions of principal and interest through the participants who
in turn will receive them from DTC. Under a book-entry format, securityholders
of a given series may experience some delay in their receipt of payments, since
the payments will be forwarded by the applicable trustee to Cede & Co., as
nominee for DTC. DTC will forward the payments to its participants, which then
will forward them to indirect participants or the securityholders. It is
anticipated that the only "securityholder" in respect of any series will be Cede
& Co., as nominee of DTC. Securityholders of a given series will not be
recognized as securityholders of that series, and these securityholders will be
permitted to exercise the rights of securityholders of that series only
indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of securities of a
given series among participants on whose behalf it acts for the securities and
to receive and transmit distributions of principal of, and interest on, those
securities. Participants and indirect participants with which the
securityholders of a given series have accounts for the securities similarly are
required to make book-entry transfers and receive and transmit the payments on
behalf of their respective securityholders of that series. Accordingly, although
the securityholders will not possess securities, the creating and affecting DTC
provide a mechanism by which participants will receive payments and will be able
to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a
securityholder of a given series to pledge securities
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of that series to persons or entities that do not participate in the DTC system,
or to otherwise act with respect to the securities, may be limited due to the
lack of a physical certificate for the securities.
DTC will advise the trustee for each Series that it will take any action
permitted to be taken by a securityholder of the related series only at the
direction of one or more participants to whose accounts with DTC the securities
of that series are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that their actions are taken on behalf
of participants whose holdings include undivided interests.
Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream facilitates the clearance and settlement of securities
transactions between Clearstream Participants through electronic book-entry
changes in accounts of Clearstream Participants, which eliminates the need for
physical movement of certificates. Transactions may be settled in Clearstream in
any of 28 currencies, including United States dollars. Clearstream provides to
its Clearstream Participants, services for:
o safekeeping;
o administration;
o clearance and settlement of internationally traded securities; and
o securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional depository, Clearstream is subject to regulation by the Luxembourg
Monetary Institute. Clearstream Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Clearstream is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Clearstream Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for Euroclear Participants
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 28 currencies, including United States dollars. The Euroclear System
includes various other services, including:
o securities lending and borrowing; and
o interfaces with domestic markets in several countries generally similar
to the arrangements for cross-market transfers with DTC described above.
Euroclear is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office, under contract with Euroclear Clearance System, S.C.,
a Belgian cooperative corporation. 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
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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 securities.
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.
As a result, the Euroclear Operator 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.
The terms and conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear System,
and receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the terms and conditions only on behalf of
Euroclear Participants and has no record of relationship with persons holding
through Euroclear Participants.
Except as required by law, the trustee in respect of a series will not have
any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related securities held by Cede
& Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests.
DEFINITIVE SECURITIES
Definitive Securities will be issued to the securityholders of a given
series or their nominees, rather than to DTC or its nominee, only if:
(1) the trustee for the related series advises in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository for the securities and the trustee is unable to locate a
qualified successor;
(2) the servicer, at its option, elects to terminate the book-entry-system
through DTC; or
(3) after the occurrence of an "Event of Default" under the related
indenture or a default by the servicer under the related Trust
Agreement, securityholders representing at least a majority of the
outstanding principal amount of the securities advise the applicable
trustee through DTC in writing that the continuation of a book-entry
system through DTC is no longer in the securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable trustee will be required to notify all the
securityholders through participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
the securities and receipt of instructions for re-registration, the applicable
trustee will reissue the securities as Definitive Securities to the
securityholders.
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Distributions of principal of, and interest on, the securities will
thereafter be made by the applicable trustee in accordance with the procedures
set forth in the related indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable record date specified for those
securities in the related prospectus supplement. The distributions may be made
by check mailed to the address of the holder as it appears on the register
maintained by the applicable trustee. The final payment on those securities,
however, will generally be made only upon presentation and surrender of the
security at the office or agency specified in the notice of final distribution
to the applicable securityholders.
Definitive Securities in respect of a given series of securities will be
transferable and exchangeable at the offices of the applicable trustee or of a
certificate registrar named in a notice delivered to holders of the Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
On or prior to each payment date for a series of securities, the related
servicer or the related trustee will forward or cause to be forwarded to each
holder of record of the class of securities a statement or statements for the
related trust fund setting forth the information which generally may include the
following information, to the extent applicable:
(1) the amount of the distribution for each class of securities;
(2) the amount of the distribution allocable to principal;
(3) the amount of the distribution allocable to interest;
(4) the pool balance, if applicable, as of the close of business on the
last day of the related remittance period;
(5) the aggregate outstanding principal balance and the pool factor for
each class of securities after giving effect to all payments reported
under (2) above on the payment date;
(6) the amount paid to the servicer for the related remittance period;
(7) the amount of the aggregate purchase amounts for Receivables that have
been reacquired for the remittance period; and
(8) the amount of coverage under any letter of credit, financial guaranty
insurance policy, reserve account or other form of credit enhancement
covering default risk as of the close of business on the applicable
payment date and a description of any credit enhancement substituted
for any letter of credit, financial guaranty insurance policy, or
reserve account.
Each amount set forth under subclauses (1), (2), (3) and (4) for the
securities of any series will be expressed as a dollar amount per $1,000 of the
initial principal balance of the securities, as applicable.
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Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the applicable trustee will provide to the
securityholders a statement containing the amounts described in (2) and (3)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the securityholders' preparation of federal income
tax returns.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement under
which a trust fund will be created and the related securities for the trust fund
will be issued. For purposes of this prospectus, the term "Trust Agreement" as
used regarding a trust means any and all agreements relating to:
o the establishment of the related trust;
o the servicing of the related Receivables; and
o the issuance of the related securities, including the indenture.
ACQUISITION OF THE RECEIVABLES UNDER A RECEIVABLES ACQUISITION AGREEMENT
On the closing date specified for any series of securities, the depositor
will acquire the related Receivables or a security interest in the Receivables
from the related Receivables seller under a Receivables Acquisition Agreement.
The depositor will either transfer the Receivables to an issuer under a pooling
agreement, or will pledge the depositor's right, title and interests in and to
the Receivables to a trustee on behalf of securityholders under an indenture.
The depositor and/or the related Receivables seller may be obligated to
acquire from the related trust fund its interest in any Receivable transferred
to an issuer or pledged to a trustee on behalf of securityholders. This
obligation may arise if the interest of the securityholders in the Receivables
is materially and adversely affected by a breach of any representation or
warranty made by the depositor or the related Receivables seller for the
Receivable, which breach is not cured following the discovery by or notice to
the depositor or the related Receivables seller of the breach. The obligation of
the depositor to acquire the Receivables for which a Receivables seller has
breached a representation or warranty would be subject to the Receivables
seller's acquisition of the Receivables from the depositor. In addition, if so
specified in the related prospectus supplement, the depositor and/or the
Receivables seller may reacquire Receivables or substitute other Receivables for
the Receivable held by a trust fund subject to specified conditions set forth in
the related Trust Agreement and Receivables Acquisition Agreement.
ACCOUNTS
With respect to each series of securities, the related servicer will
establish and maintain with the applicable trustee one or more accounts, in the
name of the trustee on behalf of the related securityholders, into which all
payments made on the related Receivables will be deposited. The servicer will
also establish and maintain with the trustee separate distribution accounts, in
the name of the trustee on behalf of the securityholders, in which amounts
released from a collection account and any reserve account or other credit
enhancement, if any, for distribution to the
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securityholders will be deposited and from which distributions to the
securityholders will be made.
Any other accounts to be established with respect to a series of
securities, including any reserve account, will be described in the related
prospectus supplement.
For any series of securities, funds in the accounts established under the
related Trust Agreement will be invested as provided in the related Trust
Agreement in eligible investments. Eligible investments are generally limited to
investments acceptable to the rating agencies as being consistent with the
rating of the securities. If the rating agencies so permit, eligible investments
may include securities issued by the depositor, the related Receivables seller,
the related servicer or their affiliates or other trusts created by the
depositor or its affiliates. Eligible investments are mostly limited to
obligations or securities that mature not later than the business day
immediately preceding the related payment date. However, funds in any reserve
account may be invested in securities that will not mature prior to the date of
the next distribution and will not be sold to meet any shortfalls. Thus, the
amount of cash in any reserve account at any time may be less than the balance
of the reserve account. If the amount required to be withdrawn from any reserve
account to cover shortfalls in collections on the related Receivables exceeds
the amount of cash in the reserve account a temporary shortfall in the amounts
distributed to the related securityholders could result. This temporary
shortfall could, in turn, increase the average life of the securities of that
series. The related prospectus supplement will specify whether or not the
investment earnings on funds deposited in the accounts, net of losses and
investment expenses, will be available to pay securityholders.
The accounts will be maintained with a federally or state chartered
depository institution and in a manner satisfactory to each rating agency rating
the securities of the related series.
To the extent that a servicer's unsecured debt ratings are acceptable to
the rating agencies, amounts deposited to any account maintained by the servicer
may be commingled with the servicer's general account monies. Any rights to so
commingle monies will be described in the related prospectus supplement.
THE SERVICER
The servicer under each Trust Agreement will be named in the related
prospectus supplement. The entity serving as servicer may be an affiliate of the
Receivables seller or the depositor and may have other business relationships
with the Receivables seller or the depositor or their affiliates. The servicer
for each series will service the Receivables contained in the trust fund for
that series. Any servicer may delegate its servicing responsibilities to one or
more sub-servicers, but will not be relieved of its liabilities by doing so.
Each servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Trust Agreement. An uncured breach of a representation or warranty
that in any respect materially and adversely affects the interests of the
securityholders will constitute a default by the servicer under the related
Trust Agreement.
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SERVICING PROCEDURES
Each Trust Agreement will provide that the related servicer will make
reasonable efforts to collect all payments due with respect to the Receivables
held in the related trust fund. The servicer will also continue the collection
procedures that the servicer follows with respect to the particular type of
Receivable in the particular pool it services for itself and others in a manner
consistent with the related Trust Agreement. Consistent with its normal
procedures, and, to the extent described in the related prospectus supplement,
the servicer may, in its discretion and on a case-by-case basis, arrange with
the obligor to extend or modify the payment schedule on a Receivable. Some of
the arrangements, including, any extension of the payment schedule beyond the
final scheduled payment date for the related securities, may result in the
servicer acquiring the Receivable if the Contract becomes a defaulted Contract.
The servicer may sell the Equipment securing the respective defaulted Contract,
if any, at a public or private sale, or take any other action permitted by
applicable law. See "Certain Legal Aspects of the Receivables" in this
prospectus.
The material aspects of any particular servicer's collections procedures
will be set forth in the related prospectus supplement.
PAYMENTS ON RECEIVABLES
With respect to each series of securities, the related servicer will
deposit all payments on the related Receivables and all proceeds of the
Receivables collected in the related collection facility, such as a lock-box
account or collection account. Monies deposited in a collection facility for a
trust fund may be commingled with funds from other sources. As will be further
specified in the related prospectus supplement, the related servicer will be
required to deposit payments on the related Receivables collected during each
collection period into the related collection account on a specified day each
month. Pending deposit into the related collection account, collections in the
collection facility may be invested by the related servicer at its own risk and
for its own benefit, and will not be segregated from funds of the related
servicer.
SERVICING COMPENSATION
With respect to any series of securities, the related servicer will be
entitled to receive a servicing fee for each collection period. The servicing
fee will be in an amount equal to a specified percentage per annum of the value
of the Receivables held in the related trust fund, generally as of the first day
of the collection period. Each prospectus supplement and servicing agreement
will specify the priority of distributions with respect to the servicing fee,
together with any portion of the servicing fee that remains unpaid from prior
payment dates. The servicing fee may be paid prior to any distribution to the
related securityholders.
Each servicer may also, if specified in the related prospectus supplement,
collect and retain any late fees, the penalty portion of interest paid on past
due amounts and other administrative fees or similar charges allowed by
applicable law with respect to the Receivables. Each servicer will generally be
entitled to reimbursement from the related trust fund for expenses and
liabilities incurred by it in servicing the Receivables. Payments by or on
behalf of obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the servicer's normal practices and procedures.
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The servicing fee will:
(1) compensate the related servicer for performing the functions of a
third party servicer of similar types of Receivables as an agent for
their beneficial owner, including:
o collecting and posting all payments;
o responding to inquiries of obligors on the related Receivables;
o investigating delinquencies;
o sending payment coupons to obligors;
o reporting tax information to obligors;
o paying costs of collection and disposition of defaults; and
o policing the collateral.
(2) compensate the related servicer for administering the related
Receivables, accounting for collections and furnishing statements to
the applicable trustee and the applicable indenture trustee;
(3) reimburse the related servicer for:
o certain taxes;
o accounting fees;
o outside auditor fees; and
o data processing costs and other costs incurred in connection with
administering the Receivables.
DISTRIBUTIONS
With respect to each series of securities, beginning on the payment date
specified in the related prospectus supplement, distributions of principal and
interest, or, where applicable, of principal or interest only, on each class of
the securities entitled to those distribution will be made by the applicable
indenture trustee to the noteholders and by the applicable trustee to the
certificateholders of those series. The timing, calculation, allocation, order,
source, priorities of and requirements for each class of noteholders and all
distributions to each class of certificateholders of each series will be set
forth in the related prospectus supplement.
With respect to each series of securities, on each payment date collections
on the related Receivables will be transferred from the collection account to
the distribution account for distribution to securityholders, to the extent
provided in the related prospectus supplement. Credit enhancement, such as a
reserve account, may be available to cover any shortfalls in the amount
available for distribution on that date, to the extent specified in the related
prospectus supplement. As may be more fully described in the related prospectus
supplement, distributions
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in respect of principal of a class of securities of a given series will be
subordinate to distributions in respect of interest on that class, and
distributions in respect of the certificates of that series may be subordinate
to payments in respect of the notes of that series.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of credit enhancement arrangements, if any, and the
provider of the credit enhancements, if applicable, for each class of securities
of a given series will be set forth in the related prospectus supplement. If and
to the extent provided in the related prospectus supplement, credit enhancement
may be in the form of:
o a financial guaranty insurance policy;
o subordination of one or more classes of securities;
o reserve accounts;
o over-collateralization;
o letters of credit;
o credit or liquidity facilities;
o third party payments or other support;
o surety bonds;
o guaranteed cash deposits or any other arrangements as may be described in
the related prospectus supplement; or
o any combination of two or more of the above forms of credit enhancement.
If specified in the related prospectus supplement, credit enhancement for a
class of securities may cover one or more other classes of securities of the
same series, and credit enhancement for a series of securities may cover one or
more other series of securities.
The presence of credit enhancement for the benefit of any class or series
of securities is intended to enhance the likelihood of receipt by the
securityholders or the class or series of the full amount of principal and
interest due and to decrease the likelihood that the securityholders will
experience losses. As may be more specifically provided in the related
prospectus supplement, the credit enhancement for a class or series of
securities will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance and interest on the
principal balance. If losses occur which exceed the amount covered by any credit
enhancement or which are not covered by any credit enhancement, securityholders
of any class or series will bear their allocable share of deficiencies, as may
be described in the related prospectus supplement. In addition, if a form of
credit enhancement covers more than one series of securities, securityholders of
those series will be subject to the risk that the credit enhancement will be
exhausted by the claims of securityholders of other series.
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STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Prior to each payment date with respect to each series of securities, the
related servicer will provide to the applicable indenture trustee and/or the
applicable trustee and credit enhancer a statement setting forth substantially
the information described in the related prospectus supplement. This may include
the same information as is required to be provided in the periodic reports
provided to securityholders of that series described under "Description of the
Securities--Reports to Securityholders" in this prospectus. The statement will
be as of the close of business on the last day of the preceding related
remittance period.
EVIDENCE AS TO COMPLIANCE
Each Trust Agreement will generally provide that a firm of independent
public accountants will furnish to the related issuer and/or the applicable
trustee, an annual statement as to compliance by the related servicer during the
preceding twelve months with the standards relating to the servicing of the
Receivables. In the case of the first certificate, the period will cover the
time since the applicable closing date.
Each Trust Agreement will also generally provide for delivery to the
related issuer and/or the applicable trustee of a certificate signed by an
officer of the related servicer. The certificate will either:
o state that the servicer has fulfilled its obligations under the Trust
Agreement in all material respects throughout the preceding 12 months,
or, in the case of the first certificate, the period from the applicable
closing date; or
o describe the default if there has been a default in the fulfillment of
its obligation in any material respect.
Each servicer may also be required to agree to give the issuer and the
trustee notice of certain servicer defaults under the related Trust Agreement.
CERTAIN MATTERS REGARDING THE SERVICERS
The servicer may resign from its obligations and duties as servicer, as
described in the related prospectus supplement. The resignation will not become
effective until the related trustee or a successor servicer has assumed the
servicer's servicing obligations and duties under the Trust Agreement.
Neither the related servicer nor any of its respective directors, officers,
employees, or agents will be under any liability to the related issuer or the
related securityholders for taking any action or for refraining from taking any
action under the Trust Agreement, or for errors in judgment, other than as may
be described in the related prospectus supplement. However, neither the servicer
nor any similar person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
and duties under the Trust Agreement. In addition, the Trust Agreement may
provide that the related servicer is under no obligation to appear in,
prosecute, or defend any legal action that is not incidental to its servicing
responsibilities under the Trust Agreement and that, in its opinion, may cause
it to incur any expense or liability.
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Under the circumstances specified in the Trust Agreement the following
entities may be the successor to the servicer under the Trust Agreement:
o any entity into which the related servicer may be merged or consolidated;
o any entity resulting from any merger or consolidation to which the
servicer is a party;
o any entity succeeding to the business of the servicer; or
o any corporation or other entity that assumes the obligations of the
servicer.
SERVICER DEFAULT
A "servicer default" under a Trust Agreement may include:
(1) any failure by the related servicer to deliver to the applicable
trustee for deposit in any of the applicable accounts any required
payment or to direct the trustee to make any required distributions
from the applicable accounts, which failure continues unremedied for
greater than the number of business days specified in the related
prospectus supplement after written notice from the trustee is
received by the servicer or after discovery by the servicer;
(2) any failure by the servicer or the related Receivables seller to
observe or perform in any material respect any other covenant or
agreement in the Trust Agreement, which failure materially and
adversely affects the rights of the related securityholders and which
continues unremedied for a period greater than 120 days after written
notice is given of the failure; and
(3) any Insolvency Event.
RIGHTS UPON SERVICER DEFAULT
As long as a servicer default under a Trust Agreement remains unremedied,
the applicable trustee, credit enhancer or holders of securities of the related
series with not less than 25% of the voting rights of the outstanding securities
may terminate all the rights and obligations of the servicer, if any, under the
Trust Agreement. After the rights and obligations of the servicer are terminated
the trustee or a successor servicer appointed by the trustee will succeed to all
the responsibilities, duties and liabilities of the servicer under the Trust
Agreement and will be entitled to similar compensation arrangements. If,
however, a bankruptcy trustee or similar official has been appointed for the
servicer, and no servicer default other than the appointment has occurred, the
bankruptcy trustee or official may have the power to prevent the applicable
trustee or the securityholders from effecting a transfer of servicing. In the
event that the trustee is unwilling or unable to so act, it may appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
with a net worth of at least $25,000,000 and whose regular business includes the
servicing of a similar type of Receivables. This trustee may make the
arrangements for compensation to be paid, which in no event may be greater than
the servicing compensation payable to the servicer under the related Trust
Agreement.
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WAIVER OF PAST DEFAULTS
With respect to each trust fund, subject to the approval of any credit
enhancer, the holders of securities evidencing at least a majority of the voting
rights of the outstanding securities may, on behalf of all securityholders of
the related securities, waive any default by the servicer, or by the related
Receivables seller, in the performance of its obligations under the related
Trust Agreement and its consequences. However, a default in making any required
deposits to or payments from any of the accounts in accordance with the Trust
Agreement may not be waived. No waiver will impair the securityholders' rights
with respect to subsequent defaults.
AMENDMENT
To the extent provided in the related prospectus supplement, each of the
Trust Agreements may be amended by the parties to the Trust Agreement, without
the consent of the related securityholders. The amendment may be for the purpose
of:
o adding any provisions to or changing in any manner or eliminating any of
the provisions of the Trust Agreements or
o modifying in any manner the rights of the securityholders.
This amendment will be permitted if, in the opinion of counsel satisfactory to
the applicable trustee, the amendment does not materially and adversely affect
the interests of any of the affected securityholders.
The Trust Agreements may also be amended by the depositor, the servicer,
and the applicable trustee with the consent of any credit enhancer and the
holders of securities evidencing at least a majority of the voting rights of the
outstanding securities for the purpose of:
o adding any provisions to or changing in any manner or eliminating any of
the provisions of the Trust Agreements; or
o modifying in any manner the rights of the securityholders:
This amendment will be permitted if the amendment does not:
o increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the related Receivables or
distributions that are required to be made for the benefit of the
securityholders; or
o reduce the percentage of the securities of the series which are
required to consent to the amendment, without the consent of the
securityholders of that series.
TERMINATION
The obligations of the servicer, the Receivables seller(s), the depositor
and the trustee under the related Trust Agreement will terminate upon the
earlier to occur of:
(1) the maturity or other liquidation of the last related Receivable and
the disposition of any amounts received upon liquidation of any
remaining Receivables and
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(2) the payment to securityholders of the related series of all amounts
required to be paid to them under the Trust Agreement.
In order to avoid excessive administrative expense, the related servicer,
Receivables seller, depositor or the other party may be permitted to purchase
from a trust fund, all the remaining Receivables at a price set forth in the
related prospectus supplement. This repurchase may occur only if the current
balance of the Receivables is less than a specified percentage set forth in the
related prospectus supplement of the initial pool balance for the trust fund.
The related securities will be redeemed following the purchase.
A trustee may solicit bids for the purchase of the Receivables remaining in
a trust within ten days following a payment date as of which the pool balance is
equal to or less than the percentage of the initial pool balance specified in
the related prospectus supplement. This purchase must be in accordance with the
terms and conditions set forth in the related prospectus supplement. If the
trustee receives satisfactory bids as described in the prospectus supplement,
then the Receivables remaining in that trust fund will be sold to the highest
bidder.
Any outstanding notes of the related series may be redeemed concurrently
with either of the events specified above. The subsequent distribution to the
related securityholders of all amounts required to be distributed to them under
the applicable Trust Agreement may effect the prepayment of the certificates of
that series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Contracts that comprise the Receivables will be "chattel paper" as
defined in the Uniform Commercial Code. Pursuant to the UCC, for most purposes a
sale of chattel paper is treated in a manner similar to a transaction creating a
security interest in chattel paper. The depositor, the related servicer and/or
the related Receivables seller(s) will cause the filing of appropriate UCC-1
financing statements to be made with the appropriate governmental authorities.
Under the Trust Agreement, the related servicer will be obligated from time to
time to take such actions as are necessary to protect and perfect the issuer's
or the trustee's interests in the Contracts and their proceeds.
THE EQUIPMENT
The related Receivables seller will convey a security interest in the
related Equipment to the depositor. UCC financing statements will not be filed
to perfect any security interest in the Equipment unless otherwise specified in
the related prospectus supplement. Moreover, in the event of the repossession
and resale of Equipment, it may be subject to a superior lien. If the Equipment
is subject to a superior lien, the senior lienholder may be entitled to be paid
the full amount of the indebtedness owed to it out of the sale proceeds before
such proceeds could be applied to the payment of claims of the related servicer
on behalf of the issuer. In addition, the failure to stamp a lease related to
the Equipment to prevent a third party in possession from having a lien superior
to the lien of the servicer on behalf of the issuer, would jeopardized the
related security interest in the Equipment.
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In the event of a default by the lessee, the related servicer on behalf of
the related trustee may take action to enforce the defaulted Contract by
repossession and resale of the leased Equipment. Under the UCC in most states, a
creditor can, without prior notice to the debtor, repossess assets securing a
defaulted Contract by:
o the lessee's voluntary surrender of those assets; or
o "self-help" repossession that does not involve a breach of the peace and
by judicial process.
In the event of a default by the lessee, some jurisdictions require that
the lessee be notified of the default and be given a time period within which it
may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the lessee with reasonable
notice of the date, time and place of any public sale and/or the date after
which any private sale of the collateral may be held and that the sale be
conducted in a commercially reasonable manner. Each Trust Agreement may require
the related servicer to:
o sell promptly any repossessed item of Equipment;
o reacquire the repossessed Equipment from the trust fund;
o re-lease the repossessed Equipment for the benefit of the
securityholders; or
o take any other action as specified in the related prospectus supplement.
Under most state laws, a lessee has the right to redeem collateral for its
obligations prior to actual sale by paying the secured party the unpaid balance
of the obligation plus:
o reasonable expenses for repossession, holding and preparing the
collateral for disposition and arranging for its sale; and
o reasonable attorneys' fees, to the extent provided for in the written
agreement of the parties.
In addition, because the market value of the Equipment of the type financed
under the Receivables Acquisition Agreement generally declines with age and
because of obsolescence, the net disposition proceeds of leased Equipment at any
time during the term of the lease may be less than the outstanding balance on
the Contract principal balance which it secures. Because of this, and because
other creditors may have rights in the related leased Equipment superior to
those of the related trust fund and the risk of an avoidance sought by a
bankruptcy trustee in the case of unperfected interests in the Equipment, the
related servicer may not be able to recover the entire amount due on a defaulted
Contract in the event that the servicer elects to repossess and sell the leased
Equipment at any time.
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Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a lessee for any deficiency on repossession
and resale of the asset securing the unpaid balance of that lessee's Contract.
However, some states impose prohibitions or limitations on deficiency judgments.
In most jurisdictions the courts, in interpreting the UCC, would impose upon a
creditor an obligation to:
o repossess the Equipment in a commercially reasonable manner; and
o "mitigate damages" in the event of a lessee's failure to cure a default.
The creditor would be required to exercise reasonable judgment and follow
acceptable commercial practice in seizing and disposing of the Equipment and to
offset the net proceeds of the disposition against its claim. In addition, a
lessee may successfully invoke an election of remedies defense to a deficiency
claim in the event that the related servicer's repossession and sale of the
leased Equipment is found to be a retention discharging the lessee from all
further obligations under UCC Section 9-505(2). If a deficiency judgment were
granted, the judgment would be a personal judgment against the lessee for the
shortfall, but a defaulting lessee may have very little capital or sources of
income available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the related servicer to repossess
and resell collateral or obtain a deficiency judgment. In the event of the
bankruptcy or reorganization of a lessee, various provisions of the Bankruptcy
Code of 1978 and related laws may interfere with or eliminate the ability of the
servicer or the trustee to enforce its rights under the Receivables. If
bankruptcy proceedings were instituted in respect of a lessee, the trustee could
be prevented from continuing to collect payments due from or on behalf of the
lessee or exercising any remedies assigned to the trustee without the approval
of the bankruptcy court, and the bankruptcy court could permit the lessee to use
or dispose of the leased Equipment and provide the trustee with a lien on
substitute collateral, so long as such substitute collateral constituted
"adequate protection" as defined under the Bankruptcy Code.
In addition, certain of the Receivables may be leased by the Receivables
seller to governmental entities. Payment by governmental authorities of amounts
due under the Contracts may be contingent upon legislative approval.
Accordingly, payment delays and collection difficulties as described in the
related prospectus supplement may limit collections with respect to certain
governmental Contracts.
These UCC and bankruptcy provisions, in addition to the possible decrease
in value of a repossessed item of Equipment may limit the amount realized on the
sale of the collateral to less than the amount due on the related Receivable.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations of the purchase, ownership and disposition of the securities. The
summary does not purport to deal with federal income tax considerations
applicable to all categories of holders, some of which
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may be subject to special rules. For example, it does not discuss the tax
treatment of securityholders that are insurance companies, regulated investment
companies or dealers in securities. You are urged to consult your own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to you of the purchase, ownership and disposition of the
securities.
The following summary is based upon current provisions of the Code, the
Treasury regulations issued under the Code and judicial or ruling authority, all
of which are subject to change, which change may be retroactive. The depositor
will be provided with an opinion of Cadwalader, Wickersham & Taft regarding
certain federal income tax matters discussed below. Those opinions, however, are
not binding on the IRS or the courts. No ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the issuer, the notes, the certificates and related terms, parties
and documents will be deemed to refer, unless otherwise specified in this
prospectus, to each issuer, the notes and the certificates and the related
terms, parties and documents applicable to that issuer.
The federal income tax consequences to certificateholders will vary
depending on:
o whether the issuer is treated as a partnership under the Code and
applicable Treasury regulations or
o whether the issuer will be treated as a grantor trust.
The prospectus supplement for each series of certificates will specify
whether the issuer will be treated as a partnership or as a grantor trust.
FASITS
Sections 860H through 860L of the Code provide for the creation of an
entity for federal income tax purposes, referred to as a FASIT. These provisions
were effective as of September 1, 1997, but many technical issues concerning
FASITs have not yet been addressed by final Treasury regulations. To qualify as
a FASIT, an entity must meet certain requirements under Section 860L of the Code
and must elect that treatment. The applicable Trust Agreement, if applicable,
may be amended to provide that the depositor and trustee will cause a FASIT
election to be made for the issuer if the depositor delivers an opinion of
Cadwalader, Wickersham & Taft to the effect that, for federal income tax
purposes,
(1) the deemed issuance of FASIT regular interests, occurring in connection
with the election, will not adversely affect the federal income tax treatment of
the securities,
(2) following the election the issuer will not be deemed to be an
association, or publicly traded partnership, taxable as a corporation, and
(3) the election will not cause or constitute an event in which gain or
loss would be recognized by any securityholder or the issuer.
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ISSUERS TREATED AS PARTNERSHIPS
Tax Characterization of the Issuer as a Partnership
An issuer which is not treated as a grantor trust and which does not
affirmatively elect to be treated as a corporation will be treated as a
partnership under applicable Treasury regulations as long as there are two or
more beneficial owners. The issuer will be ignored as a separate entity where
there is a single beneficial owner of all equity classes of the related series,
including any class of notes treated as equity for federal income tax purposes.
Cadwalader, Wickersham & Taft will deliver their opinion that an issuer will not
be an association, or publicly traded partnership, taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the trust and servicing agreement or pooling and servicing
agreement and indenture and related documents will be complied with, including
the making of no affirmative election to be treated as a corporation.
Cadwalader, Wickersham & Taft's opinion will also conclude that either
(1) the nature of the income of the issuer will exempt it from the rule
that certain publicly traded partnerships are taxable as corporations, or
(2) that the restrictions on transfer of certain classes of the securities
will prevent the issuer from being classified as a publicly traded partnership.
If an issuer were taxable as a corporation for federal income tax purposes,
it would be subject to corporate income tax on its taxable income. The issuer's
taxable income would include all of its income on the related Receivables, less
servicing fees and other deductible expenses, which may include its interest
expense on the notes. Any corporate income tax could materially reduce cash
available to make distributions on the securities, and beneficial owners of
securities could be liable for the part of the tax that is unpaid by the issuer.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The depositor will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. Cadwalader, Wickersham & Taft will, except as
otherwise provided in the related prospectus supplement, advise the depositor
that the notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the notes is correct.
OID. The discussion below assumes that all payments on the notes are
denominated in U.S. dollars, and that the interest formula for the notes meets
the requirements for "qualified stated interest" under Treasury regulations
relating to original issue discount, and that any OID on the notes (i.e., any
excess of the principal amount of the notes over their issue price) does not
exceed a de minimis amount (i.e., 0.25% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of the
OID Regulations. If these conditions are not satisfied with respect to any given
series of notes, additional tax considerations with respect to the notes will be
disclosed in the applicable prospectus supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest on the notes will be taxable to a noteholder as
ordinary interest income when received or accrued in accordance with the
noteholder's method of tax accounting. Under the OID Regulations, a holder of a
note issued with more than a de minimis amount of OID must include the OID in
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income, on a pro rata basis as principal payments are made on the note. A
purchaser who buys a note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a note that has a fixed maturity date of not more than one year
from the issue date of the short-term note may be subject to special rules. An
accrual basis holder of a short-term note, and certain cash method holders,
including regulated investment companies, as set forth in Section 1281 of the
Code, generally would be required to report interest income as interest accrues
on a straight-line basis over the term of each interest period. Other cash basis
holders of a short-term note would, in general, be required to report interest
income as interest is paid, or, if earlier, upon the taxable disposition of the
short-term note. However, a cash basis holder of a short-term note reporting
interest income as it is paid may be required to defer a portion of any interest
expense otherwise deductible on indebtedness incurred to purchase or carry the
short-term note until the taxable disposition of the short-term note. A cash
basis taxpayer may elect under Section 1281 of the Code to accrue interest
income on all nongovernment debt obligations with a term of one year or less, in
which case the taxpayer would include interest on the short-term note in income
as it accrues, but would not be subject to the interest expense deferral rule
referred to in the preceding sentence. Certain special rules apply if a
short-term note is purchased for more or less than its principal amount.
Sale or Other Disposition. If a noteholder sells a note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount, OID
and gain previously included by the noteholder in income with respect to the
note and decreased by the amount of bond premium, if any, previously amortized
and by the amount of principal payments previously received by the noteholder
with respect to the note. The gain or loss will be capital gain or loss if the
note was held as a capital asset, except for gain representing accrued interest
and accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
Non-U.S. Holders. Interest payments made, or accrued, to a noteholder who
is a nonresident alien, foreign corporation or other holder who is a Non-U.S.
Person generally will be considered "portfolio interest" and generally will not
be subject to United States federal income tax and withholding tax, if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Person and the Non-U.S. Person:
(1) is not actually or constructively a "10 percent shareholder" of the
issuer or the depositor or an affiliate (including a holder of 10% of
the outstanding certificates) or a "controlled foreign corporation"
with respect to which the issuer or the depositor or an affiliate is a
"related person" within the meaning of the Code and
(2) provides the trustee or other person who is otherwise required to
withhold U.S. tax with respect to the notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalties of
perjury, certifying that the beneficial owner of the note is a
Non-U.S. Person and providing the Non-U.S. Person's name and address.
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If a note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent. In that case, however, the
signed statement must be accompanied by a Form W-8 or substitute form provided
by the Non-U.S. Person that owns the note. If this interest is not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant
to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a Non-U.S. Person will be exempt from United
States federal income and withholding tax, provided that:
(1) the gain is not effectively connected with the conduct of a trade or
business in the United States by the Non-U.S. Person and
(2) in the case of an individual Non-U.S. Person, the individual is not
present in the United States for 183 days or more in the taxable year.
Final regulations dealing with withholding tax on income paid to Non-U.S.
Persons and related matters were issued by the Treasury Department on October 6,
1997. These new withholding regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Current
withholding certificates will remain valid until the earlier of December 31,
2000 or the due date of expiration of the certificate under the rules as
currently in effect. The new withholding regulations would require, in the case
of notes held by a foreign partnership, that:
(1) the certification described above be provided by the partners rather
than by the foreign partnership and
(2) the partnership provide certain information, including a United States
taxpayer identification number.
A look-through rule would apply in the case of tiered partnerships.
Prospective investors who are Non-U.S. Persons are strongly urged to consult
their own tax advisors with respect to the new withholding regulations.
Backup Withholding. Each noteholder (other than an exempt holder such as a
corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt noteholder fail to
provide the required certification, the issuer will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Cadwalader, Wickersham & Taft, the IRS successfully asserted that one or more
classes of notes in a series did not represent debt for federal income tax
purposes, the notes might be treated as equity interests in the issuer. If so
treated, unless otherwise indicated in the applicable prospectus supplement, the
issuer should be treated as a publicly traded partnership that would not be
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taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the notes as equity interests in this kind of publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income", income to Non-U.S. Persons generally
would be subject to U.S. tax and U.S. withholding tax requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of issuer expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Issuer as a Partnership. The depositor will agree, and the
related certificateholders will agree by their purchase of certificates, to
treat the issuer as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the issuer, the partners of
the partnership being the certificateholders (including the holder of any
certificates representing the retained interest in the issuer) and the notes
being debt of the partnership. However, the proper characterization of the
arrangement involving the issuer, the certificates, the notes and the depositor
is not clear because there is no authority on transactions closely comparable to
that contemplated in this prospectus.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the issuer. This type of
characterization would not result in materially adverse tax consequences to
certificateholders as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. The following
discussion assumes that the certificates represent equity interests in a
partnership.
Partnership Taxation. As a partnership, the issuer will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account the holder's allocated share of income, gains,
losses, deductions and credits of the issuer. The issuer's income will consist
primarily of interest and finance charges earned on the related Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of the Receivables. The issuer's
deductions will consist primarily of interest accruing with respect to the
notes, servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (i.e., the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the certificateholders will be allocated taxable income of the
issuer for each month equal to the sum of:
(1) the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the related
pass-through rate for that month and interest, if any, on amounts
previously due on the certificates but not yet distributed;
(2) any issuer income attributable to discount on the related Receivables
that corresponds to any excess of the principal amount of the
certificates over their initial issue price;
(3) any other amounts of income payable to the certificateholders for that
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month; and
(4) in the case of an individual, estate or trust, the certificateholder's
share of income corresponding to the miscellaneous itemized deductions
described in the next paragraph.
This allocation of interest will be reduced by any amortization by the
issuer of premium on Receivables that corresponds to any excess of the issue
price of certificates over their principal amount. Unless otherwise provided in
the related prospectus supplement, all remaining taxable income of the issuer
will be allocated to the owner of the retained interest of the issuer. Losses of
the issuer will be allocated to the retained interest and to the certificates in
the order in which such losses are borne, and additional income will be
allocated to a class that receives a recovery of a previously allocated loss.
In the event the issuer issues certificates which are Strip Securities, the
amount allocated to the certificateholders will equal the excess of
(1) the pass-through rate applicable to the Strip Securities times the
notional principal amount for the Strip Securities for the month over
(2) the portion of the amount distributed with respect to the Strip
Securities for the month that would constitute a return of basis if
the Strip Securities constituted an instrument described in Section
860G(a)(1)(B)(ii) of the Code, applying the principles of Section
1272(a)(6) of the Code and employing the constant yield method of
accrual (utilizing the appropriate prepayment assumption).
However, no negative accruals will be permitted, and other deductions of
the issuer will be allocated to the Strip Securities up to their remaining
capital account balances immediately before the final redemption.
The portion of expenses of the issuer (including fees to the servicer, but
not interest expense) allocated to taxpayers that are individuals, estates or
trusts would be miscellaneous itemized deductions to those taxpayers. The
deductions might be disallowed to the taxpayers in whole or in part and might
result in those taxpayers being taxed on an amount of income that exceeds the
amount of cash actually distributed to those taxpayers over the life of the
issuer. Any net loss of the issuer will be allocated first to the retained
interest holder to the extent of its adjusted capital account, then to the other
certificateholders in the priorities set forth in the Trust Agreement to the
extent of their respective adjusted capital accounts, and thereafter to the
retained interest holder.
The issuer intends to make all calculations relating to market discount
income and amortization of premium with respect to both simple interest
Receivables and precomputed Receivables on an aggregate basis rather than a
Receivable-by-Receivable basis. If the IRS were to require that the calculations
be made separately for each Receivable, the issuer might be required to incur
additional expense, but it is believed that there would not be a material
adverse effect on certificateholders.
Discount and Premium. Except as otherwise provided in the related
prospectus supplement, it is believed that the Receivables were not issued with
OID, and, therefore, the issuer should not have OID income. However, the
purchase price paid by the issuer for the related Receivables may be greater or
less than the remaining principal balance of the Receivables at the time of
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purchase. If so, the Receivables will have been acquired at a premium or
discount, as the case may be. (As indicated above, the issuer will make this
calculation on an aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the issuer acquires the related Receivables at a market discount or
premium, it will elect to include that discount in income currently as it
accrues over the life of the Receivables or to offset the premium against
interest income on those Receivables. As indicated above, a portion of the
market discount income or premium deduction may be allocated to
certificateholders.
Section 708 Termination. Under Section 708 of the Code, the issuer will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the issuer are sold or exchanged within a
12-month period. Under applicable Treasury regulations, this kind of 50% or
greater transfer would cause a deemed contribution of the assets of the issuer
to a new partnership in exchange for interests in the issuer. These interests in
a new partnership would be deemed distributed to the partners of the issuer in
liquidation thereof, which would not constitute a sale or exchange. The issuer
will not comply with certain technical requirements that might apply when this
kind of constructive termination occurs. As a result, the issuer may be subject
to certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the issuer might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
With respect to noncorporate certificateholders, this capital gain or loss will
be short-term or long-term, depending on whether the certificate has been held
for
(1) 12 months or less, or
(2) more than 12 months, respectively.
Long-term capital gain tax rates are lower for noncorporate
certificateholders as compared with short-term capital gains, which are taxed at
ordinary income tax rates. A certificateholder's tax basis in a certificate will
generally equal the holder's cost increased by the holder's share of issuer
income (includible in income) and decreased by any distributions received with
respect to the certificate. In addition, both the tax basis in the certificates
and the amount realized on a sale of a certificate would include the holder's
share of the liabilities of the issuer. A holder acquiring certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in the certificates and, upon sale or other disposition of some of the
certificates, to allocate a portion of that aggregate tax basis to the
certificates sold (rather than maintaining a separate tax basis in each
certificate for purposes of computing gain or loss on a sale of that
certificate).
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the related Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The issuer does not expect to have any other assets that
would give rise to these special reporting requirements. Thus, to avoid these
special reporting requirements, the issuer will elect to include market discount
in income as it accrues.
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If a certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash distributions with respect thereto, this excess will generally give rise to
a capital loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the issuer's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates (or notional principal
amount, in the case of any Strip Securities) owned by them as of the close of
the last day of that month. As a result, a holder purchasing certificates may be
allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of this type of monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the issuer might be reallocated among the certificateholders. The retained
interest holder, acting as tax matters partner for the issuer, will be
authorized to revise the issuer's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
Section 754 Election. In the event that a certificateholder sells its
certificates at a profit (loss), the purchasing certificateholder will have a
higher (lower) basis in the certificates than the selling certificateholder had.
The tax basis of the issuer's assets will not be adjusted to reflect that higher
(or lower) basis unless the issuer were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the issuer will not make that election. As a
result, certificateholders might be allocated a greater or lesser amount of
issuer income than would be appropriate based on their own purchase price for
certificates.
Administrative Matters. The trustee is required to keep or have kept
complete and accurate books of the issuer. These books will be maintained for
financial reporting and tax purposes on an accrual basis, and the fiscal year of
the issuer is expected to be the calendar year. The trustee will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the issuer and will report each certificateholder's allocable share of
items of issuer income and expense to holders and the IRS on Schedule K-I. The
issuer will provide the Schedule K-l information to nominees that fail to
provide the issuer with the information statement described below and these
nominees will be required to forward that information to the beneficial owners
of the certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the issuer or be subject to
penalties unless the holder notifies the IRS of all the inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the issuer
with a statement containing certain information on the nominee, the beneficial
owners and the certificates so held. The information includes
(1) the name, address and taxpayer identification number of the nominee
and
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(2) as to each beneficial owner
(a) the name, address and identification number of that person,
(b) whether that person is a U.S. Person, a tax-exempt entity or a
foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing, and
(c) certain information on certificates that were held, bought or
sold on behalf of that person throughout the year.
In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the issuer information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Securities Exchange Act of 1934 is not required to
furnish the information statement to the issuer. The information referred to
above for any calendar year must be furnished to the issuer on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the issuer with the information described above may be subject to
penalties.
The retained interest holder will be designated as the tax matters partner
for each issuer in the related Trust Agreement and, as such, will be responsible
for representing the certificateholder in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the issuer by the appropriate taxing authorities could
result in an adjustment of the returns of the certificateholders, and, under
certain circumstances, a certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the issuer. An adjustment could
also result in an audit of a certificateholder's returns and adjustments of
items not related to the income and losses of the issuer.
Tax Consequences to Non-U.S. Certificateholders. Pursuant to a change in
the safe harbor provisions of Section 864(b)(2)(A) of the Code (applicable to
tax years beginning after December 31, 1997), certificateholders who are
Non-U.S. Persons will not be considered to be engaged in a trade or business in
the United States for purposes of federal withholding taxes with respect to
Non-U.S. Persons solely as a result of owning or trading certificates. As a
result, the issuer is not obligated to withhold on the portion of its taxable
income that is allocable to Non-U.S. Persons at regular graduated rates (35% for
Non-U.S. Persons that are taxable as corporations and 39.6% for all other
Non-U.S. Persons), unless those Non-U.S. Persons hold certificates in connection
with the conduct of a U.S. trade or business.
Interest allocable to a Non-U.S. Person that does not hold certificates in
connection with the conduct of a U.S. trade or business will not qualify for the
exemption for portfolio interest under Section 871(h) of the Code, because
underlying Receivables owned by the issuer are not in "registered form" as that
term is defined in applicable Treasury regulations. As a result, this Non-U.S.
Person who holds certificates will be subject to United States withholding tax
on interest or OID attributable to the underlying Receivables (whether or not
that amount is distributed) at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable treaty.
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Potential investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences of owning a certificate.
Backup Withholding. Distributions made on the certificates and proceeds
from the sale of the certificates will be subject to a "backup" withholding tax
of 3l% if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
ISSUERS TREATED AS GRANTOR TRUSTS
Tax Characterization of Grantor Trusts
The prospectus supplement may provide an opinion by Cadwalader, Wickersham
& Taft that the issuer will not be classified as an association taxable as a
corporation and that the issuer will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code (a "grantor trust fund"). In this
case, beneficial owners of grantor trust certificates will be treated for
federal income tax purposes as owners of a portion of the issuer's assets as
described below. The certificates issued by an issuer that is treated as a
grantor trust are referred to as grantor trust certificates. Grantor trust
certificates may either be "standard certificates" or "strip certificates" as
described below.
Standard Certificates. The holder of certificates representing the same
percentage of interest and principal payments in the Receivables with respect to
a series, referred to in this prospectus as "standard certificates," will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the issuer represented by the standard certificates and
will be considered the equitable owner of a pro rata undivided interest in each
of the Receivables in the issuer. Any amounts received by a standard
certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each standard certificateholder will be required to report on its federal
income tax return in accordance with that standard certificateholder's method of
accounting its pro rata share of the entire income from the Receivables in the
issuer represented by the standard certificates, including interest, OID, if
any, prepayment fees, assumption fees, any gain recognized upon an assumption
and late payment charges received by the servicer. Under Code Sections 162 or
212, each standard certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees and late payment
charges retained by the servicer, provided that the amounts are reasonable
compensation for services rendered to the issuer. Standard certificateholders
that are individuals, estates or trusts will be entitled to deduct their share
of expenses only to the extent those expenses plus all other miscellaneous
itemized deductions exceed two percent of their respective adjusted gross
incomes. Such expenses are not deductible at all for purposes of computing the
alternative minimum tax, which may expose such holders to significant additional
tax liability. A standard certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the servicer. A standard certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the servicer, whichever is
earlier. If the servicing fees paid to the servicer are deemed to exceed
reasonable servicing compensation, the amount of the excess could be
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considered as an ownership interest retained by the servicer (or any person to
whom the servicer assigned for value all or a portion of the servicing fees) in
a portion of the interest payments on the Receivables. The Receivables would
then be subject to the "coupon stripping" rules of the Code discussed below.
Original Issue Discount. Except as discussed below with respect to strip
certificates or as otherwise discussed in the applicable prospectus supplement,
it is not anticipated that the receivables or the standard certificates will be
issued with original issue discount ("OID") for federal income tax purposes.
Market Discount. A standard certificateholder that acquires an undivided
interest in Receivables may be subject to the market discount rules of Sections
1276 through 1278 to the extent an undivided interest in a Receivable is
considered to have been purchased at a "market discount." Generally, the amount
of market discount is equal to the excess of the portion of the principal amount
of the Receivable allocable to the holder's undivided interest over the holder's
tax basis in that interest. Market discount with respect to a standard
certificate will be considered to be zero if the amount allocable to the
standard certificate is less than 0.25% of the standard certificate's stated
redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Section 1276 and
1278. The IRS may require you to compute market discount on a
Receivable-by-Receivable basis, based on the allocation of your purchase price
among the Receivables based on their fair market values. However, we will not
furnish information to you on a Receivable-by-Receivable basis. Accordingly, if
you compute premium amortization on an aggregate basis, you may be required by
the IRS to recompute the premium on a Receivable-by-Receivable basis.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain or disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of the payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or in an amount, for each accrual period, equal to the
product of
(1) the total remaining market discount and
(2) a fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the beginning
of the accrual period.
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For purposes of calculating market discount under any of the above methods
in the case of instruments (such as the standard certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing those instruments, a prepayment assumption will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a standard
certificate purchased at a discount or premium in the secondary market.
A holder who acquired a standard certificate at a market discount also may
be required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry the
standard certificate purchased with market discount. For these purposes, the de
minimis rule referred to above applies. This deferred interest expense would not
exceed the market discount that accrues during that taxable year and is, in
general, allowed as a deduction not later than the year in which the market
discount is includible in income. If the holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by that holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Premium. The price paid for a standard certificate by a holder will be
allocated to that holder's undivided interest in each Receivable based on each
Receivable's relative fair market value, so that the holder's undivided interest
in each Receivable will have its own tax basis. A standard certificateholder
that acquires an interest in Receivables at a premium may elect to amortize the
premium under a constant interest method. Amortizable bond premium will be
treated as an offset to interest income on the standard certificate. The basis
for the standard certificate will be reduced to the extent that amortizable
premium is applied to offset interest payments. We cannot tell you whether a
reasonable prepayment assumption should be used in computing amortization of
premium allowable under Section 171 of the Code. A standard certificateholder
that makes this election for a standard certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that the
standard certificateholder acquires during the year of the election or
thereafter. We will not furnish information to you on a Receivable-by-Receivable
basis. Accordingly, if you compute premium amortization on an aggregate basis,
the IRS may require you to recompute the premium.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a standard certificate acquired at a premium should
recognize a loss if a Receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of the Receivable that is
allocable to the standard certificate and the portion of the adjusted basis of
the standard certificate that is allocable to that Receivable. If a reasonable
prepayment assumption is used to amortize the premium, it appears that that type
of loss would be available, if at all, only if prepayments have occurred at a
rate faster than the reasonable assumed prepayment rate. It is not clear whether
any other adjustments would be required to reflect differences between an
assumed prepayment rate and the actual rate of prepayments.
Election to Treat All Interest as OID. The OID regulations permit a
standard certificateholder to elect to accrue all interest, discount (including
de minimis market discount or OID) and premium in income as interest, based on a
constant yield method. If that kind of election were to be made with respect to
a standard certificate with market discount, the standard certificateholder
would be deemed to have made an election to include in income currently
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market discount with respect to all other debt instruments having market
discount that the standard certificateholder acquires during the year of the
election or thereafter. Similarly, a standard certificateholder that makes this
election for a standard certificate that is acquired at a premium will be deemed
to have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that the standard certificateholder
owns or acquires. See "--Premium" above. The election to accrue interest,
discount and premium on a constant yield method with respect to a standard
certificate is irrevocable.
Sale or Exchange of a Standard Certificate. Sale or exchange of a standard
certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the owner's adjusted basis
in the standard certificate. This adjusted basis generally will equal the
seller's purchase price for the standard certificate, increased by the OID and
any market discount included in the seller's gross income with respect to the
standard certificate, and reduced by any market premium amortized by the seller
and by principal payments on the standard certificate previously received by the
seller. This gain or loss will be capital gain or loss to an owner for which a
standard certificate is a "capital asset" within the meaning of Section 1221 of
the Code (except in the case of gain attributable to accrued market discount, as
noted above under "--Market Discount") and, with respect to noncorporate owners,
will be short-term or long-term, depending on whether the standard certificate
has been held for 12 months or less, or more than 12 months, respectively.
(Long-term capital gain tax rates are less than short-term capital gains rates
for individuals, which are taxed at ordinary income tax rates.)
Standard certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a standard certificate by a bank or a thrift institution to which
that section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Interest or OID paid to Non-U.S. Persons who own standard
certificates will be treated as "portfolio interest" for purposes of United
States withholding tax. That interest (including OID, if any) attributable to
the underlying Receivables will not be subject to the normal 30% (or any lower
rate provided for by an applicable tax treaty) withholding tax imposed on those
amounts provided that
(1) the Non-U.S. Person is not a "10% shareholder" (within the definition
of Section 871(h)(3)) of any obligor on the Receivables; and is not a
controlled foreign corporation (within the definition of Section 957)
related to any obligor on the Receivables and
(2) that certificateholder fulfills certain certification requirements.
Under these requirements, the certificateholder must certify, under penalty
of perjury, that it is not a U.S. Person and must provide its name and address.
If, however, the interest or gain is effectively connected to the conduct of a
trade or business within the U.S. by that certificateholder, that owner will be
subject to U.S. federal income tax thereon at graduated rates. Potential
investors who are not U.S. Persons should consult their own tax advisors
regarding the specific tax consequences of owning a certificate.
Information Reporting and Backup Withholding. The servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a standard certificateholder at any time during that year,
any information that servicer deems necessary or
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desirable to assist standard certificateholders in preparing their federal
income tax returns, or to enable holders to make that information available to
beneficial owners or financial intermediaries that hold standard certificates as
nominees on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a beneficial
owner fails to supply a certified taxpayer identification number or if the
Secretary of the Treasury determines that the person has not reported all
interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against the recipient's federal income tax liability.
Strip Certificates
General. Strip Certificates are subject to the rules of Code Section 1286,
under which the separation of ownership of the right to receive some or all of
the principal payments on an obligation from ownership of the right to receive
some or all of the interest payments results in the creation of "stripped bonds"
with respect to principal payments and "stripped coupons" with respect to
interest payments. The securities will be subject to those rules if:
(1) the depositor or any of its affiliates is treated as having an
ownership interest in the Receivables to the extent it is paid or retains
servicing compensation in an amount greater than reasonable consideration for
servicing the Contracts, or
(2) securities are issued in two or more classes or subclasses representing
the right to non-pro-rata percentages of the interest and principal payments on
the Receivables.
In general, a holder of a Strip Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Receivable and/or "stripped coupons" with respect to
its pro rata share of all or a portion of the interest payments on each
Receivable, including the Strip Certificate's allocable share of the servicing
fees paid to a servicer, to the extent that those fees represent reasonable
compensation for services rendered. Although not free from doubt, for purposes
of reporting to holders of Strip Certificates, the servicing fees will be
allocated to the classes of Strip Certificates in proportion to the
distributions to the classes for the related period or periods. The holder of a
Strip Certificate generally will be entitled to a deduction each year in respect
of the servicing fees, as described above under "--Standard
Securities--General," subject to the limitation described in that section.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued on the date that the stripped interest is purchased.
Although the treatment of Strip Certificates for federal income tax purposes is
not clear in certain respects, particularly where Strip Certificates are issued
with respect to a pool of Receivables containing variable-rate Receivables, the
depositor has been advised by Cadwalader, Wickersham & Taft that:
(1) The issuer will be treated as a grantor trust under subpart E, Part I
of subchapter J of the Code and not as an association or publicly traded
partnership taxable as a corporation and
(2) each Strip Certificate should be treated as a single installment
obligation for purposes of calculating OID and gain or loss on disposition.
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This treatment is based on the interrelationship of Code Section 1286, Code
Sections 1272 through 1275, and the OID regulations. Although it is possible
that computations with respect to Strip Certificates could be made in one of the
ways described below under "--Possible Alternative Characterization," the OID
regulations state, in general, that two or more debt instruments issued by a
single issuer to a single investor in a single transaction should be treated as
a single debt instrument. Accordingly, for OID purposes, all payments on any
Strip Certificates should be aggregated and treated as though they were made on
a single debt instrument. The applicable agreement will require that the trustee
make and report all computations described below using this aggregate approach,
unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations provide for treatment of a Strip
Certificate as a single debt instrument issued on the date it is purchased for
purposes of calculating any OID. In addition, under those regulations, a Strip
Certificate that represents a right to payments of both interest and principal
may be viewed either as issued with OID or market discount, as described below,
at a de minimis, or, presumably, at a premium. This treatment indicates that the
interest component of a Strip Certificate of this type would be treated as
qualified stated interest under the OID Regulations (reportable as interest
under the cash or accrual method, as the case may be), assuming it is not an
interest-only Strip Certificate. Further, these regulations provide that the
purchaser of a Strip Certificate will be required to account for any discount as
market discount rather than OID if either:
(1) the initial discount with respect to the Stripped Certificate was
treated as zero under the de minimis rule, or
(2) no more than 100 basis points in excess of reasonable servicing is
stripped off the related Receivables. Any market discount would be reportable as
described above under "Standard Certificates--Market Discount," without regard
to the de minimis rule described in this prospectus, assuming that a prepayment
assumption is employed in that computation
Taxation of Strip Certificates. Except as described above under
"--General," each Strip Certificate will be considered to have been issued with
OID for federal income tax purposes. OID with respect to a Strip Certificate
must be included in ordinary income as it accrues, in accordance with a constant
yield method that takes into account the compounding of interest, which may be
prior to the receipt of the cash attributable to that income. For Receivables
that are prepayable, such accrual will likely employ a prepayment assumption.
With the apparent exception of a Strip Certificate qualifying as a market
discount obligation as described above under "--General," the issue price of a
Strip Certificate will be the purchase price paid by each holder of the Strip
Certificate. The stated redemption price at maturity will include the aggregate
amount of the payments to be made on the Strip Certificate to the holder of
securities, presumably under the prepayment assumption, other than qualified
stated interest.
If the Receivables prepay at a rate either faster or slower than under the
applicable prepayment assumption, a holder's recognition of OID will be either
accelerated or decelerated and the amount of the OID will be either increased or
decreased depending on the relative interests in principal and interest on each
Receivable represented by the holder's Strip Certificate. While the matter is
not free from doubt, the holder of a Strip Certificate should be entitled in the
year that it becomes certain, assuming no further prepayments, that the holder
will
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not recover a portion of its adjusted basis in that Strip Certificate to
recognize a loss, which may be a capital loss, equal to that portion of
unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Strip Certificates will not be made
if the Receivables are prepaid could lead to the interpretation that those
interest payments are "contingent" within the meaning of the OID regulations.
The OID regulations, as they relate to the treatment of contingent interest, are
by their terms not applicable to repayable securities. However, if final
regulations dealing with contingent interest with respect to the Strip
Certificates apply the same principles as the OID regulations, those regulations
may lead to different timing of income inclusion than would be the case under
the OID regulations. Furthermore, application of those principles could lead to
the characterization of gain on the sale of contingent interest Strip
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Strip Certificates.
Sale or Exchange of Strip Certificates. Sale or exchange of a Strip
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the holder's adjusted basis
in that Strip Certificate, as described above under "Standard Certificates--Sale
or Exchange of a Standard Certificate." To the extent that a subsequent
purchaser's purchase price is exceeded by the remaining payments on the Strip
Certificates, the subsequent purchaser will be required for federal income tax
purposes to accrue and report the excess as if it were OID in the manner
described above. It is not clear for this purpose whether the assumed prepayment
rate that is to be used in the case of a holder of securities other than an
original holder of securities should be the original prepayment assumption or a
new rate based on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Strip Certificates. When an investor
purchases more than one class of Strip Certificates, it is currently unclear
whether for federal income tax purposes the classes of Strip Certificates should
be treated separately or aggregated for purposes of the rules described above.
Possible Alternative Characterization. The characterizations of the Strip
Certificates discussed above are not the only possible interpretations of the
applicable Code provisions. For example, the holder of securities may be treated
as the owner of:
(1) one installment obligation consisting of the Strip Certificate's pro
rata share of the payments attributable to principal on each Receivable and a
second installment obligation consisting of the respective Strip Certificate's
pro rata share of the payments attributable to interest on each Receivable,
(2) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each Receivable, or
(3) a separate installment obligation for each Receivable, representing the
Strip Certificate's pro rata share of payments of principal and/or interest to
be made with respect to that Strip Certificate.
Alternatively, the holder of one or more classes of Strip Certificates may
be treated as the owner of a pro rata fractional undivided interest in each
Receivable to the extent that the related
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Strip Certificate, or classes of Strip Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each Receivable, and a
stripped bond or stripped coupon, as the case may be, treated as an installment
obligation or contingent payment obligation, as to the remainder. Treasury
regulations regarding OID on stripped obligations make the foregoing
interpretations less likely to be applicable. The preamble to these regulations
states that they are premised on the assumption that an aggregation approach is
appropriate for determining whether OID on a stripped bond or stripped coupon is
de minimis, and solicits comments on appropriate rules for aggregating stripped
bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Strip Certificates
and the resultant differing treatment of income recognition, holders of
securities are urged to consult their own tax advisors regarding the proper
treatment of Strip Certificates for federal income tax purposes.
Information Reporting and Backup Withholding. The trustee will furnish,
within a reasonable time after the end of each calendar year, to each holder of
Strip Certificates at any time during that calendar year, information, prepared
on the basis described above, as is necessary to enable the holder of those
Strip Certificates to prepare its federal income tax returns. The information
will include the amount of OID accrued on Strip Certificates held by persons
other than holders exempted from the reporting requirements. However, the amount
required to be reported by the trustee may not be equal to the proper amount of
OID required to be reported as taxable income by a holder of Strip Certificates
other than an original holder that purchased at the issue price. In particular,
in the case of Strip Certificates, the reporting will be based on a
representative initial offering price of each class of Strip Certificates or a
price as set forth in the related prospectus supplement. The trustee will also
file OID information with the IRS. If a holder of securities fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a holder of securities has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "Standard Certificates--Information Reporting and Backup
Withholding."
Non-U.S. Persons. To the extent that a Strip Certificate evidences
ownership in Receivables that are issued on or before July 18, 1984, interest or
OID paid by the person required to withhold tax under Code Section 1441 or 1442
to nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or any lower rate as may
be provided for interest by an applicable tax treaty. Accrued OID recognized by
the holder of Strip Certificates on a sale or exchange also will be subject to
federal income tax at the same rate.
Treasury regulations provide that interest or OID paid by the trustee or
other withholding agent to a Non-U.S. Person evidencing ownership interest in
mortgage loans issued after July 18, 1984 will be "portfolio interest" and will
be treated in the manner, and these persons will be subject to the same
certification requirements, described above under "Standard
Certificates--Non-U.S. Persons."
* * *
The federal tax discussion set forth above is included for general
information only and may not be applicable to your particular tax situation. We
suggest that you consult your own tax
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advisor with respect to the tax consequences of the purchase, ownership and
disposition of securities, including the tax consequences under state, local and
foreign and other tax laws and the possible effects of changes in federal or
other tax laws.
ERISA CONSIDERATIONS
GENERAL
ERISA and Section 4975 of the Code impose certain requirements on those
employee benefit plans and arrangements to which they apply and on those persons
who are fiduciaries with respect to the employee benefit plans and arrangements.
The following is a general discussion of the requirements, and certain
applicable exceptions to and administrative exemptions from the requirements.
For purposes of this discussion, an IRA is an ERISA Plan if the IRA is endorsed
by or contributed to by the IRA participant's employer or employee organization.
Other IRAs and Non-ERISA Plans are not considered ERISA Plans, but the Non-ERISA
Plans are subject to ERISA-like requirements as well as the prohibited
transaction provisions of the Code. Exempt Plans are exempt from the provisions
of Title I of ERISA and the prohibited transaction provisions of the Code.
Accordingly, Exempt Plans also are not considered ERISA Plans, but the Exempt
Plans may be subject to the provisions and special requirements of other
applicable federal, state and local law.
Before purchasing any certificates, an ERISA Plan fiduciary should consult
with its counsel and determine whether there exists any prohibition to the
purchase under the requirements of ERISA or the Code, whether prohibited
transaction exemptions such as PTE 83-1 or any individual administrative
exemption applies, including whether the appropriate conditions set forth there
would be met, or whether any statutory prohibited transaction exemption is
applicable, and further should consult the applicable prospectus supplement
relating to the series of certificates.
CERTAIN REQUIREMENTS UNDER ERISA AND THE CODE
General
In accordance with ERISA's general fiduciary standards, before investing in
a certificate, an ERISA Plan fiduciary should determine whether to do so is
permitted under the governing ERISA Plan instruments and is appropriate for the
ERISA Plan in view of its overall investment policy and the composition and
diversification of its portfolio. An ERISA Plan fiduciary should especially
consider the ERISA requirement of investment prudence and the sensitivity of the
return on the certificates to the rate of principal repayments, including
prepayments on a Contract, as discussed in "The Receivables--Maturity and
Prepayment Considerations" in this prospectus.
Parties in Interest/Disqualified Persons
Other provisions of ERISA, and corresponding provisions of the Code,
prohibit certain transactions involving the assets of an ERISA Plan and persons
who have certain specified relationships to the ERISA Plan, so-called "parties
in interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code. The depositor, the master servicer or the
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trustee or certain affiliates of these parties might be considered or might
become "parties in interest" or "disqualified persons" with respect to an ERISA
Plan. If so, the acquisition or holding of certificates by or on behalf of ERISA
Plan could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an administrative exemption described below
or some other exemption is available.
Special caution should be exercised before the assets of an ERISA Plan,
including assets that may be held in an insurance company's separate or general
accounts where assets in the accounts may be deemed plan assets for purposes of
ERISA, are used to purchase a certificate if, with respect these assets, the
depositor, the master servicer or the trustee or an affiliate of these parties
either:
o has investment discretion with respect to the investment of the assets of
the ERISA Plan; or
o has authority or responsibility to give, or regularly gives,
investment advice with respect to the assets for a fee and under an
agreement or understanding that the advice will serve as a primary
basis for investment decisions with respect to the assets and that the
advice will be based on the particular investment needs of the ERISA
Plan.
Delegation of Fiduciary Duty
Further, if the assets included in a trust fund were deemed to constitute
assets of an ERISA Plan, it is possible that an ERISA Plan's investment in the
certificates might be deemed to constitute a delegation, under ERISA, of the
duty to manage plan assets by the fiduciary deciding to invest in the
certificates, and certain transactions involved in the operation of the trust
estate might be deemed to constitute prohibited transactions under ERISA and the
Code. Neither ERISA nor the Code define the term "plan assets."
The U.S. Department of Labor has issued regulations concerning whether or
not an ERISA Plan's assets would be deemed to include an interest in the
underlying assets of an entity, such as a trust estate, for purposes of the
reporting and disclosure and general fiduciary responsibility provisions of
ERISA, as well as for the prohibited transaction provisions of ERISA and the
Code, if the ERISA Plan acquires an "equity interest", such as a Certificate, in
this type entity.
Certain exceptions are provided in the Department of Labor regulations
whereby an investing ERISA Plan's assets would be deemed merely to include its
interest in the certificates instead of being deemed to include an interest in
the assets of a trust fund. However, it cannot be predicted in advance nor can
there be any continuing assurance whether the exceptions may be met, because of
the factual nature of certain of the rules set forth in the regulations. For
example, one of the exceptions in the regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of the
value of all classes of equity interests are held by "benefit plan investors,"
which term is defined to include ERISA Plans, Non-ERISA Plans and Exempt Plans
and any entity whose assets include "plan assets" by reason of benefit plan
investments in the entity, but this exception is tested immediately after each
acquisition of an equity interest in the entity whether upon initial issuance or
in the secondary market.
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Applicability to Non-ERISA Plans
Since Non-ERISA Plans are subject to the prohibited transaction provisions
of the Code, the discussion above with respect to "disqualified persons,"
prohibited transactions, delegation of fiduciary duty and plan assets applies to
Non-ERISA Plans as well as ERISA Plans. However, the administrative exemptions
discussed below are not applicable to Non-ERISA Plans.
NON-ERISA PLANS AND EXEMPT PLANS
Although Non-ERISA Plans and Exempt Plans are not considered ERISA Plans
for purposes of the above discussion, Non-ERISA Plans are subject to the
prohibited transaction provisions of the Code, and both Non-ERISA Plans and
Exempt Plans may be subject to certain other ERISA-like requirements of
applicable law. Therefore, before purchasing any certificates by or on behalf of
a Non-ERISA Plan or any Exempt Plan, the prospective purchaser should exercise
special caution and should consult with its legal counsel concerning the
propriety and implications of the investment under the Code or other applicable
law.
UNRELATED BUSINESS TAXABLE INCOME--RESIDUAL CERTIFICATES
The purchase of a residual certificate by an IRA or any employee benefit
plan qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of Benefit Plans, may give rise to
"unrelated business taxable income" as described in Code Sections 511 through
515 and 860E. Further, prior to the purchase of residual certificates, a
prospective transferee may be required to provide an affidavit to a transferor
that it is not, nor is it purchasing a residual certificate on behalf of, a
Disqualified Organization. In addition, prior to the transfer of a residual
certificate, the trustee or the depositor may require an opinion of counsel to
the effect that the transferee is not a Disqualified Organization and that the
transfer will not subject the trustee, the depositor, the master servicer or any
servicer to additional obligations imposed by ERISA or the Code.
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSED UPON PERSONS
INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT POTENTIAL
INVESTORS WHO ARE ACTING ON BEHALF OF A BENEFIT PLAN OR ANY OTHER EMPLOYEE
BENEFIT PLAN OR ARRANGEMENT CONSULT WITH THEIR COUNSEL REGARDING THE
CONSEQUENCES UNDER ERISA, THE CODE OR OTHER APPLICABLE LAW OF THEIR ACQUISITION
AND OWNERSHIP OF CERTIFICATES.
THE SALE OF CERTIFICATES TO A BENEFIT PLAN OR ANY OTHER EMPLOYEE BENEFIT
PLAN OR ARRANGEMENT IS IN NO RESPECT A REPRESENTATION BY THE DEPOSITOR OR THE
APPLICABLE UNDERWRITER THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL
REQUIREMENTS WITH RESPECT TO INVESTMENTS BY EMPLOYEE BENEFIT PLANS GENERALLY OR
ANY PARTICULAR PLAN OR ARRANGEMENT, OR THAT THIS INVESTMENT IS APPROPRIATE FOR
EMPLOYEE BENEFIT PLANS GENERALLY OR ANY PARTICULAR PLAN OR ARRANGEMENT.
METHODS OF DISTRIBUTION
The securities offered by this prospectus and by the supplements to this
prospectus will be offered in series. The distribution of the securities may be
effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
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prices to be determined at the time of sale or at the time of commitment for a
sale. The related prospectus supplement will specify whether the securities will
be distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by PaineWebber Incorporated acting as
underwriter with other underwriters, if any, named in the related underwriting
agreement. If it is a firm commitment underwriting, the related prospectus
supplement may also specify that the underwriters will not be obligated to pay
for any securities agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the depositor. In connection with the sale of the
securities, underwriters may receive compensation from the depositor or from
purchasers of the securities in the form of discounts, concessions or
commissions. The related prospectus supplement will describe any compensation
paid by the depositor to the underwriters.
Alternatively, the related prospectus supplement may specify that the
securities will be distributed by PaineWebber Incorporated acting as agent or in
some cases as principal with respect to securities which it has previously
purchased or agreed to purchase. If PaineWebber Incorporated acts as agent in
the sale of securities, PaineWebber Incorporated will receive a selling
commission with respect to each series of securities, depending on market
conditions, expressed as a percentage of the aggregate principal balance of the
related residential loans as of the cut-off date. The exact percentage for each
series of securities will be disclosed in the related prospectus supplement. To
the extent that PaineWebber Incorporated elects to purchase securities as
principal, PaineWebber Incorporated may realize losses or profits based on the
difference between its purchase price and the sales price. The prospectus
supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of the offering and any agreements
to be entered into between the depositor and purchasers of securities of the
related series.
The depositor will indemnify PaineWebber Incorporated and any underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or will contribute to payments PaineWebber Incorporated and any
underwriters may be required to make in respect of any liability.
The related prospectus supplement relating to securities of a particular
series offered by this prospectus will specify whether the depositor or any
other person or persons specified in the prospectus supplement may purchase some
or all of the securities from the underwriter or underwriters or other person or
persons specified in the related prospectus supplement. A purchaser may
thereafter from time to time offer and sell, pursuant to this prospectus and the
related prospectus supplement, some or all of the securities so purchased,
directly, through one or more underwriters to be designated at the time of the
offering of these securities, through dealers acting as agent and/or principal
or in any other manner as may be specified in the related prospectus supplement.
The related offering may be restricted in the manner specified in the related
prospectus supplement. The related transactions may be effected at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices. Any
underwriters and dealers participating in the purchaser's offering of the
related securities may receive compensation in the form of underwriting
discounts or commissions from a purchaser and dealers may receive commissions
from the investors purchasing the related securities for whom they may act as
agent. The discounts or commissions will not exceed those customary in those
types of transactions involved. Any dealer that participates in the distribution
of the related
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securities may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933. Any commissions and discounts received by a dealer and
any profit on the resale or the securities by that dealer might be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.
In the ordinary course of business, PaineWebber Incorporated and the
depositor, or their affiliates, may engage in various securities and financing
transactions. These financing transactions include repurchase agreements to
provide interim financing of the depositor's residential loans pending the sale
of residential loans or interests in residential loans, including the
securities.
The depositor anticipates that the securities will be sold primarily to
institutional investors. Purchasers of securities, including dealers, may,
depending on the facts and circumstances of the related purchases, be deemed to
be "underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of securities. Holders of securities should
consult with their legal advisors in this regard prior to any reoffer or sale.
As to each series of securities, only those classes rated in one of the
four highest rating categories by any rating agency will be offered by this
prospectus. Any unrated class may be initially retained by the depositor, and
may be sold by the depositor at any time to one or more institutional investors.
If required by applicable law or regulation, this prospectus will be used
by PaineWebber Incorporated, our affiliate, in connection with offers and sales
related to market-making transactions in the securities previously offered by
this prospectus in transactions in which PaineWebber Incorporated acts as
principal. PaineWebber Incorporated may also act as agent in those transactions.
Sales may be made at negotiated prices determined at the time of sale.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of securities offered by this prospectus, there
are incorporated in this prospectus and in the related prospectus supplement by
reference all documents and reports filed by the depositor as required by
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 that
specifically concern the related series of securities. We will provide or cause
to be provided a copy of any or all reports incorporated in this prospectus by
reference without charge to each person to whom this prospectus and a related
prospectus supplement is delivered in connection with the offering of one or
more classes of series of securities, if they request it orally or in writing.
We will provide these reports only to the extent the reports relate to one or
more of classes of the related series of securities, and without the exhibits to
these documents, unless the exhibits are specifically incorporated by reference
in these documents. Requests should be directed in writing to PaineWebber Asset
Acceptance Corporation, 1285 Avenue of the Americas, New York, New York 10019,
Attention: General Counsel, or by telephone at (212) 713-2000.
We filed a registration statement relating to the securities with the SEC.
This prospectus is part of the registration statement, but the registration
statement includes additional information.
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Copies of the registration statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549, if payment of the
prescribed charges is made, or may be examined free of charge at the SEC's
offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at the regional
offices of the Commission located at Suite 1300, 7 World Trade Center, New York,
New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. The SEC also maintains a site on the World Wide
Web at "http://www.sec.gov" at which you can view and download copies of
reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering, Analysis and Retrieval --
EDGAR -- system. The depositor filed the registration statement, including all
exhibits to the registration statement, through the EDGAR system and therefore
these materials should be available by logging on to the SEC's Web site. The SEC
maintains computer terminals providing access to the EDGAR system at each of the
offices referred to above.
LEGAL MATTERS
The validity of the securities and certain federal income tax matters in
connection with the securities will be passed on for the depositor by
Cadwalader, Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A trust fund will be formed with respect to each series of securities and no
trust fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of securities. The
depositor's activities will be limited solely to the activities of trust funds
to be formed with respect to each series of securities. Accordingly, no
financial statements with respect to any trust fund will be included in this
prospectus or in the related prospectus supplement.
A prospectus supplement may contain the financial statements of the related
credit enhancer, if any.
ADDITIONAL INFORMATION
This prospectus, together with the prospectus supplement for each series of
securities, contains a summary of the material terms of the applicable exhibits
to the registration statement and the documents referred to in this prospectus
and in the registration statement. Copies of the exhibits are on file at the
offices of the Securities and Exchange Commission in Washington, D.C., and may
be obtained at rates prescribed by the Commission upon request to the Commission
and may be inspected, without charge, at the Commission's offices.
RATING
It will be a condition to the issuance of the securities of each series
offered by this prospectus and by the related prospectus supplement that they
shall have been rated in one of the four highest rating categories by the
nationally recognized statistical rating agency or agencies specified in the
related prospectus supplement.
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Any rating would be based on, among other things, the adequacy of the value
of the assets of the trust fund and any credit enhancement with respect to the
related class. A rating will reflect the specified Rating Agency's assessment
solely of the likelihood that holders of a class of securities of the related
class will receive payments to which holders of securities are entitled by their
terms. The rating will not constitute
(1) an assessment of the likelihood that principal prepayments on the
related residential loans will be made,
(2) the degree to which the rate of prepayments might differ from that
originally anticipated or
(3) the likelihood of early optional termination of the series of
securities. The rating should not be deemed a recommendation to purchase, hold
or sell securities, inasmuch as it does not address market price or suitability
for a particular investor.
The rating will not address the possibility that prepayment at higher or
lower rates than anticipated by an investor may cause the investor to experience
a lower than anticipated yield. The rating will not address that an investor
purchasing a security at a significant premium might fail to recoup its initial
investment under certain prepayment scenarios.
We cannot assure you that any rating will remain in effect for any given
period of time or that it may not be lowered or withdrawn entirely by the rating
agency in the future if in its judgment circumstances in the future so warrant.
A rating may be lowered or withdrawn due to any erosion in the adequacy of the
value of the assets of the trust fund or any credit enhancement with respect to
a series. The rating might also be lowered or withdrawn among other reasons,
because of an adverse change in the financial or other condition of a credit
enhancement provider or a change in the rating of the credit enhancement
provider's long term debt.
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GLOSSARY OF TERMS
"ACCRUAL SECURITIES" are one or more classes of fixed income securities as
to which a portion of the accrued interest will not be distributed but rather
will be added to the principal balance, or nominal balance in the case of
Accrual Securities which are also Strip Securities, of those classes of fixed
income securities on each payment date.
"BENEFIT PLANS" are Exempt Plans, ERISA Plans and Non-ERISA Plans referred
to collectively.
"CHATTEL PAPER" has the meaning in the Uniform Commercial Code which
generally means a record that evidences both a monetary obligation and a
security interest in specific goods, a security interest in specific goods and
software used in the goods, or a lease of specific goods. The term does not
include charters or other contracts involving the use or hire of a vessel. If a
transaction is evidenced both by a security agreement or lease and by an
instrument or series of instruments, the group of records taken together
constitutes chattel paper.
"CLEARSTREAM" Clearstream Banking, societe anonyme.
"CLEARSTREAM PARTICIPANTS" are participating organizations for which
Clearstream holds securities.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACTS" with respect to each trust fund are any combination of finance
leases or installment sale or loan contracts or participation interests in the
leases or contracts, together with all related monies.
"COOPERATIVE" is the Euroclear Clearance System, S.C., a Belgian
cooperative corporation.
"DEFINITIVE SECURITY" is a physical certificate representing a security
issued in the name of the beneficial owner of the security rather than DTC.
"DISQUALIFIED ORGANIZATION" means the United States, any state or political
subdivision of the United States, any foreign government, any international
organization, any agency or instrumentality of any of those bodies, provided
that the term does not include an instrumentality if all of its activities are
subject to tax and a majority of its board of directors is not selected by these
governmental entities, any cooperative organization furnishing electric energy
or providing telephone service to persons in rural areas as described in Code
Section 1381(a)(2)(C), and any organization, other than a farmers' cooperative
described in Code Section 521, that is exempt from taxation under the Code
unless that organization is subject to the tax on unrelated business income
imposed by Code Section 511.
"EQUIPMENT" is the equipment and related property that is being financed or
leased under a Contract, together with the related proceeds.
"ERISA PLANS" are retirement plans and other employee benefit plans and
arrangements, including individual retirement accounts and annuities and Keogh
plans, which are subject to
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ERISA, and bank collective investment funds and insurance company general and
separate accounts in which the plans, accounts or arrangements are invested.
"EUROCLEAR" the Euroclear System.
"EUROCLEAR OPERATOR" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System.
"EUROCLEAR PARTICIPANTS" are participating organizations for which
Euroclear holds securities.
"EXEMPT PLANS" are employee benefit plans that are governmental plans, (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA).
"FASIT" is a financial asset securitization investment trust.
"INSOLVENCY EVENT" is financial insolvency, bankruptcy, readjustment of
debt, marshaling of assets and liabilities, or similar proceedings with respect
to the servicer or the related Receivables seller and actions by the servicer or
the related Receivables seller indicating its insolvency, reorganization under
bankruptcy proceedings, or inability to pay its obligations.
"NON-ERISA PLANS" include IRAs that are not endorsed by or contributed to
by the IRA participant's employer or employee organization and certain employee
benefit plans covering only self-employed individuals.
"NON-U.S. PERSON" is a person who is not a U.S. Person.
"OID" is original issue discount.
"OID REGULATIONS" are Treasury regulations relating to OID.
"PARTICIPANTS" are participating organizations through which a
securityholder can hold its book-entry security.
"RECEIVABLES" are the Equipment and Contracts included in each trust fund.
"RECEIVABLES ACQUISITION AGREEMENT" the agreement between the Receivables
seller and the depositor under which the Receivables will be acquired by the
depositor from the related Receivables seller.
"STRIP CERTIFICATES" means securities subject to Code Section 1286, under
which the separation of ownership of the right to receive some or all of the
principal payments on an obligation from ownership of the right to receive some
or all of the interest payments results in the creation of "stripped bonds" with
respect to principal payments and "stripped coupons" with respect to interest
payments.
"STRIP SECURITIES" are one or more classes of fixed income securities
entitled to:
(1) principal distributions, with disproportionate, nominal or no interest
distributions; or
(2) interest distributions, with disproportionate, nominal or no principal
distributions.
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"TRUST AGREEMENT" as used with respect to a trust means any and all
agreements relating to the establishment of the related trust, the servicing of
the related Receivables and the issuance of the related securities, including an
indenture and a pooling and servicing agreement.
"UCC" means the Uniform Commercial Code.
"U.S. PERSON" means a citizen or resident of the United States, a
corporation, partnership (except as provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States,
any state or the District of Columbia, including an entity treated as a
corporation or partnership for U.S. federal income tax purposes, an estate that
is subject to U.S. federal income tax regardless of the source of its income or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more of those U.S.
Persons have the authority to control all substantial decisions of the trust
(or, to the extent provided in applicable Treasury regulations, certain trusts
in existence on August 20, 1996, which are eligible to elect to be treated as
U.S. Persons).
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until we deliver a final prospectus and prospectus
supplement. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
SUBJECT TO COMPLETION, DATED JULY 17, 2000
PROSPECTUS
______________, 2000
PAINEWEBBER ASSET ACCEPTANCE CORPORATION,
Depositor
ASSET-BACKED SECURITIES
(Issuable in Series)
PaineWebber Asset Acceptance Corporation from time to time will offer
asset-backed certificates or asset-backed notes. We will offer the certificates
or notes through this prospectus and a separate prospectus supplement for each
series.
For each series we will establish a trust fund consisting primarily of any
combination of retail installment sale and installment loan contracts on new or
used automobiles, light duty trucks, motorcycles, recreational vehicles, and
claims on related insurance policies.
Each trust fund may also include a security interest in the assets underlying
the receivables and any related property and proceeds.
The certificates of a series will represent beneficial ownership interests in
the trust fund. The notes of a series will represent indebtedness of the trust
fund. The certificates or notes of a series may be divided into two or more
classes which may have different interest rates and which may receive principal
payments in differing proportions and at different times. In addition, the
rights of certain holders of classes may be subordinate to the rights of holders
of other classes to receive principal and interest.
--------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 12 IN THIS
PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
The securities will not represent obligations of PaineWebber Asset Acceptance
Corporation or any of its affiliates. No governmental agency will insure the
securities or the receivables backing the securities.
We suggest that you consult with your own advisors to determine if the
offered securities are appropriate investments for you and to determine the
applicable legal, tax, regulatory and accounting treatment of the offered
securities.
--------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR NOTES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
No secondary market will exist for a series of certificates or notes prior to
its offering. We cannot assure you that a secondary market will develop for the
certificates or notes of any series, or, if it does develop, that it will
continue.
-------------------
PAINEWEBBER INCORPORATED
<PAGE>
We may offer the certificates or notes, as applicable, through one or more
different methods, including offerings through underwriters, as more fully
described under "Methods of Distribution" in this prospectus and as may be
described in the related prospectus supplement. Our affiliates may from time to
time act as agents or underwriters in connection with the sale of the offered
certificates or notes, as applicable. We may retain or hold for sale, from time
to time, one or more classes of a series of certificates, or notes, as
applicable. We may offer some classes of the certificates or notes, if so
specified in the related prospectus supplement, in one or more transactions
exempt from the registration requirements of the Securities Act of 1933. These
offerings will not be made under this prospectus or the related registration
statement.
-------------------
We will acquire the receivables in the trust fund for a series from one or
more affiliated or unaffiliated receivables sellers. Each receivables seller
will be an entity, including vendors, generally in the business of originating
or acquiring their particular type of receivables. We will acquire the
receivables from the related receivables seller(s) on or prior to the date of
issuance of the related securities, as described in this prospectus and in the
related prospectus supplement. The receivables included in a trust fund will be
serviced by a servicer described in the related prospectus supplement.
-------------------
This prospectus may not be used to consummate sales of the offered
certificates or notes, as applicable, unless accompanied by a prospectus
supplement.
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TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS...............................................................1
RISK FACTORS..................................................................12
Limited Liquidity of Securities May Adversely Affect the
Market Value of Your Securities.........................................12
Competing Claims to Ownership of Receivables May Result in
Reduced Payments on Your Securities.....................................12
Security Interests of Other Persons May be Superior to the
Trustee's Interests Which May Result in Reduced Payments
on Your Securities......................................................13
Issuer May Not Fully Rely Upon Repossession and Disposition................13
Insolvency and Bankruptcy Proceedings Could Adversely
Affect Payments on the Securities.......................................14
Lack of Title to Leased Vehicles Could Cause Losses........................15
Vicarious Tort Liability Relating to Leased Vehicles Could
Cause Losses............................................................15
Insurance on Vehicles May Be Inadequate to Cover Losses....................16
Levels of Delinquencies May Increase.......................................16
Some Classes of Securities May Be Subordinated in Priority
of Payment..............................................................16
Securityholders Must Rely on Limited Receivables for Repayment.............17
Book-Entry Registration May Decrease Liquidity and Delay Payment...........17
A Reduction in the Rating of a Credit Enhancer Could Result
in a Reduced Rating for the Securities..................................18
Yield is Sensitive to Rate of Principal Prepayments on Receivables.........18
DEFINED TERMS.................................................................19
THE TRUST FUNDS...............................................................20
THE ISSUERS...................................................................21
THE RECEIVABLES...............................................................22
Receivables Pools..........................................................22
The Loan Contracts Relating to Financed Vehicles...........................22
Lease Contracts Relating to Vehicles.......................................24
Recoveries On Vehicles.....................................................26
Residual Value Insurance For Leased Vehicles...............................26
Contingent And Excess Liability Insurance Policies For Leased
Vehicles................................................................28
Delinquencies, Repossessions, and Net Losses...............................28
Maturity and Prepayment Considerations.....................................28
Acquisition of Receivables From Receivables Sellers........................29
USE OF PROCEEDS...............................................................29
THE DEPOSITOR.................................................................30
THE TRUSTEE...................................................................30
DESCRIPTION OF THE SECURITIES.................................................30
General....................................................................30
General Payment Terms of Securities........................................31
Book-Entry Registration....................................................33
Definitive Securities......................................................36
Reports to Securityholders.................................................36
DESCRIPTION OF THE TRUST AGREEMENTS...........................................37
Acquisition of the Receivables Under a Receivables
Acquisition Agreement...................................................38
Accounts...................................................................38
The Servicer...............................................................39
Servicing Procedures.......................................................39
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<PAGE>
Payments on Receivables....................................................40
Servicing Compensation.....................................................40
Payments...................................................................41
Credit and Cash Flow Enhancements..........................................41
Statements to Indenture Trustees and Trustees..............................42
Evidence as to Compliance..................................................42
Certain Matters Regarding the Servicers....................................43
Servicer Default...........................................................43
Rights Upon Servicer Default...............................................44
Waiver of Past Defaults....................................................44
Amendment..................................................................44
Termination................................................................45
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES......................................46
Financed Vehicles--General.................................................46
Security Interests in the Financed Vehicles................................46
The Trustee's Interests in the Loan Contracts...........................47
Perfection..............................................................48
Continuity of Perfection................................................48
Priority of Certain Liens Arising by Operation of Law...................49
The Trustee's Interests In Leased Vehicles.................................49
Repossession...............................................................50
Notice of Sale; Redemption Rights..........................................50
Deficiency Judgments and Excess Proceeds...................................51
Soldiers' and Sailors' Civil Relief Act of 1940............................51
Consumer Protection Laws...................................................52
Loan Contracts..........................................................52
Lease Contracts.........................................................53
Other Limitations..........................................................54
Vicarious Tort Liability With Respect To The Leased Vehicles...............54
FEDERAL INCOME TAX CONSIDERATIONS.............................................55
FASITs.....................................................................56
Issuers Treated as Partnerships............................................56
Tax Characterization of the Issuer as a Partnership.....................56
Tax Consequences to Holders of the Notes................................57
Tax Consequences to Holders of the Certificates.........................59
Issuers Treated as Grantor Trusts..........................................64
Tax Characterization of Grantor Trusts..................................64
Strip Certificates......................................................69
ERISA CONSIDERATIONS..........................................................73
General....................................................................73
Certain Requirements Under ERISA and the Code..............................73
General.................................................................73
Parties in Interest/Disqualified Persons................................73
Delegation of Fiduciary Duty............................................74
Non-ERISA Plans and Exempt Plans...........................................74
Unrelated Business Taxable Income--Residual Certificates...................75
METHODS OF DISTRIBUTION.......................................................75
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................77
LEGAL MATTERS.................................................................78
FINANCIAL INFORMATION.........................................................78
ADDITIONAL INFORMATION........................................................78
RATING........................................................................78
GLOSSARY OF TERMS.............................................................80
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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Two separate documents contain information about the offered certificates or
notes, as applicable. These documents progressively provide more detail:
(1) this prospectus, which provides general information, some of which
may not apply to the offered securities; and
(2) the accompanying prospectus supplement for each series, which
describes the specific terms of the offered securities.
The description of terms in the accompanying prospectus supplement will include:
o details regarding the class or classes of the securities;
o the rate of interest, other applicable rate or the manner of
determining the rate and authorized denominations of each class of the
securities;
o information concerning the receivables and insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies,
third party guarantees or other forms of credit enhancement relating
to one or more pools of receivables or the related securities;
o the specified interest of each class of securities in the payments
from the trust fund and the manner and priority of the payments from
the trust fund;
o information as to the nature and extent of subordination of a series
of securities;
o the date of payment to securityholders;
o information regarding the servicer(s) for the related receivables;
o information regarding the receivables seller(s) for the related
receivables and the underwriting guidelines used by the receivables
seller(s) for the receivables;
o the circumstances under which each trust fund may be subject to early
termination;
o information regarding tax considerations; and
o additional information with respect to the method of payment of the
securities.
THE SPECIFIC TERMS OF THE OFFERED SECURITIES WILL BE SET FORTH IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT, WHICH SUPPLEMENTS THIS PROSPECTUS.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the related prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
---------------------
If you require additional information, the mailing address of our principal
executive offices is PaineWebber Asset Acceptance Corporation, 1285 Avenue of
the Americas, New York, NY 10019 and the telephone number is (212) 713-2000. For
other means of acquiring additional information about us or a series of
securities, see "Incorporation of Certain Information by Reference" in this
prospectus.
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<PAGE>
SUMMARY OF TERMS
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION FROM THIS DOCUMENT. IT DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN INVESTMENT
DECISION. PLEASE READ THIS ENTIRE PROSPECTUS AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT CAREFULLY TO UNDERSTAND ALL OF THE TERMS OF A SERIES OF SECURITIES.
RELEVANT PARTIES
Issuer.................... With respect to each series of securities the
issuer will be:
o the depositor;
o a special-purpose company organized and
established by the depositor; or
o a trust to be formed by the depositor.
See "The Issuers" in this prospectus.
Depositor................. PaineWebber Asset Acceptance Corporation, the
depositor, is a corporation organized under the
laws of the state of Delaware. The depositor's
principal executive offices are located at 1285
Avenue of the Americas, New York, New York 10019,
and its telephone number is (212) 713-2000. See
"The Depositor" in this prospectus.
Servicer.................. The servicer for each trust fund will be specified
in the related prospectus supplement. The servicer
will service the receivables comprising each trust
fund and administer each trust fund according to
the related servicing agreement. The servicer may
subcontract all or any portion of its obligations
as servicer under each servicing agreement to
qualified subservicers but the servicer will
remain liable with respect to its obligations. See
"The Servicing" in this prospectus.
Receivables Seller(s)..... The depositor will acquire the receivables from
one or more affiliated or unaffiliated receivables
sellers.
Trustee................... The trustee for each series of securities will be
specified in the related prospectus supplement. In
addition, the issuer may separately enter into an
indenture and may issue notes under the indenture.
If the issuer is a trust and separately enters
into an indenture and then issues notes under the
indenture, the issuer and the indenture will be
administered by separate, independent trustees as
required by the rules and regulations under the
Trust Indenture Act of 1939 and the Investment
Company Act of 1940.
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<PAGE>
SECURITIES
Description of
Securities............. Each class of securities of any series will
either be:
o certificates which evidence beneficial
ownership in a segregated pool of
receivables; or
o notes which represent indebtedness secured by
the trust fund, as described in this
prospectus and in the related prospectus
supplement.
For each series we will establish a trust fund
consisting primarily of any combination of retail
installment sale and installment loan contracts
secured by and closed-end or open-end lease
contracts on new or used automobiles, light duty
trucks, motorcycles, recreational vehicles and
claims on related insurance policies.
Each trust fund also may include a security
interest in the assets underlying the receivables
and any related property and proceeds.
No trust fund will include receivables for which
the underlying assets relate to:
o office equipment;
o aircraft;
o firearms or other weapons;
o railroad rolling stock; or
o facilities such as factories, warehouses or
plants subject to state laws governing the
manner in which title or security interest in
real property is determined or perfected.
With respect to securities that represent
beneficial ownership interests in a trust, each
trust will be established under a pooling
agreement between the depositor and the trustee
named in the pooling agreement. Each pooling
agreement will describe the related pool of
receivables held by the trust.
With respect to securities that represent debt
issued by the issuer, the issuer will enter into
an indenture between the issuer and the trustee
named in the indenture. Each indenture will
describe the related pool of receivables
comprising the trust fund and securing the debt
issued by the related issuer.
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<PAGE>
The receivables comprising each trust fund will be
serviced by the servicer under a servicing
agreement between the servicer and the related
issuer.
Any individual trust fund may contain in a single
agreement, or in several agreements:
o the contractual arrangements relating to the
establishment of a trust, if any;
o the servicing of the related receivables;
o and the issuance of the related securities.
These agreements may combine certain aspects of
the pooling agreement, the servicing agreement and
the indenture. For example, the agreement may be
in the form of a pooling and servicing agreement,
or a servicing and collateral management
agreement.
The trustee is any and all persons acting as
trustee under a trust agreement. For purposes of
this prospectus, the term "trust agreement" as
used with respect to a trust fund means:
o any and all agreements relating to the
establishment of a trust, if any;
o the servicing of the related receivables; and
o the issuance of the related securities.
Securities Will Be
Non-Recourse.............. Except for certain non-recourse debt described
under "Federal Income Tax Considerations," the
securities will not be obligations of the
depositor. The related servicer, the related
receivables seller(s) or any person other than the
related issuer in the case of securities issued as
debt. The notes of a given series will represent
obligations of the issuer. The certificates of a
given series represent beneficial interests in the
related issuer only. In each case, the sole source
of payment for the securities will be the
receivables of the issuer. As may be described
further in the related prospectus supplement,
certain types of credit enhancement, including the
following, may constitute a full recourse
obligation of the issuer for that credit
enhancement:
o a letter of credit;
o a financial guaranty insurance policy; or
o a reserve fund.
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<PAGE>
General Nature of the
Securities as
Investments............... All of the securities offered under this
prospectus and the related prospectus supplement
will be rated in one of the four highest rating
categories by one or more rating agencies.
Additionally, all of the securities offered under
this prospectus and the related prospectus
supplement will be of the fixed-income type. Fixed
income securities generally, but not always, have
a principal balance and a specified interest rate.
Each series or class of fixed income securities
offered under this prospectus and the related
prospectus supplement may have a different
interest rate, which may be a fixed or adjustable
rate. The related prospectus supplement will
specify the interest rate for each series or class
of fixed income securities or the initial interest
rate and the method for determining subsequent
changes to the interest rate.
A series may include one or more classes of fixed
income securities, known as strip securities.
These strip securities will be entitled to:
o principal payments, with disproportionate,
nominal or no interest payments; or
o interest payments, with disproportionate,
nominal or no principal payments.
In addition, a series of securities may include
two or more classes of fixed income securities:
o that differ as to timing, sequential order,
priority of payment, interest rate, amount of
payments of principal or interest or both; or
o as to which payments of principal or interest
or both on any class may be made upon the
occurrence of specified events, in accordance
with a schedule or formula, or on the basis
of collections from designated portions of
the related pool of receivables.
These series may include one or more classes of
fixed income securities known as accrual
securities. Accrual securities will not have a
portion of their accrued interest distributed.
Rather, the accrued interest will be added to the
principal balance, or nominal balance, in the case
of accrual securities which are also strip
securities, of those classes of fixed income
securities on each payment date, or
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<PAGE>
in the manner described in the related prospectus
supplement.
A series may include one or more other classes of
fixed income securities that are senior to one or
more other classes of fixed income securities in
respect of a portion of the payments of principal
and interest and allocations of losses on
receivables, if provided for in the related
prospectus supplement. In addition, certain
classes of senior fixed income securities, or
subordinate fixed income securities may be senior
to other classes of senior or subordinate fixed
income securities in respect of these payments or
losses.
General Payment
Terms of Securities....... The holders of the securities will be entitled to
receive payments on their securities on specified
payment dates. Payment dates with respect to fixed
income securities will generally occur monthly,
quarterly or semi-annually, as described in the
related prospectus supplement.
The related prospectus supplement will describe a
record date preceding the payment date, as of
which the trustee or its paying agent will fix the
identity of the securityholders for the purpose of
receiving payments on the next succeeding payment
date. The payment date will be a specified day of
each month described in the related prospectus
supplement.
Each trust agreement will provide for, and the
related prospectus supplement will describe, a
remittance period preceding each payment date. For
example, in the case of monthly-pay securities,
the remittance period may be the calendar month
preceding the month in which a payment date
occurs. Collections received on or with respect to
the related receivables constituting a trust fund
during a remittance period will be required to be
remitted by the servicer to the related trustee
prior to the related payment date and will be used
to fund payments to securityholders on the payment
date.
The related trust agreement may provide that all
or a portion of the payments collected on the
related receivables may be applied by the related
trustee to the acquisition of additional
receivables during a specified period rather than
be used to fund payments of principal to
securityholders during that period. The result of
this application of funds is that the related
securities will possess an interest-only
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period,
also commonly referred to as a revolving period,
which will be followed by an amortization period.
Any interest only or revolving period may, upon
the occurrence of specified events that may be
described in the related prospectus supplement,
terminate prior to the end of the specified period
and result in the earlier than expected
amortization of the related securities. In
addition, the related trust agreement may provide
that all or a portion of the collected payments
may be retained by the trustee, and held in
certain temporary investments for a specified
period prior to being used to fund payments of
principal to securityholders.
The retention and temporary investment by the
trustee of the collected payments may be required
by the related trust agreement for the purpose of:
o slowing the amortization rate of the related
securities relative to the rent payment
schedule of the related receivables; or
o attempting to match the amortization rate of
the related securities to an amortization
schedule established at the time the
securities are issued.
This retention and temporary investment feature
may terminate upon the occurrence of events to be
described in the related prospectus supplement,
resulting in payments to the specified
securityholders and an acceleration of the
amortization of those securities.
Neither the securities nor the underlying
receivables will be guaranteed or insured by any
governmental agency or instrumentality or the
depositor, the related servicer, the related
receivables seller, any trustee, or any of their
affiliates.
CROSS-COLLATERALIZATION...... The source of payment for securities of each
series will be the receivables of the related
trust fund only. However, a series or class of
securities may include the right to receive monies
from a common pool of credit enhancement which may
be available for more than one series of
securities.
Common pools of credit enhancement include:
o a master reserve account;
o a master insurance policy; or
o a master collateral pool consisting of
similar receivables.
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No payment received on any receivable held by any
issuer may be applied to the payment of securities
issued by any other issuer. However, collections
in excess of the amounts needed to pay the related
securities may be deposited in:
o a common master reserve account; or
o an over-collateralization account that
provides credit enhancement for more than one
series of securities issued under the related
trust agreement.
TRUST FUNDS.................. The related prospectus supplement will specify
the receivables to be included in each trust fund
and may specify that a security interest in the
underlying property will also be included in the
trust fund. To the extent specified in the related
prospectus supplement, credit enhancement with
respect to a trust fund or any class of securities
may include any one or more of the following:
o a policy issued by an insurer specified in
the related prospectus supplement;
o a reserve account;
o letters of credit;
o credit or liquidity facilities;
o repurchase obligations;
o third party payments or other support; or
o cash deposits or other arrangements.
Credit enhancement may be provided by means of
subordination, cross-support among the receivables
or over-collateralization. See "Description of the
Trust Agreements--Credit and Cash Flow
Enhancements" in this prospectus. The retail
installment sale or installment loan contract are
obligations for the purchase of the property, or
evidence borrowings used to acquire the property
or refinancings of those borrowings. The
receivables contracts may consist of any
combination of:
o contracts that provide for fixed level
monthly payments which will amortize the full
amount of the contract over its term;
o contracts that provide for monthly payments
with a final fixed value payment which is
greater than the scheduled monthly payments;
or
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o contracts that provide for the amortization
of the amount financed under the receivable
over a series of fixed level monthly
payments.
The receivables will either be:
o transferred to an issuer under a pooling
agreement; or
o pledged to a trustee on behalf of
securityholders under an indenture.
The rights and benefits of the depositor or
transferor under a receivables acquisition
agreement will be assigned to the trustee on
behalf of the related securityholders.
PRE-FUNDING ACCOUNT.......... In addition, if specified in the
related prospectus supplement, the trust fund will
include monies on deposit in a pre-funding account
to be established with the trustee. The
pre-funding account will be used to acquire
subsequent receivables from time to time during
the pre-funding period specified in the related
prospectus supplement. The amount in the
pre-funding account, if any, will be reduced
during the related pre-funding period by the
amount used to purchase subsequent receivables.
Any amount remaining in the pre-funding account at
the end of the related pre-funding period will be
paid to the related securityholders in the manner
described in the related prospectus supplement.
The depositor may be obligated to acquire from the
related receivables seller(s) and to either
transfer to an issuer or pledge to a trustee on
behalf of securityholders, subsequent receivables
from time to time during any pre-funding period
specified in the related prospectus supplement.
REGISTRATION OF SECURITIES... Securities may be represented by global securities
registered in the name of Cede & Co., as nominee
of DTC, or another nominee. In this case,
securityholders will not be entitled to receive
definitive securities representing the
securityholders' interests, except in certain
circumstances that may be described in the related
prospectus supplement. See "Description of the
Securities--Book-Entry Registration" in this
prospectus.
CREDIT AND CASH FLOW
ENHANCEMENT.................. Credit enhancement with respect to a trust fund
or any class of securities may include any one or
more of the following:
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o a policy issued by an insurer specified in
the related prospectus supplement;
o a reserve account;
o letters of credit;
o credit or liquidity facilities;
o third party payments or other support; and
o cash deposits or other arrangements.
Any form of credit enhancement will have certain
limitations and exclusions from coverage which
will be described in the related prospectus
supplement.
See "Description of the Trust Agreements--Credit
and Cash Flow Enhancements" in this prospectus.
RECEIVABLES ACQUISITION
AGREEMENT.................... The depositor or the related receivables seller
will be obligated to acquire from the related
trust fund any receivable transferred under a
pooling agreement or pledged under an indenture if
the interest of the securityholders in that
receivable is materially and adversely affected by
a breach of any representation or warranty made by
the depositor or the related receivables seller
with respect to that receivable, if the breach has
not been cured. To the extent that the depositor
acquires any receivables, the related receivables
seller will be obligated to acquire those
receivables from the depositor under the related
receivables acquisition agreement at the same time
as the depositor's acquisition of the receivables
from the applicable trust fund. The obligation of
the depositor to acquire any receivables for which
the related receivables seller has breached a
representation or warranty is subject to the
related receivables seller's acquisition of those
receivables from the depositor. In addition, if so
specified in the related prospectus supplement,
the depositor may reacquire certain receivables or
substitute other receivables for those receivables
held by a trust fund, subject to specified
conditions set forth in the related trust
agreement and receivables acquisition agreement.
SERVICER'S COMPENSATION...... The servicer will be entitled to receive a fee for
servicing the receivables of each trust fund equal
to a specified percentage of the value or
principal balance of the receivables held in the
related trust fund, as set forth in the related
prospectus supplement. See "Description of the
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Trust Agreements--Servicing Compensation" in this
prospectus and as may be described in the related
prospectus supplement.
OPTIONAL TERMINATION......... The related servicer, the related receivables
seller, the depositor, or other entities may cause
early retirement of a series of securities under
the circumstances and in the manner set forth in
this prospectus under "Description of the Trust
Agreements--Termination" and as may be described
in the related prospectus supplement.
MANDATORY TERMINATION........ The trustee, the related servicer or other
entities that may be specified in the related
prospectus supplement may be required to cause the
early retirement of all or any portion of a series
of securities. The applicable party would cause
the early retirement by soliciting competitive
bids for the purchase of the related trust fund or
otherwise, in the manner specified under
"Description of the Trust Agreements--Termination"
in this prospectus and as may be described in the
related prospectus supplement.
TAX CONSIDERATIONS........... Securities of each series offered by this
prospectus will, for federal income tax purposes,
constitute either:
o interests in an issuer treated as a grantor
trust under applicable provisions of the
Code;
o debt issued by an issuer or by the depositor;
or
o interests in an issuer which is treated as a
partnership.
The prospectus supplement for each series of
securities will summarize federal income tax
considerations relevant to the purchase, ownership
and disposition of the securities. Investors are
advised to consult their tax advisors and to
review "Federal Income Tax Considerations" in this
prospectus and in the related prospectus
supplement.
ERISA CONSIDERATIONS......... The prospectus supplement for each series of
securities will summarize considerations under
ERISA, relevant to the purchase of those
securities by employee benefit plans and
individual retirement accounts. See "ERISA
Considerations" in this prospectus and in the
related prospectus supplement.
RATINGS...................... Each class of securities offered under this
prospectus and the related prospectus supplement
will be rated in one of the four highest rating
categories by one or more rating agencies. The
ratings will address, in the opinion of the rating
agencies, the likelihood that the issuer will be
able to
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make timely payment of all amounts due on
the related securities in accordance with the
terms of the securities. The ratings will neither
address any prepayment or yield considerations
applicable to any securities nor constitute a
recommendation to buy, sell or hold any
securities.
The ratings expected to be received with respect
to any securities will be set forth in the related
prospectus supplement.
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RISK FACTORS
Before making an investment decision, you should carefully consider the
following risks and the risks described under "Risk Factors" in the prospectus
supplement for the applicable series of securities. We believe these sections
describe the principal factors that make an investment in the securities
speculative or risky. In particular, payments on your securities will depend on
payments received on and other recoveries with respect to the loans. Therefore,
you should carefully consider the risk factors relating to the loans and the
properties.
LIMITED LIQUIDITY OF SECURITIES MAY ADVERSELY AFFECT THE MARKET VALUE OF YOUR
SECURITIES
We cannot assure you that a secondary market for the securities of any series
will develop or, if it does develop, that it will provide you with liquidity of
investment or will continue for the life of your securities. The market value of
your securities will fluctuate with changes in prevailing rates of interest.
Consequently, if you sell your security in any secondary market that develops,
you may sell it for less than par value or for less than your purchase price.
You will have optional redemption rights only to the extent the related
prospectus supplement so specifies. The prospectus supplement for any series may
indicate that an underwriter intends to establish a secondary market in the
securities, but no underwriter must do so.
COMPETING CLAIMS TO OWNERSHIP OF RECEIVABLES MAY RESULT IN REDUCED PAYMENTS ON
YOUR SECURITIES
In connection with the issuance of any series of securities, the related
receivables seller(s) will transfer retail installment sale or installment loan
contracts to the depositor. The receivables may consist of a security interest
in the retail installment contracts or notes and security agreements evidencing
the obligor's obligation to pay.
The related prospectus supplement will further describe the provisions in the
related trust agreement that either:
o the trustee will be required to maintain possession of the original copies
of all retail installment sale or installment loan contracts that
constitute chattel paper; or
o that the depositor, the related receivables seller(s) or the related
servicer will retain possession of the retail installment sale or
installment loan contract.
If the depositor or a receivables seller retains possession of the related
retail installment sale or installment loan contract, the servicer may take
possession of the original copies as necessary for its enforcement. If any
retail installment sale or installment loan contract remains in the possession
of the depositor or a receivables seller, the related prospectus supplement may
describe specific trigger events that will require delivery to the trustee. If
the depositor, servicer, trustee, receivables seller or other third party, sells
or pledges and delivers the receivable to another party, in violation of the
receivables acquisition agreement or the trust agreement, there is a risk that
the other party could acquire an interest in them that has a priority over the
issuer's interest.
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Furthermore, if the depositor, the servicer, a receivables seller or a third
party is rendered insolvent, the event of insolvency may result in competing
claims to ownership or security interests in the retail installment sale or
installment loan contract. The claim, even if unsuccessful, could result in
delays in payments on the securities. If successful, the claim could result in
losses to the securityholders or an acceleration of the repayment of the
securities. The related receivables seller will be obligated to acquire any
receivable from the related trust fund if there is a breach of the
representations and warranties that materially adversely affect the interests of
the depositor or the issuer in them and the breach has not been cured or as
otherwise provided in the related prospectus supplement.
SECURITY INTERESTS OF OTHER PERSONS MAY BE SUPERIOR TO THE TRUSTEE'S INTERESTS
WHICH MAY RESULT IN REDUCED PAYMENTS ON YOUR SECURITIES
Federal and state laws, including the UCC as in effect in various states,
controls:
o the transfer of the receivables by the related receivables sellers to the
depositor under each receivables acquisition agreement and then by the
depositor to the trustee under the related trust agreement;
o the perfection of the security interests in the receivables; and
o the enforcement of rights to realize on the property as collateral for the
receivables.
The related prospectus supplement will describe the actions that the related
servicer will be required to take to perfect the rights of the trustee in the
receivables. If, through inadvertence or otherwise, a third party were to
purchase a receivable for new value in the ordinary course of its business,
without actual knowledge of the issuer's interest, and take possession of a
receivable, the purchaser would acquire an interest in the receivable superior
to the interest of the issuer. The related prospectus supplement may provide
that no action will be taken to perfect the rights of the trustee in proceeds of
a policy of vendor's single interest physical damage insurance or of any other
insurance policies covering individual property or obligors.
Therefore, the rights of a third party with an interest in the proceeds could
prevail against the rights of the issuer prior to the time the proceeds are
deposited by the related servicer into a account. See "Certain Legal Aspects of
the Receivables" in this prospectus.
ISSUER MAY NOT FULLY RECOVER UPON REPOSSESSION AND DISPOSITION
In the case of receivables relating to financed vehicles or leased vehicles,
if the trustee must rely on repossession and disposition of vehicles to recover
scheduled payments due on defaulted receivables, the issuer may not receive the
full amount due on the receivables or may not receive the full amount on a
timely basis. Other factors that may affect the ability of the issuer to receive
the full amount due on the receivables include:
o whether the certificates of title relating to the vehicles are in the name
of the related titling trust or indicate the existence of a security
interest;
o depreciation;
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o obsolescence;
o damage or loss of any vehicles; and
o the application of federal and state bankruptcy and insolvency laws.
As a result, you may be subject to delays in receiving payments and suffer
loss of your investment in the securities.
INSOLVENCY AND BANKRUPTCY PROCEEDINGS COULD ADVERSELY AFFECT PAYMENTS ON THE
SECURITIES
The depositor will take steps in structuring the transactions contemplated by
this prospectus that are intended to ensure that the voluntary or involuntary
application for relief by the related receivables seller or the depositor under
insolvency laws like the United States Bankruptcy Code or similar applicable
state laws will not result in the receivables of the related trust fund becoming
property of the estate of the receivables seller or the depositor within the
meaning of those insolvency laws. These steps may involve the creation by the
related receivables seller or the depositor of a separate, limited-purpose
company or trust whose organizational documents contain certain limitations,
including:
o restrictions on the nature of its business; and
o restrictions on its ability to commence a voluntary case or proceeding
under any insolvency law without the prior unanimous affirmative vote of
all its directors.
However, there can be no assurance that the activities of any limited-purpose
company or trust would not result in a court concluding that the receivables and
liabilities of the limited-purpose company or trust should be consolidated with
those of the related receivables seller or depositor in a proceeding under any
insolvency law.
The related prospectus supplement may provide that the equity interest in a
trust fund, if any, may be transferred to the related limited-purpose
subsidiary.
If a receivables seller is the servicer, cash collections held by the
receivables seller may be commingled and used for the benefit of that
receivables seller prior to each payment date. In the event of the bankruptcy of
that receivables seller, the trustee may not have a perfected interest in those
collections.
In the event of an insolvency of the transferor of receivables, a court,
among other remedies, could attempt to recharacterize the transfer of the
receivables as a borrowing by the transferor of receivables or the related
securityholders, secured by a pledge of the receivables.
The attempt to recharacterize, even if unsuccessful, could result in delays
in payments on the securities. If the attempt to recharacterize were successful,
a court could elect to accelerate payment of the securities and liquidate the
receivables. The securityholders would then be entitled to the then outstanding
principal and interest on the receivables at the applicable interest rate to the
date of payment. Thus, the securityholders could lose the right to future
payments of interest and might incur reinvestment losses. The related prospectus
supplement may provide
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that, in the event the related issuer is rendered insolvent, the related trustee
will promptly sell, dispose of, or otherwise liquidate the related receivables.
The proceeds from this sale, disposition or liquidation of the receivables
will be treated as collections on the receivables. If the proceeds from the
liquidation of the receivables and any amount available from any credit
enhancement are not sufficient to pay securities of the related series in full,
the amount of principal returned to the securityholders will be reduced and you
will incur a loss.
Obligors under the receivables may be entitled to assert against the related
receivables seller, the depositor, or the issuer, if any, claims and defenses
which they have against the receivables seller with respect to the receivables.
LACK OF TITLE TO LEASED VEHICLES COULD CAUSE LOSSES
In the case of receivables relating to leased vehicles, the vehicles subject
to lease contracts will typically be titled in the name of either a finance
subsidiary, which may be a receivables seller, or in the name of the applicable
issuer. In the event that the leased vehicles are not titled in the name of the
related issuer, a notation of lien in favor of the related trustee on the
related certificates of title will be filed except to the extent described in
the related prospectus supplement or that the laws of any particular state do
not require this lien notation to be made to perfect the trustee's security
interest. The lack of title or notation of lien could result in the applicable
issuer losing the priority of its security interest in the vehicles. See
"Certain Legal Aspects of the Receivables" in this prospectus.
VICARIOUS TORT LIABILITY RELATING TO LEASED VEHICLES COULD CAUSE LOSSES
In the case of receivables relating to leased vehicles, the applicable issuer
will own the vehicles subject to lease contracts. However, the vehicles will be
operated by issuer lessees and their respective invitees. State laws differ as
to whether anyone suffering injury to person or property involving a leased
vehicle may bring an action against the owner of the vehicle merely by virtue of
that ownership.
Some state statutes provide that a victim of an accident has no cause of
action against the owner of the leased vehicle arising from the negligent
operation of the leased vehicle unless the owner has negligently entrusted or
continues to negligently entrust the vehicle to an inappropriate lessee.
Other state statutes provide that the owner of a motor vehicle that is
subject to a lease having an initial term of at least one year is exempt from
liability for tort claims arising out of the negligent operation of the leased
vehicle or negligent acts of the operator in the event of an accident in which
the leased vehicle is involved if the lessee is required under the lease to
maintain certain specified levels of insurance, and the insurance is in effect.
Generally, the lease contracts contain provisions requiring the lessees to
maintain levels of insurance satisfying applicable state law, and the related
trust agreement will require the servicer to monitor compliance by the lessees
with the insurance.
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Actions by third parties might arise against the owner of a vehicle subject
to lease contracts based on legal theories other than negligence. These theories
include product defect or improper vehicle preparation prior to the origination
of the related lease contract. Even if the applicable issuer were to be the
subject of an action for damages as a result of its ownership of a vehicle
subject to lease contracts, those damages may be covered by insurance. In the
event that any available insurance coverage were to be exhausted and damages
were assessed against the issuer, claims could be imposed against the assets of
the applicable issuer. However, the claims would not take priority over any
items comprising the trust fund to the extent that the trustee has a perfected
security interest in the trust fund. If any such claims were imposed against the
assets of the trust, you could incur a loss on your investment. See "Certain
Legal Aspects of the Receivables--Vicarious Tort Liability Could Cause Losses"
in this prospectus.
INSURANCE ON VEHICLES MAY BE INADEQUATE TO COVER LOSSES
In the case of receivables relating to leased or financed vehicles, each
contract generally requires the related obligor to maintain insurance covering
physical damage to the vehicle in an amount not less than the unpaid principal
balance of the contract under which the receivables seller is named as a loss
payee. Since the obligors select their own insurers to provide the required
coverage, the specific terms and conditions of their policies may vary.
In addition to physical damage insurance which may be required to be
maintained by the obligors, each vehicle may be insured against physical damage
risks by a policy of vendor's single interest physical damage insurance which
provides limited coverage for:
o physical loss or damage from any external cause to the vehicle; and
o inability to locate the vehicle or the related obligor.
Any recovery under a policy of vendor's single interest physical damage
insurance may be less than the outstanding principal and interest due on the
related receivable. If these shortfalls occur, you could suffer a loss on your
investment.
LEVELS OF DELINQUENCIES MAY INCREASE
We cannot assure you that:
o the historical levels of delinquencies and losses experienced by any
receivables seller on its portfolio of retail installment sale or
installment loan contracts will be the same as the performance of the
contracts included in any trust fund; or
o that those levels will continue in the future.
Delinquencies and losses could increase significantly for various reasons,
including changes in the federal income tax laws, changes in the local, regional
or national economies.
SOME CLASSES OF SECURITIES MAY BE SUBORDINATED IN PRIORITY OF PAYMENT
Payments of interest and principal on one class of securities of a series may
be subordinated in priority of payment to interest and principal due on other
classes of securities of a related
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series. Moreover, each trust fund will not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than:
o the related receivables;
o a pre-funding account;
o any related reserve accounts; and
o any other credit enhancement.
SECURITYHOLDERS MUST RELY ON LIMITED RECEIVABLES FOR REPAYMENT
The securities solely represent obligations solely of the related trust or
debt secured by the related trust fund, and will not represent a recourse
obligation to other assets of the related receivables seller(s) or of the
depositor. No securities of any series will be insured or guaranteed by any
receivables seller, the depositor, the servicer, or the applicable trustee.
Consequently, holders of the securities of any series must rely for repayment
primarily upon payments on:
o the related receivables;
o any amounts on deposit in the pre-funding account;
o any reserve account; and
o any other credit enhancement as may be specified in the related prospectus
supplement.
BOOK-ENTRY REGISTRATION MAY DECREASE LIQUIDITY AND DELAY PAYMENT
Issuance of the securities in book-entry form may reduce the liquidity of the
securities in the secondary trading market since investors may be unwilling to
purchase securities for which they cannot obtain definitive physical securities
representing the securityholders' interests, except in the circumstances that
may be described in the related prospectus supplement.
Transactions in securities usually will be effected only through:
o DTC,
o direct or indirect participants in DTC's book-entry system, or
o certain banks.
As a result, the ability of a securityholder to pledge a security to persons
or entities that do not participate in the DTC system, or otherwise to take
actions in respect to the securities, may be limited due to lack of a physical
security representing the securities.
Securityholders may experience some delay in their receipt of payments of
interest on and principal of the securities since payments may be required to be
forwarded by the trustee to DTC. In this event, DTC will credit the payments to
the accounts of its participants which then will credit them to the accounts of
the applicable class of securityholders either directly or
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indirectly through indirect participants. See "Description of the
Securities--Book-Entry Registration" in this prospectus.
A REDUCTION IN THE RATING OF A CREDIT ENHANCER COULD RESULT IN A REDUCED RATING
FOR THE SECURITIES
The rating of securities credit enhanced by the following will depend
primarily on the creditworthiness of the credit enhancer that is the issuer of
the external credit enhancement device:
o a letter of credit,
o a financial guaranty insurance policy,
o a reserve fund,
o a credit or liquidity facilities
o cash deposits, or
o other forms of credit enhancement,
Any reduction in the rating assigned to the claims-paying ability of the
related credit enhancer to honor its obligations under any credit enhancement
below the rating initially given to the securities would likely result in a
reduction in the rating of the securities.
YIELD IS SENSITIVE TO RATE OF PRINCIPAL PREPAYMENTS ON RECEIVABLES
Because the rate of payment of principal on the securities will depend on the
rate of payment on the related receivables, the rate of payment of principal on
the securities cannot be predicted. Payments on the receivables will include:
o scheduled payments as well as partial and full prepayments, to the extent
not replaced with substitute receivables;
o payments upon the liquidation of defaulted receivables;
o payments upon acquisitions by the related receivables seller, the related
servicer or the depositor of receivables from the related trust fund on
account of a breach of representations and warranties in the related trust
agreement;
o payments upon an optional acquisition by the related receivables seller,
the related servicer or the depositor of receivables from the related
trust fund; and
o residual payments.
The rate of early terminations of receivables due to prepayments and defaults
may be influenced by a variety of economic and other factors, including:
o obsolescence;
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o current economic conditions; and
o tax considerations.
The risk of reinvesting payments of the principal of the securities will be
borne by the securityholders. The yield to maturity on strip securities or
securities purchased at premiums or discounts to par will be extremely sensitive
to the rate of prepayments on the related receivables. In addition, the yield to
maturity on other types of securities may be relatively more sensitive to the
rate of prepayment of the related retail installment sale or installment loan
contracts than other classes of securities. The other types of securities
include:
o strip securities;
o accrual securities; or
o other classes in a series including more than one class of securities,
The rate of prepayments of receivables cannot be predicted and is influenced
by a wide variety of economic, social, and other factors, including:
o prevailing interest rates;
o the availability of alternate financing; and
o local and regional economic conditions.
Therefore, we cannot assure you as to the level of prepayments that a trust
fund will experience.
You should consider the risk that a slower than anticipated rate of
prepayments on the receivables could result in an actual yield that is less than
the anticipated yield, in the case of securities purchased at a discount.
You should also consider the risk that a faster than anticipated rate of
prepayments on the receivables could result in an actual yield that is less than
the anticipated yield, in the case of any securities purchased at a premium.
DEFINED TERMS
We define and use capitalized terms in this prospectus to assist you in
understanding the terms of the securities and this offering. We define the
capitalized terms used in this prospectus under the caption "Glossary of Terms"
in this prospectus on page 80.
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THE TRUST FUNDS
The property of each trust fund, as specified in the related prospectus
supplement, will include
o a pool of Receivables, including any Receivables conveyed to the issuer
after the related closing date;
o all monies, including accrued interest, due under the Receivables on or
after the applicable cut-off date;
o the amounts as from time to time may be held in one or more accounts
established and maintained by the servicer under the related Trust
Agreement, as may be further described in the related prospectus
supplement;
o the security interests, if any, in the assets underlying the related pool
of Receivables;
o in the case of Receivables consisting of Loan Contracts or Lease
Contracts, the right to proceeds from claims on physical damage policies,
if any, covering the related Vehicles or the related obligors, as the case
may be;
o in the case of Receivables consisting of Loan Contracts or Lease
Contracts, the proceeds of any repossessed Vehicles related to the pool of
Receivables;
o the rights of the depositor under the related Receivables Acquisition
Agreement; and
o interest earned on certain short-term investments held by the trust fund,
unless the related prospectus supplement specifies that the earnings may
be paid to the related servicer or Receivables seller(s).
The trust fund may also include, if so specified in the related prospectus
supplement, monies on deposit in a pre-funding account. The pre-funding account
will be used by the trustee to acquire or receive a security interest in
subsequent Receivables during the pre-funding period specified in the related
prospectus supplement. In addition, some combination of credit enhancements may
be issued to or held by the trustee on behalf of the related trust fund for the
benefit of the holders of one or more classes of securities. The Receivables
comprising a trust fund, as specifically described in the related prospectus
supplement, will be either:
o originated by the related Receivables seller;
o originated by various manufacturers and acquired by the related
Receivables seller;
o originated by various dealers and acquired by the related Receivables
seller; or
o acquired by the related Receivables seller from originators or owners of
Receivables.
In the case of Receivables consisting of Loan Contracts or Lease Contracts,
the related Vehicle will be subject to federal or state registration or titling
requirements. No trust fund will include Receivables with respect to which the
underlying assets relate to:
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o office equipment;
o aircraft;
o firearms or other weapons;
o railroad rolling stock; or
o facilities such as factories, warehouses or plants subject to state laws
governing the manner in which title or security interest in real property
is determined or perfected.
The Receivables will be acquired by the depositor from the related
Receivables seller under a Receivables Acquisition Agreement or under provisions
of the Trust Agreements between the Receivables seller and the depositor. The
Receivables included in each trust fund will be selected from those Receivables
held by Receivables sellers based on the criteria specified in the applicable
Trust Agreement and described in this prospectus or in the related prospectus
supplement.
With respect to each series of securities, on or prior to the closing date on
which the securities are delivered to securityholders, the depositor will form a
trust fund by either:
o transferring the related Receivables into a trust under a Trust Agreement;
or
o entering into an indenture, or causing a special-purpose company or trust
to enter into an indenture, with an indenture trustee, relating to the
issuance of the securities, secured by the related Receivables.
The Receivables comprising each trust fund will generally have been
originated by the related Receivables seller or acquired by the Receivables
seller from vendors or from other lessors in accordance with the Receivables
seller's specified underwriting criteria. The underwriting criteria applicable
to the Receivables included in any trust fund will be described in all material
respects in the related prospectus supplement.
THE ISSUERS
With respect to each series of securities, the issuer will be:
o the depositor;
o a special-purpose company organized and established by the depositor; or
o a trust to be formed by the depositor.
For purposes of this prospectus and the related prospectus supplement, the
depositor, if the depositor issues the related securities, the related
special-purpose company, if a special-purpose company issues the related
securities, or the related trust, if a trust issues the related securities, will
be referred to as the "issuer" with respect to those securities.
Upon the issuance of the securities of a given series, the proceeds from the
issuance will be used by the depositor to acquire the related Receivables from
the related Receivables seller. The
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related servicer will service the related Receivables under the applicable
servicing agreement, and will be compensated for acting as the servicer. To
facilitate servicing and to minimize administrative burden and expense, the
servicers may be appointed custodians for the related Receivables by each
trustee and the depositor, as may be set forth in the related prospectus
supplement.
The following protection may be provided to the securityholders of a given
class:
o the subordination of another class of securities of that series;
o the availability of the funds in the reserve account; or
o any other credit enhancement for that series as may be specified in the
related prospectus supplement.
If this protection is insufficient, the issuer must rely solely on the payments
from the obligors on the Receivables and the proceeds from the sale of the
assets which secure or are leased under the defaulted Receivables. It may be
difficult for the issuer to realize on the collateral securing those
Receivables, and thus the proceeds to be paid to the securityholders of that
series may be reduced.
THE RECEIVABLES
RECEIVABLES POOLS
Information with respect to the Receivables in each trust fund will be set
forth in the related prospectus supplement, including:
o the identity of the related Receivables seller(s);
o the related underwriting criteria and collection policies; o the
composition of the Receivables and the distribution of the Receivables by
geographic location;
o the annual percentage rate; and
o remaining principal balance as of the applicable cut-off date.
THE LOAN CONTRACTS RELATING TO FINANCED VEHICLES
The Loan Contracts may consist of any combination of:
o Rule of 78s Contracts;
o Fixed Value Contracts; or
o Simple Interest Contracts.
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Each Rule of 78s Contract provides for the payment by the obligor of a
specified total amount of payments, payable in monthly installments on the
related due date. The total amount of payments represents:
o the principal amount financed and
o finance charges in an amount calculated on the basis of a stated annual
percentage rate for the term of the Loan Contract.
The rate at which the amount of finance charges is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal balance of the related Loan Contract are calculated
in accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Loan Contract and lower during later months than that under a constant yield
method for allocating payments between interest and principal. However, the
related prospectus supplement may provide that all payments received by the
related servicer on the Rule of 78s Contracts may be allocated on an actuarial
basis.
A Fixed Value Contract provides for amortization of the loan over a series of
fixed level payment monthly installments, but also requires a final fixed value
payment due after payment of the monthly installments which may be satisfied by:
o payment in full in cash of the amount;
o transfer of the vehicle to the related Receivables seller provided certain
conditions are satisfied; or
o refinancing the fixed value payment in accordance with certain conditions.
For Simple Interest Contracts, each monthly payment consists of:
o an installment of interest which is calculated on the basis of the
outstanding principal balance of the Receivable:
o multiplied by the stated annual percentage rate; and
o further multiplied by the period elapsed, as a fraction of a calendar
year, since the preceding payment of interest was made.
This is unlike the monthly payment under Rule of 78s Contracts. As payments
are received under a Simple Interest Contract, the amount received is applied
first to interest accrued to the date of payment and the balance is applied to
reduce the unpaid principal balance.
If an obligor pays a fixed monthly installment before its scheduled due date:
o the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the
payment been made as scheduled; and
o the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly greater;
If an obligor pays a fixed monthly installment after its scheduled due date:
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o the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled; and
o the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly less.
In either case, the obligor pays a fixed monthly installment until the final
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance.
If an obligor elects to prepay a Rule of 78s Contract in full, it is entitled
to a rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges. If a Simple Interest Contract is
prepaid, rather than receive a rebate, the obligor is required to pay interest
only to the date of prepayment. The amount of a rebate under a Rule of 78s
Contract calculated in accordance with the Rule of 78s will always be less than
had the rebate been calculated on an actuarial basis and generally will be less
than the remaining scheduled payments of interest that would be due under a
Simple Interest Contract for which all payments were made on schedule. Payments
to security holders may not be affected by Rule of 78s rebates under the Rule of
78s Contract because under the related prospectus supplement the payments may be
determined using the actuarial method.
LEASE CONTRACTS RELATING TO VEHICLES
The Lease Contracts are generally written for an original term of not more
than 60 months, for a "capitalized cost", which occasionally may be in excess of
the manufacturer's suggested price, plus an implicit finance or lease charge.
The Lease Contracts are generally written on a constant yield basis and provide
for equal monthly payments, so that at the end of the lease term the capitalized
cost has been amortized to an amount equal to the residual value of the related
Vehicle.
With respect to each Lease Contract that is a closed-end lease, at the end of
its term, if the lessee does not elect to purchase the related Vehicle upon
exercise of the purchase option contained in the Lease Contract, the lessee is
required to return the Vehicle. The lessee will then owe only the incidental
charges for excess mileage, excessive wear and use and other items as may be due
under the Lease Contract. In contrast, under each Lease Contract that is an
open-end lease, the lessee is also obligated to pay at the end of the lease term
any deficit between the fair market value of the leased Vehicle at that time and
the residual value established at the time of origination of the lease.
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Generally, each lessee is permitted to purchase the related Vehicle at the
end of the term of the related Lease Contract. The purchase price is generally a
fixed dollar amount equal to the residual value plus any applicable taxes and
all other incidental charges which may be due under the Lease Contract. In
addition, each Lease Contract generally allows the related lessee voluntarily to
terminate the Lease Contract by paying certain miscellaneous charges and a
termination amount more fully described in this section below or as may be
described in the related prospectus supplement.
In other instances, the Lease Contracts are not expected to run to their full
terms. For example, from time to time there are incentive programs for dealers
to trade customers under existing leases with remaining terms of less than one
year into new Lease Contracts. In so doing, the dealer is able to keep the
customer, sell a new car under a new Lease Contract and obtain a used car for
resale.
Each Lease Contract generally provides that the lessor may terminate the
Lease Contract and repossess the leased Vehicle in the event of a default by the
lessee. Events of default under a Lease Contract may include, but are not
limited to:
o failure to make payment when due;
o certain events of bankruptcy or insolvency;
o failure to maintain the insurance required by the Lease Contract;
o failure to maintain or repair the leased Vehicle as required or to comply
with any other term or condition of the Lease Contract; and
o the making of a material misrepresentation by the lessee in the lease
application.
Upon early termination or default, the amount owed by the lessee under a
Lease Contract is generally equal to:
o the amount of delinquent and future scheduled monthly payments and any
incidental charges owing under the Lease Contract, less unearned finance
charges;
o plus, the residual value of the leased Vehicle; and
o minus any security deposit and any net liquidation proceeds realized from
the sale of the related leased Vehicle.
In the event of an early termination of, or default under, a Lease Contract,
the Lease Contract may provide that if the lessee disagrees with the wholesale
price for the leased Vehicle, the lessee has the right to obtain from an
independent third party a professional appraisal of the wholesale value of the
leased Vehicle that could be realized at sale. This appraised value would then
be used as the revised estimated fair market value for purposes of calculating
sums due from the lessee in those circumstances.
In the event of early termination of, or a default under, a Lease Contract,
any shortfall between the amounts collected with respect to the Lease Contract,
after deducting the costs and other sums retained by the servicer in connection
with the Lease Contract, and the Discounted
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Contract Balance, together with the residual value of the Vehicle, will reduce
the value of the collateral constituting a part of the trust fund. To the extent
that the shortfall is not covered through payments on or in respect of the other
Lease Contracts and leased Vehicles, from monies on deposit in the Accounts,
from claims under the residual value insurance, if any, or from other insurance
proceeds or liquidation proceeds, the related securityholders could suffer a
loss on their investment.
RECOVERIES ON VEHICLES
The trust fund will not include underlying Vehicles, although the right to
receive recoveries with respect to the Vehicles in the event that the related
Contract becomes defaulted may be included in the trust fund. The related
prospectus supplement may specify that the depositor will execute the requisite
documents in order to convey title to the Vehicle to a finance subsidiary, or
the trustee.
Since the trust fund will not contain leased Vehicles, no securities will be
issued in respect of leased Vehicles or any residual values associated with
leased Vehicles.
In the event that any Contract becomes a defaulted Contract, the servicer
will be required to attempt to maximize the recoveries on the Contract, which
may include commencing a legal action against the related obligor for the
balance of the scheduled monthly payments remaining on the Contract,
repossessing and selling the related Vehicle or both.
Repossessions involve the seizure of the related Vehicle, followed by either
the sale of the Vehicle or, in the case of leased Vehicles, the releasing of the
Vehicle to a new obligor. In the event that the Vehicle is repossessed and
offered for sale, the sale will be conducted either at a public auction, or the
Vehicle will be consigned to a dealership and offered for sale on the lot. The
sale method that is selected by the servicer will depend on the servicer's
determination of which method will likely maximize the recovery proceeds, and
will also depend upon the availability of public auctions versus dealerships in
the locale in which the repossession is effected.
The servicer may, in realizing on defaulted Contracts, utilize the original
lessor, as servicer.
If a Lease Contract becomes a "fully-performed Contract", i.e., the related
obligor has made all scheduled payments on the Lease Contract, the obligor will
generally have the option to purchase the Vehicle, or to return the Vehicle to
the servicer for sale or re-leasing. Any recoveries on a fully-performed
Contract will be released to the depositor, subject to any conditions precedent
to the release set forth in the related Trust Agreement.
RESIDUAL VALUE INSURANCE FOR LEASED VEHICLES
The Receivables seller may obtain an insurance policy in respect of the
residual values of the leased Vehicles relating to matured Lease Contracts. The
trustee may be named as an additional insured under any primary residual value
insurance policy. A primary residual value insurance policy generally provides
coverage for 100% of the amount by which the "residual value" of any leased
Vehicle exceeds the "market value" for the leased Vehicle. For these purposes,
"residual value" is generally determined by reference to the Automotive Lease
Guide, Percentage Edition, and will be calculated by multiplying the
manufacturer's suggested price for the leased Vehicle,
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as adjusted to reflect any optional equipment, by a percentage that varies
depending upon the original term of the related Lease Contract. Additional
adjustments are generally then made for any excess mileage and excess damage.
"Market value" is generally the greater of:
o the price actually received by or on behalf of the insured in a
commercially reasonable sale held in accordance with procedures approved
by the insurer, or
o the "average wholesale value" established by the Black Book Used Car
Market Guide, monthly edition.
An insurer may unilaterally change the reference publications used for these
definitions upon providing advance notice. The primary residual value insurance
policy generally does not have any deductibles or provide for co-insurance, but
does provide for a maximum amount payable in respect of a leased Vehicle and an
aggregate cap for all payments made in respect of the leased Vehicles.
The Receivables seller may obtain an additional insurance policy providing
coverage in respect of the "insured value" of a Lease Contract covered by that
policy in excess of a deductible of a specified percentage of the insured value,
depending upon the original term of the related Lease Contract. For purposes of
any excess residual value insurance policy, the "insured value" is generally
equal to the lesser of:
o the residual value set forth in the Receivables seller's Residual Lease
Guide in effect as of the date of origination of the related Lease
Contract, or
o the residual value set forth in the Automotive Lease Guide, Percentage
Edition in effect for the original term of the Lease Contract.
An excess residual value insurance policy would be an excess policy, and a
claim under that policy would be made only after deducting any other recovery by
the servicer in respect of the related residual value of a leased Vehicle, and
the "fair market value" of the leased Vehicle. The "fair market value" of a
leased Vehicle is generally defined in the Excess Residual Value Insurance
Policy as an amount equal to the greater of:
o the best sales price offered in respect of the leased Vehicle in
commercially reasonable sales transactions; or
o the "clean wholesale" value established in the Black Book Used Car Market
Guide Monthly.
Claims made under the excess residual value insurance policy are generally
based upon a comparison of the net recoveries for all covered Vehicles disposed
of during the related quarter to the aggregate insured values for those
Vehicles. As a result, the amount payable under the excess residual value
insurance policy in respect of the residual value of a leased Vehicle could be
less than the insured value of the leased Vehicle.
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CONTINGENT AND EXCESS LIABILITY INSURANCE POLICIES FOR LEASED VEHICLES
In addition to the personal property and liability insurance coverage which
is generally required to be obtained and maintained by the lessees pursuant to
the Lease Contracts, and as additional protection in the event that any lessee
fails to maintain all the required insurance under the Lease Contract, the
Receivables seller may maintain contingent liability insurance which provides
coverage for property damage or personal liability suffered by third persons
caused by any Vehicle owned by any insured. The issuer may be an additional
insured under this policy with respect to the leased Vehicles. As may be
provided in the related prospectus supplement, the servicer may also maintain
substantial amounts of excess insurance coverage for which the issuer may be
named as an additional named insured. With respect to damage to the leased
Vehicles themselves, each lessee is generally obligated by the related Lease
Contract to maintain collision insurance. In the event that the issuer was not
named as an additional insured under the contingent and excess liability
insurance policies or all of the foregoing insurance coverage were exhausted and
damages were assessed against the issuer, claims could be imposed against the
assets of the issuer. If that occurs, the related securityholders could incur a
loss on their investment. See "Risk Factors--Vicarious Tort Liability Could
Cause Losses" and "Certain Legal Aspects of the Receivables--Vicarious Tort
Liability With Respect to the Leased Vehicles" in this prospectus.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Certain information relating to the related Receivables seller's or the
servicer's delinquency, repossession and net loss experience with respect to the
Receivables it has originated or acquired or serviced will be set forth in each
prospectus supplement. This information may include, among other things, the
experience with respect to all the Receivables in the Receivables seller's or
servicer's portfolio during certain specified periods, including receivables
which may not meet the criteria for selection as a Receivable for any particular
trust fund. There can be no assurance that the delinquency, repossession and net
loss experience on any trust fund will be comparable to the related Receivables
seller's or servicer's prior experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
If a Receivable permits a prepayment, the prepayment, together with
accelerated payments resulting from defaults, will shorten the weighted average
life of the related pool of Receivables and the weighted average life of the
related securities. The rate of prepayments on the Receivables may be influenced
by a variety of economic, financial and other factors. In addition, under
certain circumstances, the depositor or the related Receivables seller will be
obligated to acquire Receivables from the related trust fund under the
applicable Trust Agreement or Receivables Acquisition Agreement as a result of
breaches of representations and warranties. Any reinvestment risks resulting
from a faster or slower amortization of the related securities which results
from prepayments will be borne entirely by the related securityholders.
The related prospectus supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
securities, together with a description of any applicable prepayment penalties.
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ACQUISITION OF RECEIVABLES FROM RECEIVABLES SELLERS
The Receivables underlying a series of securities may be acquired by the
depositor, either directly or through affiliates from the related Receivables
seller under a Receivables Acquisition Agreement between the depositor or its
affiliate and each related Receivables seller.
Each Receivable acquired by the depositor may be one originated by the
Receivables seller in accordance with the underwriting criteria specified in the
prospectus supplement or purchased by the Receivables seller. The related
prospectus supplement may provide that:
o each Receivables seller which is an originator will be an institution
experienced in originating and servicing retail installment sale and
installment loan contracts in accordance with accepted industry practices
and prudent guidelines;
o each Receivables seller under the related Receivables Acquisition
Agreement will make certain representations and warranties to the
depositor or the related trustee in respect of the related Receivables;
and
o in the event the representations and warranties are not made to the
related trustee, the depositor will assign its rights relating to those
representations and warranties, except certain rights of indemnification,
and interest in the related Receivables Acquisition Agreement to the
related trustee for the benefit of the securityholders of that series, and
the Receivables seller will then be liable to the trustee for defective or
missing documents or an uncured breach of the Receivables seller's
representations or warranties.
USE OF PROCEEDS
The proceeds from the sale of the securities of a given series will be
applied by the depositor to the acquisition of the related Receivables from the
related Receivables seller. The depositor will apply all or substantially all of
the net proceeds from the sale of each series of securities for one or more of
the following purposes:
o to purchase the related assets of the trust fund;
o to repay indebtedness which was incurred to obtain funds to acquire the
assets of the trust fund;
o to establish any reserve funds or other funds described in the related
prospectus supplement; and
o to pay costs of structuring, guaranteeing and issuing the securities,
including the costs of obtaining credit support, if any.
The purchase of the assets of the trust fund for a series may be effected by an
exchange of securities with the seller of the assets of the trust fund.
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THE DEPOSITOR
PaineWebber Asset Acceptance Corporation, the depositor, was incorporated in
the State of Delaware on April 19, 2000 as a wholly-owned, limited purpose
finance subsidiary of PaineWebber Group Inc. The depositor's principal executive
offices are located at 1285 Avenue of the Americas, New York, New York 10019.
Its telephone number is (212) 713-2000.
As described in this prospectus under "The Trust Funds," the only
obligations, if any, of the depositor with respect to a series of securities may
be limited representations and warranties and limited undertakings to repurchase
or substitute Receivables under limited circumstances. We do not expect that the
depositor will have any servicing obligations or responsibilities with respect
to any trust fund. The depositor does not have, nor is it expected in the future
to have, any significant assets.
The servicer with respect to any series of securities may be an affiliate of
the depositor. As described in this prospectus under "The Trust Funds," the
depositor may acquire Receivables through or from an affiliate.
Neither the depositor nor PaineWebber Group Inc., nor any of their respective
affiliates, will insure or guarantee the securities of any series.
THE TRUSTEE
The trustee for each series of securities will be specified in the related
prospectus supplement. The trustee's liability in connection with the issuance
and sale of the related securities is limited solely to the express obligations
of the trustee set forth in the related Trust Agreement.
With respect to each series of securities, no resignation or removal of the
trustee and no appointment of a successor trustee will become effective until
the acceptance of appointment by the successor trustee. The related prospectus
supplement will describe the manner in which the trustee may resign. If no
successor trustee is appointed by the depositor or the securityholders, or if no
successor trustee accepts appointment within a specified period following any
resignation or removal, the trustee or any securityholder may petition any court
of competent jurisdiction for the appointment of a successor trustee.
DESCRIPTION OF THE SECURITIES
GENERAL
The securities will be issued in series. Each series of securities, or,
multiple series of securities, will be issued under a Trust Agreement. All of
the securities offered under this prospectus and the related prospectus
supplement will be rated in one of the four highest rating categories by one or
more rating agencies.
Fixed income securities generally, but not always, have a principal balance
and a specified interest rate.
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Each series or class of securities offered under this prospectus may have a
different interest rate, which may be a fixed or adjustable interest rate. The
related prospectus supplement will specify the interest rate for each series or
class of securities described in that prospectus supplement, or the initial
interest rate and the method for determining subsequent changes to the interest
rate.
A series may include one or more classes of Strip Securities entitled to:
o principal payments, with disproportionate, nominal or no principal
payments; or
o interest payments, with disproportionate, nominal or no interest payments.
In addition, a series of securities may include two or more classes of
securities:
o that differ as to timing, sequential order, priority of payment, interest
rate or amount of payment of principal or interest or both; or
o as to which payments of principal or interest or both on any class may be
made:
o upon the occurrence of specified events;
o in accordance with a schedule or formula; or
o on the basis of collections from designated portions of the related
pool of Receivables.
A series may include one or more classes of Accrual Securities, as to which
certain accrued interest will not be paid but rather will be added to its
principal balance, or nominal balance, on each payment date, or in the manner
that may be described in the related prospectus supplement.
If provided in the related prospectus supplement, a series may include one or
more other classes of senior securities that are senior to one or more other
classes of subordinate securities in respect of payments of principal and
interest and allocations of losses on Receivables.
In addition, certain classes of senior or subordinate securities may be
senior to other classes of senior or subordinate securities in respect of
payments or losses.
GENERAL PAYMENT TERMS OF SECURITIES
As will be provided in the related Trust Agreement and as described in the
related prospectus supplement, securityholders will be entitled to receive
payments on their securities on the specified payment dates. Payment dates with
respect to the securities will occur monthly, quarterly or semi-annually, as
will be described in the related prospectus supplement.
The related prospectus supplement will describe the record date preceding the
payment date, as of which the trustee or its paying agent will fix the identity
of the securityholders for the purpose of receiving payments on the next
succeeding payment date.
Each Trust Agreement will describe a remittance period preceding each payment
date. As may be more fully provided in the related prospectus supplement,
collections received on the
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related Receivables during a remittance period will be required to be remitted
by the related servicer to the related trustee prior to the related payment date
and will be used to fund payments to securityholders on that payment date. The
related prospectus supplement may provide that all or a portion of the payments
collected on the related Receivables may be applied by the related trustee to
the acquisition of subsequent Receivables during a specified period rather than
be used to fund payments of principal to securityholders during that period.
This results in securities with an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period.
These interest-only or revolving periods may, upon the occurrence of events to
be described in the related prospectus supplement, terminate prior to the end of
the specified period and result in the earlier than expected amortization of the
related securities.
In addition, the related prospectus supplement may provide that all or a
portion of the collected payments may be retained by the trustee for a specified
period prior to being used to fund payments of principal to securityholders.
These collected payments may be held in certain temporary investments, including
Receivables.
The retention and temporary investment by the trustee of the collected
payments may be required by the related Trust Agreement for the purposes of:
o slowing the amortization rate of the related securities relative to the
payment schedule of the related Receivables; or
o attempting to match the amortization rate of the related securities to an
amortization schedule established at the time the securities are issued.
If applicable to any securities, these features may terminate upon the
occurrence of events to be described in the related prospectus supplement,
resulting in payments to the specified securityholders and an acceleration of
the amortization of the securities.
Neither the securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or the depositor, the
related servicer, the related Receivable seller, any trustee or any of their
respective affiliates unless specifically set forth in the related prospectus
supplement.
As may be described in the related prospectus supplement, securities of each
series will either represent:
o specified beneficial ownership interests in a separate trust fund created
under the Trust Agreement; or
o debt secured by the related trust fund.
If any trust fund includes certificates of interest or participations or
security interests in Receivables, the related prospectus supplement will
describe the material terms and conditions of the certificates or participations
or describe the security interest.
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BOOK-ENTRY REGISTRATION
Securityholders of a given series may hold their securities through DTC in
the United States or Clearstream or Euroclear in Europe if they are participants
of those systems, or indirectly through organizations that are participants in
those systems.
Cede & Co., as nominee for DTC, will hold the global securities for a given
series. Clearstream and Euroclear will hold omnibus positions on behalf of the
Clearstream Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Clearstream's and Euroclear's names on the
books of their respective depositaries which in turn will hold the positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered under
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between participants through electronic book-entries, thereby
eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream Participants and Euroclear Participants will occur
in the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Clearstream
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary. However, these cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system in accordance with its rules and
procedures and within its established deadlines which are in 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
Participants 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 DTC participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and the credits or any transactions in the
securities settled during the processing will be reported to the relevant
Clearstream Participant or Euroclear Participant on that business day. Cash
received in Clearstream or Euroclear as a result of sales of securities by or
through a Clearstream Participant or a Euroclear Participant to a DTC
Participant will be received with value on the DTC
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settlement date but will be available in the relevant Clearstream or Euroclear
cash account only as of the business day following settlement in DTC.
The securityholders of a given series that are not participants or indirect
participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, securities of a series may do so only through participants
and indirect participants. In addition, securityholders of a given series will
receive all payments of principal and interest through the participants who in
turn will receive them from DTC. Under a book-entry format, securityholders of a
given series may experience some delay in their receipt of payments, since the
payments will be forwarded by the applicable trustee to Cede & Co., as nominee
for DTC. DTC will forward the payments to its participants, which then will
forward them to indirect participants or the securityholders. It is anticipated
that the only "securityholder" in respect of any series will be Cede & Co., as
nominee of DTC. Securityholders of a given series will not be recognized as
securityholders of that series, and these securityholders will be permitted to
exercise the rights of securityholders of that series only indirectly through
DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of securities of a
given series among participants on whose behalf it acts for the securities and
to receive and transmit payments of principal of, and interest on, those
securities. Participants and indirect participants with which the
securityholders of a given series have accounts for the securities similarly are
required to make book-entry transfers and receive and transmit the payments on
behalf of their respective securityholders of that series. Accordingly, although
the securityholders will not possess securities, the creating and affecting DTC
provide a mechanism by which participants will receive payments and will be able
to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on behalf
of indirect participants and certain banks, the ability of a securityholder of a
given series to pledge securities of that series to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to the
securities, may be limited due to the lack of a physical certificate for the
securities.
DTC will advise the trustee for each series that it will take any action
permitted to be taken by a securityholder of the related series only at the
direction of one or more participants to whose accounts with DTC the securities
of that series are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that their actions are taken on behalf
of participants whose holdings include undivided interests.
Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream facilitates the clearance and settlement of securities
transactions between Clearstream Participants through electronic book-entry
changes in accounts of Clearstream Participants, which eliminates the need for
physical movement of certificates. Transactions may be settled in Clearstream in
any of 28 currencies, including United States dollars. Clearstream provides to
its Clearstream Participants, services for:
o safekeeping;
o administration;
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o clearance and settlement of internationally traded securities; and
o securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional depository, Clearstream is subject to regulation by the Luxembourg
Monetary Institute. Clearstream Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Clearstream is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Clearstream Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for Euroclear Participants
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 28 currencies, including United States dollars. The Euroclear System
includes various other services, including:
o securities lending and borrowing; and
o interfaces with domestic markets in several countries generally similar to
the arrangements for cross-market transfers with DTC described above.
Euroclear is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office, under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation. 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 securities. 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 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.
The terms and conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear System,
and receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the terms and conditions only on behalf of
Euroclear Participants and has no record of relationship with persons holding
through Euroclear Participants.
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Except as required by law, the trustee in respect of a series will not have
any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related securities held by Cede
& Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests.
DEFINITIVE SECURITIES
Definitive Securities will generally be issued to the securityholders of a
given series or their nominees, rather than to DTC or its nominee, only if:
(1) the trustee for the related series advises in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository for the securities and the trustee is unable to locate a
qualified successor;
(2) the servicer, at its option, elects to terminate the book-entry-system
through DTC; or
(3) after the occurrence of an "Event of Default" under the related indenture
or a default by the servicer under the related Trust Agreements,
securityholders representing at least a majority of the outstanding
principal amount of the securities advise the applicable trustee through
DTC in writing that the continuation of a book-entry system through DTC
is no longer in the securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable trustee will be required to notify all the
securityholders through participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
the securities and receipt of instructions for re-registration, the applicable
trustee will reissue the securities as Definitive Securities to the
securityholders.
Payments of principal of, and interest on, the securities will then be made
by the applicable trustee in accordance with the procedures set forth in the
related Trust Agreement directly to holders of Definitive Securities in whose
names the Definitive Securities were registered at the close of business on the
applicable record date specified for those securities in the related prospectus
supplement. The distributions may be made with a check mailed to the address of
the holder as it appears on the register maintained by the applicable trustee or
otherwise permitted in the related Trust Agreement. The final payment on those
securities, however, will generally be made only upon presentation and surrender
of the security at the office or agency specified in the notice of final payment
to the applicable securityholders.
Definitive Securities in respect of a given series of securities will be
transferable and exchangeable at the offices of the applicable trustee or of a
certificate registrar named in a notice delivered to holders of the Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
On or prior to each payment date for a series of securities, the related
servicer or the related trustee will forward or cause to be forwarded to each
holder of record of the class of securities a
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statement or statements for the related trust fund setting forth the information
which may generally include the following information, to the extent applicable:
(1) the amount of the payment for each class of securities;
(2) the amount of the payment allocable to principal;
(3) the amount of the payment allocable to interest;
(4) the pool balance, if applicable, as of the close of business on the last
day of the related remittance period;
(5) the aggregate outstanding principal balance and the pool factor for each
class of securities after giving effect to all payments reported under
(2) above on the payment date;
(6) the amount paid to the servicer for the related remittance period;
(7) the amount of the aggregate purchase amounts for Receivables that have
been reacquired for the remittance period; and
(8) the amount of coverage under any letter of credit, financial guaranty
insurance policy, reserve account or other form of credit enhancement
covering default risk as of the close of business on the applicable
payment date and a description of any credit enhancement substituted for
any letter of credit, financial guaranty insurance policy, or reserve
account.
Each amount set forth under subclauses (1), (2), (3) and (4) for the
securities of any series will be expressed as a dollar amount per $1,000 of the
initial principal balance of the securities, as applicable.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year, the applicable trustee will provide to the
securityholders a statement containing the amounts described in (2) and (3)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the securityholders' preparation of federal income
tax returns.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms which may be included in each
Trust Agreement under which a trust fund will be created and the related
securities for the trust fund will be issued. For purposes of this prospectus,
the term "Trust Agreement" as used regarding a trust means any and all
agreements relating to:
o the establishment of the related trust;
o the servicing of the related Receivables; and
o the issuance of the related securities, including the indenture.
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ACQUISITION OF THE RECEIVABLES UNDER A RECEIVABLES ACQUISITION AGREEMENT
On the closing date specified for any series of securities, the depositor
will acquire the related Receivables or a security interest in the Receivables
from the related Receivables seller under a Receivables Acquisition Agreement.
The depositor will either transfer the Receivables to an issuer under a pooling
agreement, or will pledge the depositor's right, title and interests in and to
the Receivables to a trustee on behalf of securityholders under an indenture.
The depositor and/or the related Receivables seller may be obligated to
acquire from the related trust fund its interest in any Receivable transferred
to an issuer or pledged to a trustee on behalf of securityholders. This
obligation may arise if the interest of the securityholders in the Receivables
is materially and adversely affected by a breach of any representation or
warranty made by the depositor or the related Receivables seller for the
Receivable, which breach is not cured following the discovery by or notice to
the depositor or the related Receivables seller of the breach. The obligation of
the depositor to acquire the Receivables for which a Receivables seller has
breached a representation or warranty would be subject to the Receivables
seller's acquisition of the Receivables from the depositor. In addition, if so
specified in the related prospectus supplement, the depositor and/or the
Receivables seller may reacquire Receivables or substitute other Receivables for
the Receivable held by a trust fund subject to specified conditions set forth in
the related Trust Agreement and Receivables Acquisition Agreement.
ACCOUNTS
With respect to each series of securities, the related servicer will
establish and maintain with the applicable trustee one or more accounts, in the
name of the trustee on behalf of the related securityholders, into which all
payments made on the related Receivables will be deposited. The servicer will
also establish and maintain with the trustee separate payment accounts, in the
name of the trustee on behalf of the securityholders, in which amounts released
from a collection account and any reserve account or other credit enhancement,
if any, for payment to the securityholders will be deposited and from which
payments to the securityholders will be made.
Any other accounts to be established with respect to an issuer, including any
reserve account, will be described in the related prospectus supplement.
For any series of securities, funds in the accounts established under the
related Trust Agreement will be invested as provided in the related Trust
Agreement in eligible investments. Eligible investments are generally limited to
investments acceptable to the rating agencies as being consistent with the
rating of the securities. If the rating agencies so permit, eligible investments
may include securities issued by the depositor, the related Receivables seller,
the related servicer or their affiliates or other trusts created by the
depositor or its affiliates. Eligible investments are mostly limited to
obligations or securities that mature not later than the business day
immediately preceding the related payment date. However, funds in any reserve
account may be invested in securities that will not mature prior to the date of
the next payment and will not be sold to meet any shortfalls. Thus, the amount
of cash in any reserve account at any time may be less than the balance of the
reserve account. If the amount required to be withdrawn from any reserve account
to cover shortfalls in collections on the related Receivables exceeds the amount
of cash in the reserve account a temporary shortfall in the amounts paid to the
related securityholders could result. This temporary shortfall could, in turn,
increase the average life of
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the securities of that series. The related prospectus supplement will provide
whether or not investment earnings on funds deposited in the accounts, net of
losses and investment expenses, will be available to pay securityholders.
The accounts will be maintained with a federally or state chartered
depository institution and in a manner satisfactory to each rating agency rating
the securities of the related series at the time any amonunts are held on
deposit in the accounts.
To the extent that a servicer's unsecured debt ratings are acceptable to the
rating agencies, amounts deposited to any account maintained by the servicer may
be commingled with the servicer's general account monies. Any rights to so
commingle monies will be described in the related prospectus supplement.
THE SERVICER
The servicer under each Trust Agreement will be named in the related
prospectus supplement. The entity serving as servicer may be an affiliate of the
Receivables seller or the depositor and may have other business relationships
with the Receivables seller or the depositor or their affiliates. The servicer
for each series will service the Receivables contained in the trust fund for
that series. Any servicer may delegate its servicing responsibilities to one or
more sub-servicers, but will not be relieved of its liabilities by doing so.
Each servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Trust Agreement. An uncured breach of a representation or warranty that
in any respect materially and adversely affects the interests of the
securityholders will constitute a default by the servicer under the related
Trust Agreement.
SERVICING PROCEDURES
Each Trust Agreement will provide that the related servicer will make
reasonable efforts to collect all payments due with respect to the Receivables
held in the related trust fund. The servicer will also continue the collection
procedures that the servicer follows with respect to the particular type of
Receivable in the particular pool it services for itself and others in a manner
consistent with the related Trust Agreement. Consistent with its normal
procedures, and, to the extent described in the related prospectus supplement,
the servicer may, in its discretion and on a case-by-case basis, arrange with
the obligor to extend or modify the payment schedule on a Receivable. Some of
the arrangements, including, any extension of the payment schedule beyond the
final scheduled payment date for the related securities, may result in the
servicer acquiring the Receivable if the Receivable becomes a defaulted
Contract. The servicer may sell the asset underlying the defaulted Receivable,
if any, at a public or private sale, or take any other action permitted by
applicable law. See "Certain Legal Aspects of the Receivables" in this
prospectus.
The material aspects of any particular servicer's collections procedures will
be set forth in the related prospectus supplement.
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PAYMENTS ON RECEIVABLES
With respect to each series of securities, the related servicer will deposit
all payments on the related Receivables and all proceeds of the Receivables
collected in the related collection facility, such as a lock-box account or
collection account. Monies deposited in a collection facility for a trust fund
may be commingled with funds from other sources. As will be further specified in
the related prospectus supplement, the related servicer will be required to
deposit payments on the related Receivables collected during each collection
period into the related collection account on a specified day each month.
Pending deposit into the related collection account, collections in the
collection facility may be invested by the related servicer at its own risk and
for its own benefit, and will not be segregated from funds of the related
servicer.
SERVICING COMPENSATION
With respect to any series of securities, the related servicer will be
entitled to receive a servicing fee for each collection period. The servicing
fee will be in an amount equal to a percentage per annum set forth in the
related prospectus supplement of the value of the Receivables held in the
related trust fund, generally as of the first day of the collection period. Each
prospectus supplement and servicing agreement will specify the priority of
payments with respect to the servicing fee, together with any portion of the
servicing fee that remains unpaid from prior payment dates. The servicing fee
may be paid prior to any payment to the related securityholders.
Each servicer may also, if specified in the related prospectus supplement,
collect and retain any late fees, the penalty portion of interest paid on past
due amounts and other administrative fees or similar charges allowed by
applicable law with respect to the Receivables. Each servicer will generally be
entitled to reimbursement from the related trust fund for expenses and
liabilities incurred by it in servicing the Receivables. Payments by or on
behalf of obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the servicer's normal practices and procedures.
The servicing fee will:
(1) compensate the related servicer for performing the functions of a third
party servicer of similar types of Receivables as an agent for their
beneficial owner, including:
o collecting and posting all payments;
o responding to inquiries of obligors on the related Receivables;
o investigating delinquencies;
o sending payment coupons to obligors;
o reporting tax information to obligors;
o paying costs of collection and disposition of defaults; and
o policing the collateral.
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(2) compensate the related servicer for administering the related
Receivables, accounting for collections and furnishing statements to the
applicable trustee and the applicable indenture trustee;
(3) reimburse the related servicer for:
o certain taxes;
o accounting fees;
o outside auditor fees; and
o data processing costs and other costs incurred in connection with
administering the Receivables.
PAYMENTS
With respect to each series of securities, beginning on the payment date
specified in the related prospectus supplement, payments of principal and
interest, or, where applicable, of principal or interest only, on each class of
the securities entitled to those payments will be made by the applicable
indenture trustee to the noteholders and by the applicable trustee to the
certificateholders of those series. The timing, calculation, allocation, order,
source, priorities of and requirements for each class of noteholders and all
payments to each class of certificateholders of each series will be set forth in
the related prospectus supplement.
With respect to each series of securities, on each payment date collections
on the related Receivables will be transferred from the collection account to
the payment account for payment to securityholders, to the extent provided in
the related prospectus supplement. Credit enhancement, such as a reserve
account, may be available to cover any shortfalls in the amount available for
payment on that date, to the extent specified in the related prospectus
supplement. As may be more fully described in the related prospectus supplement,
payments in respect of principal of a class of securities of a given series will
be subordinate to payments in respect of interest on that class, and payments in
respect of the certificates of that series may be subordinate to payments in
respect of the notes of that series.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of credit enhancement arrangements, if any, and the
provider of the credit enhancements, if applicable, for each class of securities
of a given series will be set forth in the related prospectus supplement. If and
to the extent provided in the related prospectus supplement, credit enhancement
may be in the form of:
o a financial guaranty insurance policy;
o subordination of one or more classes of securities;
o reserve accounts;
o over-collateralization;
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o letters of credit;
o credit or liquidity facilities;
o third party payments or other support;
o surety bonds;
o guaranteed cash deposits or any other arrangements as may be described in
the related prospectus supplement; or
o any combination of two or more of the above forms of credit enhancement.
If specified in the related prospectus supplement, credit enhancement for a
class of securities may cover one or more other classes of securities of the
same series, and credit enhancement for a series of securities may cover one or
more other series of securities.
The presence of credit enhancement for the benefit of any class or series of
securities is intended to enhance the likelihood of receipt by the
securityholders or the class or series of the full amount of principal and
interest due and to decrease the likelihood that the securityholders will
experience losses. As may be more specifically provided in the related
prospectus supplement, the credit enhancement for a class or series of
securities will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance and interest on the
principal balance. If losses occur which exceed the amount covered by any credit
enhancement or which are not covered by any credit enhancement, securityholders
of any class or series will bear their allocable share of deficiencies, as may
be described in the related prospectus supplement. In addition, if a form of
credit enhancement covers more than one series of securities, securityholders of
those series will be subject to the risk that the credit enhancement will be
exhausted by the claims of securityholders of other series.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Prior to each payment date with respect to each series of securities, the
related servicer will be required to provide to the applicable indenture trustee
and/or the applicable trustee and credit enhancer a statement setting forth the
information described in the related prospectus supplement, which may include
the same information as is required to be provided in the periodic reports
provided to securityholders of that series described under "Description of the
Securities--Reports to Securityholders" in this prospectus. The statement will
be as of the close of business on the last day of the preceding related
remittance period.
EVIDENCE AS TO COMPLIANCE
Each Trust Agreement will generally provide that a firm of independent public
accountants will furnish to the related issuer and/or the applicable trustee, an
annual statement as to compliance by the related servicer during the preceding
twelve months with the standards relating to the servicing of the Receivables.
In the case of the first certificate, the period will cover the time since the
applicable closing date.
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Each Trust Agreement will also generally provide for delivery to the related
issuer and/or the applicable trustee of a certificate signed by an officer of
the related servicer. The certificate will either:
o state that the servicer has fulfilled its obligations under the Trust
Agreement in all material respects throughout the preceding 12 months, or,
in the case of the first certificate, the period from the applicable
closing date; or
o describe the default if there has been a default in the fulfillment of its
obligation in any material respect.
Each servicer may also be required to agree to give the issuer and the
trustee notice of certain servicer defaults under the related Trust Agreement.
CERTAIN MATTERS REGARDING THE SERVICERS
The servicer may not resign from its obligations and duties as servicer,
except upon determination that the performance by the servicer of its duties is
no longer permissible under applicable law and except pursuant to terms
specified in the related prospectus supplement. The resignation will not become
effective until the related trustee or a successor servicer has assumed the
servicer's servicing obligations and duties under the Trust Agreement.
Neither the related servicer nor any of its respective directors, officers,
employees, or agents will be under any liability to the related issuer or the
related securityholders for taking any action or for refraining from taking any
action under the Trust Agreement, or for errors in judgment, other than as may
be described in the related prospectus supplement. However, neither the servicer
nor any similar person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
and duties under the Trust Agreement. In addition, the Trust Agreement may
provide that the related servicer is under no obligation to appear in,
prosecute, or defend any legal action that is not incidental to its servicing
responsibilities under the Trust Agreement and that, in its opinion, may cause
it to incur any expense or liability.
Under the circumstances specified in the Trust Agreement the following
entities may be the successor to the servicer under the Trust Agreement:
o any entity into which the related servicer may be merged or consolidated;
o any entity resulting from any merger or consolidation to which the
servicer is a party;
o any entity succeeding to the business of the servicer; or
o any corporation or other entity that assumes the obligations of the
servicer.
SERVICER DEFAULT
A "servicer default" under a Trust Agreement may include:
(1) any failure by the related servicer to deliver to the applicable trustee
for deposit in any of the applicable accounts any
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required payment or to direct the trustee to make any required payments
from the applicable accounts, which failure continues unremedied for
greater than 2 business days after written notice from the trustee is
received by the servicer or after discovery by the servicer;
(2) any failure by the servicer or the related Receivables seller to observe
or perform in any material respect any other covenant or agreement in the
Trust Agreement, which failure materially and adversely affects the
rights of the related securityholders and which continues unremedied for
a period greater than 120 days after written notice is given of the
failure; and
(3) any Insolvency Event.
RIGHTS UPON SERVICER DEFAULT
As long as a servicer default under a Trust Agreement remains unremedied, the
applicable trustee, credit enhancer or holders of securities of the related
series with not less than a percentage of the voting rights of the outstanding
securities as specified in the related prospectus supplement may terminate all
the rights and obligations of the servicer, if any, under the Trust Agreement.
After the rights and obligations of the servicer are terminated the trustee or a
successor servicer appointed by the trustee will succeed to all the
responsibilities, duties and liabilities of the servicer under the Trust
Agreement and will be entitled to similar compensation arrangements. If,
however, a bankruptcy trustee or similar official has been appointed for the
servicer, and no servicer default other than the appointment has occurred, the
bankruptcy trustee or official may have the power to prevent the applicable
trustee or the securityholders from effecting a transfer of servicing. In the
event that the trustee is unwilling or unable to so act, it may appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
with a net worth of an amount set forth in the related Trust Agreement and whose
regular business includes the servicing of a similar type of Receivables. This
trustee may make the arrangements for compensation to be paid, which in no event
may be greater than the servicing compensation payable to the servicer under the
related Trust Agreement.
WAIVER OF PAST DEFAULTS
Subject to the approval of any credit enhancer, the holders of securities
evidencing at least a majority of the voting rights of the outstanding
securities may, on behalf of all securityholders of the related securities,
waive any default by the servicer, or by the related Receivables seller, in the
performance of its obligations under the related Trust Agreement and its
consequences. However, a default in making any required deposits to or payments
from any of the accounts in accordance with the Trust Agreement may not be
waived. No waiver will impair the securityholders' rights with respect to
subsequent defaults.
AMENDMENT
To the extent provided in the related prospectus supplement, each of the
Trust Agreements may be amended by the parties to the Trust Agreement, without
the consent of the related securityholders. This amendment may be for the
purpose of
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o adding any provisions to or changing in any manner or eliminating any of
the provisions of the Trust Agreements or
o modifying in any manner the rights of the securityholders.
This type of amendment may be made if it does not materially and adversely
affect the interests of any of those securityholders.
The Trust Agreements may also be amended by the depositor, the servicer, and
the applicable trustee with the consent of any credit enhancer and the holders
of securities evidencing at least a majority of the voting rights of the
outstanding securities for the purpose of:
o adding any provisions to or changing in any manner or eliminating any of
the provisions of the Trust Agreements; or
o modifying in any manner the rights of the securityholders;
This type of amendment may be made if it does not:
o increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the related Receivables or payments
that are required to be made for the benefit of the securityholders; or
o reduce the percentage of the securities of the series which are required
to consent to the amendment, without the consent of the securityholders of
that series.
TERMINATION
With respect to each trust, the obligations of the related servicer, the
related Receivables seller(s), the depositor and the applicable trustee under
the related Trust Agreement will terminate upon the earlier to occur of:
(1) the maturity or other liquidation of the last related Receivable and the
disposition of any amounts received upon liquidation of any remaining
Receivables and
(2) the payment to securityholders of the related series of all amounts
required to be paid to them under the Trust Agreement.
In order to avoid excessive administrative expense, the related servicer,
Receivables seller, depositor or other party be permitted to purchase from a
trust fund all the remaining Receivables, as of the end of any collection period
immediately preceding a payment date. The purchase will be permitted only if the
current balance of the Receivables is less than a specified percentage set forth
in the related prospectus supplement of the initial pool balance for the trust
fund, and the price for the purchase will be set forth in the related prospectus
supplement. The related securities will be redeemed following the purchase.
A trustee may solicit bids for the purchase of the Receivables remaining in a
trust within ten days following a payment date as of which the pool balance is
equal to or less than the percentage of the initial pool balance specified in
the related prospectus supplement. This purchase must be in accordance with the
terms and conditions set forth in the related prospectus
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supplement. If the trustee receives satisfactory bids as described in the
prospectus supplement, then the Receivables remaining in that trust fund will be
sold to the highest bidder.
Any outstanding notes of the related series may be redeemed concurrently
with either of the events specified above. The subsequent payment to the related
certificateholders of all amounts required to be paid to them under the
applicable Trust Agreement may effect the prepayment of the certificates of that
series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
FINANCED VEHICLES--GENERAL
A number of federal and state laws, including the UCC as in effect in various
states, govern:
o the transfer of the Receivables by the related Receivables seller to the
depositor under each Receivables Acquisition Agreement;
o the transfer of the Receivables by the depositor to the trustee under the
related Trust Agreement;
o the perfection of the security interests in the Receivables; and
o the enforcement of rights to realize on the Receivables and Vehicles as
collateral for the Receivables.
The related servicer will take the actions required to perfect the rights of
the trustee in the Receivables. If, through inadvertence or otherwise, a third
party were to purchase, including the taking of a security interest, a
Receivable for new value in the ordinary course of its business, without actual
knowledge of the issuer's interest, and take possession of a Receivable, the
purchaser would acquire an interest in the Receivable superior to the interest
of the issuer. As may be further specified in the related prospectus supplement,
no action will be taken to perfect the rights of the trustee in proceeds of any
vendor's single interest physical damage policy or of any other insurance
policies covering individual property or obligors. Therefore, the rights of a
third party with an interest in the proceeds could prevail against the rights of
the issuer prior to the time the proceeds are deposited by the related servicer
into a account.
SECURITY INTERESTS IN THE FINANCED VEHICLES
The Trustee's Interests in the Loan Contracts
Retail installment sale contracts and note and security agreements, such as
the Loan Contracts related to the Vehicles, evidence the credit sale by dealers
to consumers or indebtedness of consumers incurred to acquire Vehicles. These
Loan Contracts also constitute personal property security agreements and include
grants of security interests in the related Vehicles under the UCC. Perfection
of security interests in Vehicles is generally governed by the registration or
titling laws of the state in which each Vehicle is registered or titled. In most
states a security interest in a Vehicle is perfected by notation of the secured
party's lien on the Vehicle's certificate of title.
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The related prospectus supplement may provide that the Loan Contracts
acquired from Receivables seller name the related Receivables seller as obligee
or assignee and as the secured party. As may be specified in the related
prospectus supplement, the related Receivables seller will represent that it has
taken all actions necessary under the laws of the state in which the related
Vehicle is titled to perfect its security interest in the Vehicles, including,
where applicable, having a notation of its lien recorded on the related
certificate of title.
Perfection
Under the related Receivables Acquisition Agreement, the Receivables seller
will sell and assign or, if so specified in the related prospectus supplement,
either sell and assign or pledge the Loan Contracts and the related security
interests in the Vehicles to the depositor. Under the related Trust Agreement,
the depositor will assign to the trustee the Loan Contracts and its interest in
the Receivables seller's security interests in the Vehicles. Because of the
administrative burden and expense, none of the depositor, the related servicer
nor the trustee will generally amend any certificate of title to identify the
depositor or the trustee as the new secured party on the certificates of title
relating to the Vehicles. The trustee, if so specified in the related prospectus
supplement, will continue to hold the Receivables and any certificates of title
relating to the Vehicles in its possession as custodian for the trustee under
the related Trust Agreement even though the depositor and the trustee may not be
relying on possession as the legal basis for the perfection of their interests
in the Receivables or in the security interests in the Vehicles. This, as a
practical matter, should preclude any other party from claiming a competing
security interest in the Receivables on the basis that the security interest is
perfected by possession.
A security interest in a motor vehicle registered in most states may be
perfected against creditors and subsequent purchasers without notice for
valuable consideration only by one or more of the following:
o depositing with the related state department of motor vehicles or
analogous state office a properly endorsed certificate of title for the
vehicle showing the secured party as legal owner or lienholder on the
vehicle;
o filing a sworn notice of lien with the related state department of motor
vehicles or analogous state office and noting the lien on the certificate
of title; or
o if the vehicle has not been previously registered, filing an application
in usual form for an original registration together with an application
for registration of the secured party as legal owner or lienholder.
However, under the laws of most states, a transferee of a security interest
in a motor vehicle is not required to reapply to the related state department of
motor vehicles for a transfer of registration in order to obtain an effective
assignment of the security interest. The transferee also is not required to
reapply when the interest of the transferee arises from the transfer of a
security interest by the lienholder to secure payment or performance of an
obligation. Accordingly, under the laws of those states, the assignment by the
related Receivables seller of their interests in the Receivables to the
depositor under the related Receivables Acquisition Agreement, and the
assignment by the depositor of its interest in the Receivables to the trustee
under the related Trust Agreement should be effective conveyances of the
respective security interests of the related
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Receivables seller and the depositor in the Receivables. Without this
re-registration and without amendment of any lien noted on the related
certificate of title, the depositor should succeed to the related Receivables
seller's rights as secured party and the trustee should succeed to the
depositor's rights as secured party.
Although re-registration of the Vehicles is not necessary to convey a
perfected security interest in the Vehicles to the trustee, the trustee's
security interest could be defeated through:
o fraud;
o negligence;
o forgery; or
o administrative error since it may not be listed as legal owner or
lienholder on the certificates of title to the Vehicles.
However, in the absence of fraud, negligence, forgery or administrative
error, the notation of the related Receivables seller's lien on the certificates
of title will be sufficient to protect the issuer against the rights of
subsequent purchasers of a property or subsequent creditors who take a security
interest in a Vehicle. If there are any Vehicles as to which the related
Receivables seller failed to obtain a first priority perfected security
interest, its security interest would be subordinate to, among others,
subsequent purchasers of the Vehicles and holders of first priority perfected
security interests in the Vehicles.
Continuity of Perfection
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the vehicle is moved to a new state from
the one in which it is initially registered and then until the owner
re-registers the motor vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle. In those
states that require a secured party to hold possession of the certificate of
title to maintain perfection of the security interest, the secured party would
learn of the re-registration through the request from the obligor under the
related installment sale contract or note and security agreement to surrender
possession of the certificate of title to assist in the re-registration. In the
case of vehicles registered in states providing for the notation of a lien on
the certificate of title but not requiring possession by the secured party such
as Texas, the secured party would receive notice of surrender from the state of
re-registration if the security interest is noted on the certificate of title.
Thus, the secured party would have the opportunity to perfect its security
interest in the vehicle in the state of relocation. However, these procedural
safeguards will not protect the secured party if, through fraud, forgery or
administrative error, the debtor somehow procures a new certificate of title
that does not list the secured party's lien. Additionally, in states that do not
require surrender of a certificate of title for re-registration of a vehicle,
re-registration could defeat perfection.
In each of the Trust Agreements, the related servicer will be required to
take steps to effect re-perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly, when an obligor sells
a vehicle, the related servicer will have an opportunity to require satisfaction
of the related Receivable before release of the lien, either
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because the related servicer will be required to surrender possession of the
certificate of title in connection with the sale, or because the related
servicer will receive notice as a result of its lien noted on the certificate of
title. Under the related Trust Agreement, the related servicer will hold the
certificates of title for the related property as custodian for the trustee.
Under the related Trust Agreement, the related servicer will be obligated to
take appropriate steps, at its own expense, to maintain perfected security
interests in the Vehicles.
Priority of Certain Liens Arising by Operation of Law
Under the laws of most states, certain of the following statutory liens take
priority over even a first priority perfected security interest in the
Vehicle by operation of law:
o mechanics' liens;
o repairmen's liens;
o garagemen's liens for repairs performed on a motor vehicle;
o motor vehicle accident liens;
o towing and storage liens;
o liens arising under various state and federal criminal statutes; and
o liens for unpaid taxes.
The UCC also grants priority to certain federal tax liens over the lien of a
secured party. The laws of most states and federal law permit the confiscation
of motor vehicles by governmental authorities under certain circumstances if
used in or acquired with the proceeds of unlawful activities. This confiscation
may result in the loss of a secured party's perfected security interest in a
confiscated vehicle. Liens for repairs or taxes superior to the security
interest of the trustee in the Vehicle, or the confiscation of the Vehicle,
could arise at any time during the term of a Receivable. No notice will be given
to the trustee or any securityholder in the event the superior lien for repairs
or taxes or confiscation arises. In addition, the superior lien for repairs or
taxes or confiscation arising after the related closing date would not give rise
to the related Receivables seller's repurchase obligation under the related
Receivables Acquisition Agreement.
THE TRUSTEE'S INTERESTS IN LEASED VEHICLES
The Receivables seller, with respect to Lease Contracts, will be required, to
the extent not done previously, to deliver to the appropriate Department of
Motor Vehicles in the related states duly completed and executed applications
for:
(a) transfer of the certificates of title to the related leased vehicles from
the current title holder to either a finance subsidiary or to the related
issuer;
(b) release of any prior liens recorded on such certificates of title; and
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(c) in the event that the leased Vehicles will be titled in the name of a
finance subsidiary of the Receivables seller and not the issuer, a
notation of lien in favor of the related trustee on the certificates of
title, except, to the extent that the laws of any particular state do not
require such a lien notation to be made to perfect the trustee's security
interest.
Various liens and interests could be imposed upon all or part of the related
trust fund that, by operation of law, would take priority over the trustee's
interest in the trust fund, however perfected. These liens include tax liens
arising against the Receivables seller or, a finance subsidiary of the
Receivables seller, mechanic's, repairman's, garagemen's and motor vehicle
accident liens and certain liens for personal property taxes, in each case
arising with respect to a particular leased Vehicle, and liens arising under
various state and federal criminal statutes.
REPOSSESSION
In the event of default by an obligor, the holder of the related retail
installment sale contract or note and security agreement has all the remedies of
a secured party under the UCC, except where specifically limited by other state
laws. The UCC remedies of a secured party include the right to repossession by
self-help means, unless the means would constitute a breach of the peace. Unless
a vehicle is voluntarily surrendered, self-help repossession is accomplished
simply by taking possession of the related financed vehicle. In cases where the
obligor objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order is obtained from the appropriate state
court, and the vehicle must then be recovered in accordance with that order. In
some jurisdictions, the secured party is required to notify the debtor of the
default and the intent to repossess the collateral and give the debtor a time
period within which to cure the default prior to repossession. Generally, this
right of cure may only be exercised on a limited number of occasions during the
term of the related contract. Other jurisdictions permit repossession without
prior notice if it can be accomplished without a breach of the peace. However,
in some states, a course of conduct in which the creditor has accepted late
payments has been held to create a right by the obligor to receive prior notice.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require a secured party to provide the obligor
with reasonable notice of the date, time, and place of any public sale and/or
the date after which any private sale of the collateral may be held.
In addition, some states also impose substantive timing requirements on the
sale of repossessed vehicles in certain circumstances and/or various substantive
timing and content requirements on those notices. In most states, after a
financed vehicle has been repossessed, the obligor may redeem the collateral by
paying the delinquent installments and other amounts due. The obligor has the
right to redeem the collateral prior to actual sale or entry by the secured
party into a contract for sale of the collateral by paying the secured party:
o the unpaid principal balance of the obligation;
o accrued interest on the obligation;
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o reasonable expenses for repossessing, holding, and preparing the
collateral for disposition and arranging for its sale;
o in some jurisdictions, reasonable attorneys' fees and legal expenses; or
o in some states, by payment of delinquent installments on the unpaid
principal balance of the related obligation.
In addition to these notice requirements, the UCC requires that every aspect
of the sale or other disposition, including the method, manner, time, place and
terms, be "commercially reasonable." Generally, courts have held that when a
sale is not "commercially reasonable", the secured party loses its right to a
deficiency judgment. In addition, the UCC permits the debtor or other interested
party to recover for any loss caused by noncompliance with the provisions of the
UCC. Also, prior to a sale, the UCC permits the debtor or other interested
person to obtain an order mandating that the secured party refrain from
disposing of the collateral if it is established that the secured party is not
proceeding in accordance with the "default" provisions under the UCC.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the property generally will be applied first to the
expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of the
indebtedness will exceed the proceeds. Under the UCC and laws applicable in some
states, a creditor is entitled to bring an action to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of a motor
vehicle securing the debtor's loan. However, in some states, a creditor may not
seek a deficiency judgment from a debtor whose financed vehicle had an initial
cash sales price of less than specified amounts.
Some states impose prohibitions, limitations, or notice requirements on
actions for deficiency judgments. Any deficiency judgment would be a personal
judgment against the obligor for the shortfall, and a defaulting obligor can be
expected to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a subordinate lien with respect
to the vehicle or if that lienholder does not exist or if there are remaining
funds, the UCC requires the creditor to remit the surplus to the obligor under
the contract.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, a lessee who enters the military service after the origination of the
lessee's Lease Contract, may not be charged interest above an annual rate of 6%
during the period of such lessee's active duty status, unless a court orders
otherwise upon application of the lender. This also applies to a lessee who
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is a member of the National Guard or is in reserve status at the time of the
origination of the Lease Contract and is later called to active duty. Any
shortfall in interest collections resulting from the application of this Act, to
the extent not covered by credit support, could result in losses to
securityholders. In addition, this Act imposes limitations which would impair
the ability of the servicer to repossess the leased Vehicle relating to an
affected Lease Contract, or otherwise to take legal action with respect to that
Lease Contract, during the lessee's period of active duty status. Thus, in the
event that the Lease Contract goes into default, there may be delays and losses
occasioned by the inability to realize upon the related leased Vehicle in a
timely fashion.
CONSUMER PROTECTION LAWS
Loan Contracts
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include:
o the Truth-in-Lending Act;
o the Equal Credit Opportunity Act;
o the Federal Trade Commission Act;
o the Fair Credit Billing Act;
o the Fair Credit Reporting Act;
o the Fair Debt Collection Practices Act;
o the Magnuson-Moss Warranty Act;
o the Federal Reserve Board's Regulations B and Z;
o state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code;
o state motor vehicle retail installment sale acts, state "lemon" laws; and
o other similar laws.
In addition, the laws of some states, impose finance charge ceilings and
other restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In some cases, this liability could affect the ability of an assignee such as
the trustee to enforce consumer finance contracts such as the Receivables.
The so-called "holder-in-due-course rule" of the Federal Trade Commission has
the effect of subjecting any assignee of the seller in a consumer credit
transaction to all claims and defenses which the obligor in the transaction
could assert against the seller. Liability under the holder-in-due-course rule
is limited to the amounts paid by the obligor under the contract, and
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the holder of the contract may also be unable to collect any balance remaining
due under the contract from the obligor. The holder-in-due-course rule is
generally duplicated by:
o the Uniform Consumer Credit Code;
o other state statutes; or
o the common law in certain states.
To the extent that the Receivables will be subject to the requirements of the
holder-in-due-course rule, the trustee, as holder of the Receivables, will be
subject to any claims or defenses that the purchaser of the related Vehicle may
assert against the seller of that Vehicle. The claims will be limited to a
maximum liability equal to the amounts paid by the obligor under the related
Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles and
light duty trucks are required to be licensed to sell vehicles at retail sale.
In addition, with respect to used vehicles, the Federal Trade Commission's rule
on sale of used vehicles requires that all sellers of used vehicles prepare,
complete and display a "buyer's guide" which explains the warranty coverage for
those vehicles. Furthermore, Federal Odometer Regulations promulgated under the
Motor Vehicle Information and Cost Savings Act and the motor vehicle title laws
of most states require that all sellers of used vehicles furnish a written
statement signed by the seller certifying the accuracy of the odometer reading.
If a seller is not properly licensed or if either a buyer's guide or odometer
disclosure statement was not provided to the purchaser of a vehicle, the obligor
may be able to assert a defense against the seller of the vehicle. If an obligor
on a Receivable were successful in asserting any of these claims or defenses,
the related servicer would pursue on behalf of the issuer any reasonable
remedies against the seller or manufacturer of the vehicle, subject to
limitations as to the expense of those actions to be specified in the related
Trust Agreement.
Any of these losses, to the extent not covered by credit support, as may be
specified in the related prospectus supplement, could result in losses to the
securityholders.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an obligor from some or all of the
legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
Lease Contracts
Numerous federal and state consumer protection laws imposed requirements upon
lessors and servicers involved in consumer leasing. The federal Consumer Leasing
Act of 1976 and Regulation M, issued by the Board of Governors of the Federal
Reserve System, for example, require that a number of disclosures be made at the
time a Vehicle is leased. These disclosures
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include the amount of any down payment, a description of the lessee's liability
at the end of the lease term, the amount of any periodic payments and the
circumstances under which the lessee may terminate the lease prior to the end of
the lease term. The various consumer protection laws would apply to the
Receivables seller as the initial lessor, and may also apply to the issuer and
the trustee as purchasers or assignees of the Lease Contracts. The failure to
comply with these consumer protection laws may give rise to liabilities on the
part of the servicer, the Receivables seller, the depositor and the trustee,
including liabilities for statutory damages and attorneys' fees. In addition,
claims by the servicers, the Receivables seller, the depositor and the trustee
may be subject to set-off as a result of this noncompliance.
Courts have applied general equitable principles in litigation relating to
repossession and deficiency balances. These equitable principles may have the
effect of relieving a lessee from some or all of the legal consequences of a
default.
In several cases, consumers have asserted that the self-help remedies of
lessors violate the due process protections provided under the Fourteenth
Amendment to the Constitution of the United States. Courts have generally found
that repossession and resale by a lessor do not involve sufficient state action
to afford constitutional protection to consumers.
Some states have adopted "lemon" laws providing redress to consumers who
purchase or lease a Vehicle that remains out of conformance with its
manufacturer's warranty after a specified number of attempts to correct a
problem or after a specific time period. Should any leased Vehicle become
subject to an applicable lemon law, a lessee could compel the issuer to
terminate the related Lease Contract and refund a portion of prior scheduled
monthly payments. Although the issuer may be able to assert a claim against the
manufacturer of the defective vehicle, we cannot assure you that the claim would
be successful. Any loss, to the extent not covered by credit support specified
in the related prospectus supplement, could result in losses to the
securityholders.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy, leaving the party providing financing
as a general unsecured creditor for the remainder of the indebtedness. A
bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness. Any
shortfalls, to the extent not covered by the credit support that may be
specified in the related prospectus supplement, could result in losses to the
securityholders.
VICARIOUS TORT LIABILITY WITH RESPECT TO THE LEASED VEHICLES
Although the issuer may own the leased Vehicles, they will be operated by the
related lessees and their respective invitees. State laws differ as to whether
anyone suffering injury to person or
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property involving a leased vehicle may bring an action against the owner of the
vehicle merely by virtue of that ownership.
Some state statutes provide that a victim of an accident has no cause of
action against the owner of the leased vehicle arising from the negligent
operation of the leased vehicle unless the owner has negligently entrusted or
continues to negligently entrust the vehicle to an inappropriate lessee. Other
state statutes provide that the owner of a motor vehicle that is subject to a
lease having an initial term of at least one year is exempt from liability for
tort claims arising out of the negligent operation of the leased vehicle or
negligent acts of the operator in the event of an accident in which the leased
vehicle is involved if the lessee is required under the lease to maintain
certain specified levels of insurance, and that insurance is in effect.
Generally, the Lease Contracts contain provisions requiring the lessees to
maintain levels of insurance satisfying applicable state requirements.
Actions by third parties might arise against the owner of a leased Vehicle
based on legal theories other than negligence. These theories include product
defect or improper vehicle preparation prior to the origination of the related
Lease Contract. Even if the issuer were to be the subject of an action for
damages as a result of its ownership of a leased vehicle, the damages may be
covered by contingent and excess liability insurance policies if, as may be
specified in the related prospectus supplement, the issuer is named as a
beneficiary of those policies. In the event that all the insurance coverage were
exhausted and damages were assessed against the issuer, claims could be imposed
against the assets of the issuer, including the leased Vehicles. However, these
claims would not take priority over any items comprising the trust fund to the
extent that the trustee has a perfected security interest in those items. If
these claims were imposed the assets of the issuer, you could incur a loss on
your investment. See "Risk Factors--Vicarious Tort Liability Could Cause Losses"
in this prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations of the purchase, ownership and disposition of the securities. The
summary does not purport to deal with federal income tax considerations
applicable to all categories of holders, some of which may be subject to special
rules. For example, it does not discuss the tax treatment of securityholders
that are insurance companies, regulated investment companies or dealers in
securities. You are urged to consult your own tax advisors in determining the
federal, state, local, foreign and any other tax consequences to you of the
purchase, ownership and disposition of the securities.
The following summary is based upon current provisions of the Code, the
Treasury regulations issued under the Code and judicial or ruling authority, all
of which are subject to change, which change may be retroactive. The depositor
will be provided with an opinion of Cadwalader, Wickersham & Taft regarding
certain federal income tax matters discussed below. Those opinions, however, are
not binding on the IRS or the courts. No ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the issuer, the notes, the certificates and related terms, parties
and documents will be deemed to refer, unless otherwise specified in this
prospectus, to each issuer, the notes and the certificates and the related
terms, parties and documents applicable to that issuer.
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The federal income tax consequences to certificateholders will vary depending
on:
o whether the issuer is treated as a partnership under the Code and
applicable Treasury regulations or
o whether the issuer will be treated as a grantor trust.
The prospectus supplement for each series of certificates will specify
whether the issuer will be treated as a partnership or as a grantor trust.
FASITS
Sections 860H through 860L of the Code provide for the creation of an entity
for federal income tax purposes, referred to as a FASIT. These provisions were
effective as of September 1, 1997, but many technical issues concerning FASITs
have not yet been addressed by final Treasury regulations. To qualify as a
FASIT, an entity must meet certain requirements under Section 860L of the Code
and must elect that treatment. The applicable Trust Agreement, if applicable,
may be amended to provide that the depositor and trustee will cause a FASIT
election to be made for the issuer if the depositor delivers an opinion of
Cadwalader, Wickersham & Taft to the effect that, for federal income tax
purposes,
(1) the deemed issuance of FASIT regular interests, occurring in connection
with the election, will not adversely affect the federal income tax treatment of
the securities,
(2) following the election the issuer will not be deemed to be an
association, or publicly traded partnership, taxable as a corporation, and
(3) the election will not cause or constitute an event in which gain or loss
would be recognized by any securityholder or the issuer.
ISSUERS TREATED AS PARTNERSHIPS
Tax Characterization of the Issuer as a Partnership
An issuer which is not treated as a grantor trust and which does not
affirmatively elect to be treated as a corporation will be treated as a
partnership under applicable Treasury regulations as long as there are two or
more beneficial owners. The issuer will be ignored as a separate entity where
there is a single beneficial owner of all equity classes of the related series,
including any class of notes treated as equity for federal income tax purposes.
Cadwalader, Wickersham & Taft will deliver their opinion that an issuer will not
be an association, or publicly traded partnership, taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the trust and servicing agreement or pooling and servicing
agreement and indenture and related documents will be complied with, including
the making of no affirmative election to be treated as a corporation.
Cadwalader, Wickersham & Taft's opinion will also conclude that either:
(1) the nature of the income of the issuer will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations; or
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(2) the restrictions on transfer of certain classes of the securities will
prevent the issuer from being classified as a publicly traded
partnership.
If an issuer were taxable as a corporation for federal income tax purposes,
it would be subject to corporate income tax on its taxable income. The issuer's
taxable income would include all of its income on the related Receivables, less
servicing fees and other deductible expenses, which may include its interest
expense on the notes. Any corporate income tax could materially reduce cash
available to make payments on the securities, and beneficial owners of
securities could be liable for the part of the tax that is unpaid by the issuer.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The depositor will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. Cadwalader, Wickersham & Taft will, except as
otherwise provided in the related prospectus supplement, advise the depositor
that the notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the notes is correct.
OID. The discussion below assumes that all payments on the notes are
denominated in U.S. dollars, and that the interest formula for the notes meets
the requirements for "qualified stated interest" under Treasury regulations
relating to original issue discount, and that any OID on the notes (i.e., any
excess of the principal amount of the notes over their issue price) does not
exceed a de minimis amount (i.e., 0.25% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of the
OID Regulations. If these conditions are not satisfied with respect to any given
series of notes, additional tax considerations with respect to the notes will be
disclosed in the applicable prospectus supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest on the notes will be taxable to a noteholder as
ordinary interest income when received or accrued in accordance with the
noteholder's method of tax accounting. Under the OID Regulations, a holder of a
note issued with more than a de minimis amount of OID must include the OID in
income, on a pro rata basis as principal payments are made on the note. A
purchaser who buys a note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a note that has a fixed maturity date of not more than one year
from the issue date of the short-term note may be subject to special rules. An
accrual basis holder of a short-term note, and certain cash method holders,
including regulated investment companies, as set forth in Section 1281 of the
Code, generally would be required to report interest income as interest accrues
on a straight-line basis over the term of each interest period. Other cash basis
holders of a short-term note would, in general, be required to report interest
income as interest is paid, or, if earlier, upon the taxable disposition of the
short-term note. However, a cash basis holder of a short-term note reporting
interest income as it is paid may be required to defer a portion of any interest
expense otherwise deductible on indebtedness incurred to purchase or carry the
short-term note until the taxable disposition of the short-term note. A cash
basis taxpayer may elect under Section 1281 of the Code to accrue interest
income on all
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nongovernment debt obligations with a term of one year or less, in which case
the taxpayer would include interest on the short-term note in income as it
accrues, but would not be subject to the interest expense deferral rule referred
to in the preceding sentence. Certain special rules apply if a short-term note
is purchased for more or less than its principal amount.
Sale or Other Disposition. If a noteholder sells a note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount, OID
and gain previously included by the noteholder in income with respect to the
note and decreased by the amount of bond premium, if any, previously amortized
and by the amount of principal payments previously received by the noteholder
with respect to the note. The gain or loss will be capital gain or loss if the
note was held as a capital asset, except for gain representing accrued interest
and accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
Non-U.S. Holders. Interest payments made, or accrued, to a noteholder who is
a nonresident alien, foreign corporation or other holder who is a Non-U.S.
Person generally will be considered "portfolio interest" and generally will not
be subject to United States federal income tax and withholding tax, if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Person and the Non-U.S. Person:
(1) is not actually or constructively a "10 percent shareholder" of the
issuer or the depositor (including a holder of 10% of the outstanding
certificates) or a "controlled foreign corporation" with respect to which
the issuer or the depositor is a "related person" within the meaning of
the Code and
(2) provides the trustee or other person who is otherwise required to
withhold U.S. tax with respect to the notes with an appropriate statement
(on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the note is a Non-U.S. Person and
providing the Non-U.S. Person's name and address.
If a note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the relevant
signed statement to the withholding agent. In that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by the
Non-U.S. Person that owns the note. If this interest is not portfolio interest,
then it will be subject to United States federal income and withholding tax at a
rate of 30 percent, unless reduced or eliminated pursuant to an applicable tax
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a Non-U.S. Person will be exempt from United
States federal income and withholding tax, provided that:
(1) the gain is not effectively connected with the conduct of a trade or
business in the United States by the Non-U.S. Person and
(2) in the case of an individual Non-U.S. Person, the individual is not
present in the United States for 183 days or more in the taxable year.
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Final regulations dealing with withholding tax on income paid to Non-U.S.
Persons and related matters were issued by the Treasury Department on October 6,
1997. These new withholding regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Current
withholding certificates will remain valid until the earlier of December 31,
2000 or the due date of expiration of the certificate under the rules as
currently in effect. The new withholding regulations would require, in the case
of notes held by a foreign partnership, that:
(1) the certification described above be provided by the partners rather than
by the foreign partnership and
(2) the partnership provide certain information, including a United States
taxpayer identification number.
A look-through rule would apply in the case of tiered partnerships.
Prospective investors who are Non-U.S. Persons are strongly urged to consult
their own tax advisors with respect to the new withholding regulations.
Backup Withholding. Each noteholder (other than an exempt holder such as a
corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt noteholder fail to
provide the required certification, the issuer will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion of
Cadwalader, Wickersham & Taft, the IRS successfully asserted that one or more
classes of notes in a series did not represent debt for federal income tax
purposes, the notes might be treated as equity interests in the issuer. If so
treated, unless otherwise indicated in the applicable prospectus supplement, the
issuer should be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the notes as equity interests in this kind of publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income", income to Non-U.S. Persons generally
would be subject to U.S. tax and U.S. withholding tax requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of issuer expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Issuer as a Partnership. The depositor will agree, and the
related certificateholders will agree by their purchase of certificates, to
treat the issuer as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the issuer, the partners of
the partnership being the certificateholders (including the holder of any
certificates representing the retained interest in the issuer) and the notes
being debt of the partnership.
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However, the proper characterization of the arrangement involving the issuer,
the certificates, the notes and the depositor is not clear because there is no
authority on transactions closely comparable to that contemplated in this
prospectus.
A variety of alternative characterizations are possible. For example, because
the certificates have certain features characteristic of debt, the certificates
might be considered debt of the issuer. This type of characterization would not
result in materially adverse tax consequences to certificateholders as compared
to the consequences from treatment of the certificates as equity in a
partnership, described below. The following discussion assumes that the
certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the issuer will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account the holder's allocated share of income, gains,
losses, deductions and credits of the issuer. The issuer's income will consist
primarily of interest and finance charges earned on the related Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of the Receivables. The issuer's
deductions will consist primarily of interest accruing with respect to the
notes, servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (i.e., the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the certificateholders will be allocated taxable income of the
issuer for each month equal to the sum of:
(1) the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the related
pass-through rate for that month and interest, if any, on amounts
previously due on the certificates but not yet paid;
(2) any issuer income attributable to discount on the related Receivables
that corresponds to any excess of the principal amount of the
certificates over their initial issue price;
(3) any other amounts of income payable to the certificateholders for that
month; and
(4) in the case of an individual, estate or trust, the certificateholder's
share of income corresponding to the miscellaneous itemized deductions
described in the next paragraph.
This allocation of interest will be reduced by any amortization by the issuer
of premium on Receivables that corresponds to any excess of the issue price of
certificates over their principal amount. Unless otherwise provided in the
related prospectus supplement, all remaining taxable income of the issuer will
be allocated to the owner of the retained interest of the issuer. Losses of the
issuer will be allocated to the retained interest and to the certificates in the
order in which such losses are borne, and additional income will be allocated to
a class that receives a recovery of a previously allocated loss.
In the event the issuer issues certificates which are Strip Securities, the
amount allocated to the certificateholders will equal the excess of
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(1) the pass-through rate applicable to the Strip Securities times the
notional principal amount for the Strip Securities for the month over
(2) the portion of the amount paid with respect to the Strip Securities for
the month that would constitute a return of basis if the Strip Securities
constituted an instrument described in Section 860G(a)(1)(B)(ii) of the
Code, applying the principles of Section 1272(a)(6) of the Code and
employing the constant yield method of accrual (utilizing the appropriate
prepayment assumption).
However, no negative accruals will be permitted, and other deductions of the
issuer will be allocated to the Strip Securities up to their remaining capital
account balances immediately before the final redemption.
The portion of expenses of the issuer (including fees to the servicer, but
not interest expense) allocated to taxpayers that are individuals, estates or
trusts would be miscellaneous itemized deductions to those taxpayers. The
deductions might be disallowed to the taxpayers in whole or in part and might
result in those taxpayers being taxed on an amount of income that exceeds the
amount of cash actually paid to those taxpayers over the life of the issuer. Any
net loss of the issuer will be allocated first to the retained interest holder
to the extent of its adjusted capital account, then to the other
certificateholders in the priorities set forth in the Trust Agreement to the
extent of their respective adjusted capital accounts, and thereafter to the
retained interest holder.
The issuer intends to make all calculations relating to market discount
income and amortization of premium with respect to both simple interest
Receivables and precomputed Receivables on an aggregate basis rather than a
Receivable-by-Receivable basis. If the IRS were to require that the calculations
be made separately for each Receivable, the issuer might be required to incur
additional expense, but it is believed that there would not be a material
adverse effect on certificateholders.
Discount and Premium. Except as otherwise provided in the related prospectus
supplement, it is believed that the Receivables were not issued with OID, and,
therefore, the issuer should not have OID income. However, the purchase price
paid by the issuer for the related Receivables may be greater or less than the
remaining principal balance of the Receivables at the time of purchase. If so,
the Receivables will have been acquired at a premium or discount, as the case
may be. (As indicated above, the issuer will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the issuer acquires the related Receivables at a market discount or
premium, it will elect to include that discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on those Receivables. As indicated above, a portion of the
market discount income or premium deduction may be allocated to
certificateholders.
Section 708 Termination. Under Section 708 of the Code, the issuer will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the issuer are sold or exchanged within a
12-month period. Under applicable Treasury regulations, this kind of 50% or
greater transfer would cause a deemed contribution of the assets of the issuer
to a new partnership in exchange for interests in the issuer. These interests in
a new
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partnership would be deemed paid to the partners of the issuer in liquidation
thereof, which would not constitute a sale or exchange. The issuer will not
comply with certain technical requirements that might apply when this kind of
constructive termination occurs. As a result, the issuer may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the issuer might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the depositor's tax basis in the certificates
sold. With respect to noncorporate certificateholders, this capital gain or loss
will be short-term or long-term, depending on whether the certificate has been
held for
(1) 12 months or less, or
(2) more than 12 months, respectively.
Long-term capital gain tax rates are lower for noncorporate
certificateholders as compared with short-term capital gains, which are taxed at
ordinary income tax rates. A certificateholder's tax basis in a certificate will
generally equal the holder's cost increased by the holder's share of issuer
income (includible in income) and decreased by any payments received with
respect to the certificate. In addition, both the tax basis in the certificates
and the amount realized on a sale of a certificate would include the holder's
share of the liabilities of the issuer. A holder acquiring certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in the certificates and, upon sale or other disposition of some of the
certificates, to allocate a portion of that aggregate tax basis to the
certificates sold (rather than maintaining a separate tax basis in each
certificate for purposes of computing gain or loss on a sale of that
certificate).
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the related Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The issuer does not expect to have any other assets that
would give rise to these special reporting requirements. Thus, to avoid these
special reporting requirements, the issuer will elect to include market discount
in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of income
(not including income attributable to disallowed itemized deductions described
above) over the life of the certificates that exceeds the aggregate cash
payments with respect thereto, this excess will generally give rise to a capital
loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the issuer's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates (or notional principal
amount, in the case of any Strip Securities) owned by them as of the close of
the last day of that month. As a result, a holder purchasing certificates may be
allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of this type of monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's
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interest), taxable income or losses of the issuer might be reallocated among the
certificateholders. The retained interest holder, acting as tax matters partner
for the issuer, will be authorized to revise the issuer's method of allocation
between transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a certificateholder sells its
certificates at a profit (loss), the purchasing certificateholder will have a
higher (lower) basis in the certificates than the selling certificateholder had.
The tax basis of the issuer's assets will not be adjusted to reflect that higher
(or lower) basis unless the issuer were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the issuer will not make that election. As a
result, certificateholders might be allocated a greater or lesser amount of
issuer income than would be appropriate based on their own purchase price for
certificates.
Administrative Matters. The trustee is required to keep or have kept complete
and accurate books of the issuer. These books will be maintained for financial
reporting and tax purposes on an accrual basis, and the fiscal year of the
issuer is expected to be the calendar year. The trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
issuer and will report each certificateholder's allocable share of items of
issuer income and expense to holders and the IRS on Schedule K-I. The issuer
will provide the Schedule K-l information to nominees that fail to provide the
issuer with the information statement described below and these nominees will be
required to forward that information to the beneficial owners of the
certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the issuer or be subject to penalties unless the
holder notifies the IRS of all the inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the issuer
with a statement containing certain information on the nominee, the beneficial
owners and the certificates so held. The information includes
(1) the name, address and taxpayer identification number of the nominee and
(2) as to each beneficial owner
(a) the name, address and identification number of that person,
(b) whether that person is a U.S. Person, a tax-exempt entity or a
foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing, and
(c) certain information on certificates that were held, bought or sold on
behalf of that person throughout the year.
In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the issuer information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Securities Exchange Act of 1934 is not required
to furnish the information statement to the issuer. The information referred
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to above for any calendar year must be furnished to the issuer on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the issuer with the information described above may be subject to
penalties.
The retained interest holder will be designated as the tax matters partner
for each issuer in the related Trust Agreement and, as such, will be responsible
for representing the certificateholder in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the issuer by the appropriate taxing authorities could
result in an adjustment of the returns of the certificateholders, and, under
certain circumstances, a certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the issuer. An adjustment could
also result in an audit of a certificateholder's returns and adjustments of
items not related to the income and losses of the issuer.
Tax Consequences to Non-U.S. Certificateholders. Pursuant to a change in the
safe harbor provisions of Section 864(b)(2)(A) of the Code (applicable to tax
years beginning after December 31, 1997), certificateholders who are Non-U.S.
Persons will not be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to Non-U.S.
Persons solely as a result of owning or trading certificates. As a result, the
issuer is not obligated to withhold on the portion of its taxable income that is
allocable to Non-U.S. Persons at regular graduated rates (35% for Non-U.S.
Persons that are taxable as corporations and 39.6% for all other Non-U.S.
Persons), unless those Non-U.S. Persons hold certificates in connection with the
conduct of a U.S. trade or business.
Interest allocable to a Non-U.S. Person that does not hold certificates in
connection with the conduct of a U.S. trade or business will not qualify for the
exemption for portfolio interest under Section 871(h) of the Code, because
underlying Receivables owned by the issuer are not in "registered form" as that
term is defined in applicable Treasury regulations. As a result, this Non-U.S.
Person who holds certificates will be subject to United States withholding tax
on interest or OID attributable to the underlying Receivables (whether or not
that amount is paid) at a rate of 30 percent, unless reduced or eliminated
pursuant to an applicable treaty. Potential investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences of
owning a certificate.
Backup Withholding. Payments made on the certificates and proceeds from the
sale of the certificates will be subject to a "backup" withholding tax of 3l%
if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
ISSUERS TREATED AS GRANTOR TRUSTS
Tax Characterization of Grantor Trusts
The prospectus supplement may provide an opinion by Cadwalader, Wickersham &
Taft that the issuer will not be classified as an association taxable as a
corporation and that the issuer will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code (a "grantor
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trust fund"). In this case, beneficial owners of grantor trust certificates will
be treated for federal income tax purposes as owners of a portion of the
issuer's assets as described below. The certificates issued by an issuer that is
treated as a grantor trust are referred to as grantor trust certificates.
Grantor trust certificates may either be "standard certificates" or "strip
certificates" as described below.
Standard Certificates. The holder of certificates representing the same
percentage of interest and principal payments in the Receivables with respect to
a series, referred to in this prospectus as "standard certificates," will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the issuer represented by the standard certificates and
will be considered the equitable owner of a pro rata undivided interest in each
of the Receivables in the issuer. Any amounts received by a standard
certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each standard certificateholder will be required to report on its federal
income tax return in accordance with that standard certificateholder's method of
accounting its pro rata share of the entire income from the Receivables in the
issuer represented by the standard certificates, including interest, OID, if
any, prepayment fees, assumption fees, any gain recognized upon an assumption
and late payment charges received by the servicer. Under Code Sections 162 or
212, each standard certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees and late payment
charges retained by the servicer, provided that the amounts are reasonable
compensation for services rendered to the issuer. Standard certificateholders
that are individuals, estates or trusts will be entitled to deduct their share
of expenses only to the extent those expenses plus all other miscellaneous
itemized deductions exceed two percent of their respective adjusted gross
incomes. Such expenses are not deductible at all for purposes of computing the
alternative minimum tax, which may expose such holders to significant additional
tax liability. A standard certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the servicer. A standard certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the servicer, whichever is
earlier. If the servicing fees paid to the servicer are deemed to exceed
reasonable servicing compensation, the amount of the excess could be considered
as an ownership interest retained by the servicer (or any person to whom the
servicer assigned for value all or a portion of the servicing fees) in a portion
of the interest payments on the Receivables. The Receivables would then be
subject to the "coupon stripping" rules of the Code discussed below.
Original Issue Discount. Except as discussed below with respect to strip
certificates or as otherwise discussed in the applicable prospectus supplement,
it is not anticipated that the receivables or the standard certificates will be
issued with original issue discount ("OID") for federal income tax purposes.
Market Discount. A standard certificateholder that acquires an undivided
interest in Receivables may be subject to the market discount rules of Sections
1276 through 1278 to the extent an undivided interest in a Receivable is
considered to have been purchased at a "market discount." Generally, the amount
of market discount is equal to the excess of the portion of the principal amount
of the Receivable allocable to the holder's undivided interest over the holder's
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tax basis in that interest. Market discount with respect to a standard
certificate will be considered to be zero if the amount allocable to the
standard certificate is less than 0.25% of the standard certificate's stated
redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Section 1276 and
1278. The IRS may require you to compute market discount on a Receivable by
Receivable basis, based on the allocation of your purchase price among the
Receivables based on their fair market values. However, we will not furnish
information to you on a Receivable by Receivable basis. Accordingly, if you
compute premium amortization on an aggregate basis, you may be required by the
IRS to recompute the premium on a Receivable by Receivable basis.
The Code provides that any principal payment (whether a scheduled payment or
a prepayment) or any gain or disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of the payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or in an amount, for each accrual period, equal to the
product of
(1) the total remaining market discount and
(2) a fraction, the numerator of which is the amount of stated interest paid
during the accrual period and the denominator of which is the total
amount of stated interest remaining to be paid at the beginning of the
accrual period.
For purposes of calculating market discount under any of the above methods in
the case of instruments (such as the standard certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing those instruments, a prepayment assumption will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a standard
certificate purchased at a discount or premium in the secondary market.
A holder who acquired a standard certificate at a market discount also may be
required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry the
standard certificate purchased with market discount. For these purposes, the de
minimis rule referred to above applies. This deferred interest expense would not
exceed the market discount that accrues during that taxable year and is, in
general, allowed as a deduction not later than the year in which the market
discount is includible in income. If the holder elects to include market
discount in income currently as it
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accrues on all market discount instruments acquired by that holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
Premium. The price paid for a standard certificate by a holder will be
allocated to that holder's undivided interest in each Receivable based on each
Receivable's relative fair market value, so that the holder's undivided interest
in each Receivable will have its own tax basis. A standard certificateholder
that acquires an interest in Receivables at a premium may elect to amortize the
premium under a constant interest method. Amortizable bond premium will be
treated as an offset to interest income on the standard certificate. The basis
for the standard certificate will be reduced to the extent that amortizable
premium is applied to offset interest payments. We cannot tell you whether a
reasonable prepayment assumption should be used in computing amortization of
premium allowable under Section 171 of the Code. A standard certificateholder
that makes this election for a standard certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that the
standard certificateholder acquires during the year of the election or
thereafter. We will not furnish information to you on a Receivable by Receivable
basis. Accordingly, if you compute premium amortization on an aggregate basis,
the IRS may require you to recompute the premium.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a standard certificate acquired at a premium should
recognize a loss if a Receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of the Receivable that is
allocable to the standard certificate and the portion of the adjusted basis of
the standard certificate that is allocable to that Receivable. If a reasonable
prepayment assumption is used to amortize the premium, it appears that that type
of loss would be available, if at all, only if prepayments have occurred at a
rate faster than the reasonable assumed prepayment rate. It is not clear whether
any other adjustments would be required to reflect differences between an
assumed prepayment rate and the actual rate of prepayments.
Election to Treat All Interest as OID. The OID regulations permit a standard
certificateholder to elect to accrue all interest, discount (including de
minimis market discount or OID) and premium in income as interest, based on a
constant yield method. If that kind of election were to be made with respect to
a standard certificate with market discount, the standard certificateholder
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
the standard certificateholder acquires during the year of the election or
thereafter. Similarly, a standard certificateholder that makes this election for
a standard certificate that is acquired at a premium will be deemed to have made
an election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the standard certificateholder owns or acquires.
See "-- Premium" above. The election to accrue interest, discount and premium on
a constant yield method with respect to a standard certificate is irrevocable.
Sale or Exchange of a Standard Certificate. Sale or exchange of a standard
certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the owner's adjusted basis
in the standard certificate. This adjusted basis generally will equal the
depositor's purchase price for the standard certificate, increased by the OID
and any market discount included in the depositor's gross income with respect to
the standard certificate, and reduced by any market premium amortized by the
depositor and by principal
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payments on the standard certificate previously received by the depositor. This
gain or loss will be capital gain or loss to an owner for which a standard
certificate is a "capital asset" within the meaning of Section 1221 of the Code
(except in the case of gain attributable to accrued market discount, as noted
above under "--Market Discount") and, with respect to noncorporate owners, will
be short-term or long-term, depending on whether the standard certificate has
been held for 12 months or less, or more than 12 months, respectively.
(Long-term capital gain tax rates are less than short-term capital gains rates
for individuals, which are taxed at ordinary income tax rates.)
Standard certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a standard certificate by a bank or a thrift institution to which that
section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Interest or OID paid to Non-U.S. Persons who own standard
certificates will be treated as "portfolio interest" for purposes of United
States withholding tax. That interest (including OID, if any) attributable to
the underlying Receivables will not be subject to the normal 30% (or any lower
rate provided for by an applicable tax treaty) withholding tax imposed on those
amounts provided that
(1) the Non-U.S. Person is not a "10% shareholder" (within the definition of
Section 871(h)(3)) of any obligor on the Receivables; and is not a
controlled foreign corporation (within the definition of Section 957)
related to any obligor on the Receivables and
(2) that certificateholder fulfills certain certification requirements.
Under these requirements, the certificateholder must certify, under penalty
of perjury, that it is not a U.S. Person and must provide its name and address.
If, however, the interest or gain is effectively connected to the conduct of a
trade or business within the U.S. by that certificateholder, that owner will be
subject to U.S. federal income tax on the interest or gain at graduated rates.
Potential investors who are not U.S. Persons should consult their own tax
advisors regarding the specific tax consequences of owning a certificate.
Information Reporting and Backup Withholding. The servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a standard certificateholder at any time during that year,
any information that servicer deems necessary or desirable to assist standard
certificateholders in preparing their federal income tax returns, or to enable
holders to make that information available to beneficial owners or financial
intermediaries that hold standard certificates as nominees on behalf of
beneficial owners. If a holder, beneficial owner, financial intermediary or
other recipient of a payment on behalf of a beneficial owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that the person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup withholding
may be required with respect to any payments. Any amounts deducted and withheld
from a payment to a recipient would be allowed as a credit against the
recipient's federal income tax liability.
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Strip Certificates
General. Strip Certificates are subject to the rules of Code Section 1286,
under which the separation of ownership of the right to receive some or all of
the principal payments on an obligation from ownership of the right to receive
some or all of the interest payments results in the creation of "stripped bonds"
with respect to principal payments and "stripped coupons" with respect to
interest payments. The securities will be subject to those rules. if:
(1) the depositor or any of its affiliates is treated as having an ownership
interest in the Receivables to the extent it is paid or retains servicing
compensation in an amount greater than reasonable consideration for servicing
the mortgage loans, or
(2) securities are issued in two or more classes or subclasses representing
the right to non-pro-rata percentages of the interest and principal payments on
the Receivables.
In general, a holder of a Strip Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Receivable and/or "stripped coupons" with respect to
its pro rata share of all or a portion of the interest payments on each
Receivable, including the Strip Certificate's allocable share of the servicing
fees paid to a servicer, to the extent that those fees represent reasonable
compensation for services rendered. Although not free from doubt, for purposes
of reporting to holders of Strip Certificates, the servicing fees will be
allocated to the classes of Strip Certificates in proportion to the
distributions to the classes for the related period or periods. The holder of a
Strip Certificate generally will be entitled to a deduction each year in respect
of the servicing fees, as described above under "--Standard
Securities--General," subject to the limitation described in that section.
Code Section 1286 treats a stripped bond or a stripped coupon generally as an
obligation issued on the date that the stripped interest is purchased. Although
the treatment of Strip Certificates for federal income tax purposes is not clear
in certain respects, particularly where Strip Certificates are issued with
respect to a pool of Receivables containing variable-rate Receivables, the
depositor has been advised by counsel that:
(1) The Issuer will be treated as a grantor trust under subpart E, Part I of
subchapter J of the Code and not as an association or publicly traded
partnership taxable as a corporation and
(2) each Strip Certificate should be treated as a single installment
obligation for purposes of calculating OID and gain or loss on disposition.
This treatment is based on the interrelationship of Code Section 1286, Code
Sections 1272 through 1275, and the OID regulations. Although it is possible
that computations with respect to Strip Certificates could be made in one of the
ways described below under "--Possible Alternative Characterizations," the OID
regulations state, in general, that two or more debt instruments issued by a
single issuer to a single investor in a single transaction should be treated as
a single debt instrument. Accordingly, for OID purposes, all payments on any
Strip Certificates should be aggregated and treated as though they were made on
a single debt instrument. The applicable agreement will require that the trustee
make and report all computations described below using this aggregate approach,
unless substantial legal authority requires otherwise.
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Furthermore, Treasury regulations provide for treatment of a Strip
Certificate as a single debt instrument issued on the date it is purchased for
purposes of calculating any OID. In addition, under those regulations, a Strip
Certificate that represents a right to payments of both interest and principal
may be viewed either as issued with OID or market discount, as described below,
at a de minimis, or, presumably, at a premium. This treatment indicates that the
interest component of a Strip Certificate of this type would be treated as
qualified stated interest under the OID Regulations (reportable as interest
under the cash or accrual method, as the case may be), assuming it is not an
interest-only Strip Certificate. Further, these regulations provide that the
purchaser of a Strip Certificate will be required to account for any discount as
market discount rather than OID if either:
(1) the initial discount with respect to the Stripped Certificate was treated
as zero under the de minimis rule, or
(2) no more than 100 basis points in excess of reasonable servicing is
stripped off the related Receivables. Any market discount would be reportable as
described above under "Standard Certificates--Market Discount," without regard
to the de minimis rule described in this prospectus, assuming that a prepayment
assumption is employed in that computation.
Taxation of Strip Certificates. Except as described above under "General,"
each Strip Certificate will be considered to have been issued with OID for
federal income tax purposes. OID with respect to a Strip Certificate must be
included in ordinary income as it accrues, in accordance with a constant yield
method that takes into account the compounding of interest, which may be prior
to the receipt of the cash attributable to that income. For Receivables that are
prepayable, such accrual will likely employ a prepayment assumption. With the
apparent exception of a Strip Certificate qualifying as a market discount
obligation as described above under "--General," the issue price of a Strip
Certificate will be the purchase price paid by each holder of the Strip
Certificate. The stated redemption price at maturity will include the aggregate
amount of the payments to be made on the Strip Certificate to the holder of
securities, presumably under the prepayment assumption, other than qualified
stated interest.
If the Receivables prepay at a rate either faster or slower than under the
applicable prepayment assumption, a holder's recognition of OID will be either
accelerated or decelerated and the amount of the OID will be either increased or
decreased depending on the relative interests in principal and interest on each
Receivable represented by the holder's Strip Certificate. While the matter is
not free from doubt, the holder of a Strip Certificate should be entitled in the
year that it becomes certain, assuming no further prepayments, that the holder
will not recover a portion of its adjusted basis in that Strip Certificate to
recognize a loss, which may be a capital loss, equal to that portion of
unrecoverable basis.
As an alternative to the method described above, the fact that some or all of
the interest payments with respect to the Strip Certificates will not be made if
the Receivables are prepaid could lead to the interpretation that those interest
payments are "contingent" within the meaning of the OID regulations. The OID
regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to repayable securities. However, if final
regulations dealing with contingent interest with respect to the Strip
Certificates apply the same principles as the OID regulations, those regulations
may lead to different timing of income inclusion than would be the case under
the OID regulations. Furthermore, application of those principles could
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lead to the characterization of gain on the sale of contingent interest Strip
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Strip Certificates.
Sale or Exchange of Strip Certificates. Sale or exchange of a Strip
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the holder's adjusted basis
in that Strip Certificate, as described above under "Standard Certificates--Sale
or Exchange of a Standard Certificate." To the extent that a subsequent
purchaser's purchase price is`exceeded by the remaining payments on the Strip
Certificates, the subsequent purchaser will be required for federal income tax
purposes to accrue and report the excess as if it were OID in the manner
described above. It is not clear for this purpose whether the assumed prepayment
rate that is to be used in the case of a holder of securities other than an
original holder of securities should be the original prepayment assumption or a
new rate based on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Strip Certificates. When an investor
purchases more than one class of Strip Certificates, it is currently unclear
whether for federal income tax purposes the classes of Strip Certificates should
be treated separately or aggregated for purposes of the rules described above.
Possible Alternative Characterization. The characterizations of the Strip
Certificates discussed above are not the only possible interpretations of the
applicable Code provisions. For example, the holder of securities may be treated
as the owner of:
(1) one installment obligation consisting of the Strip Certificate's pro rata
share of the payments attributable to principal on each Receivable and a second
installment obligation consisting of the respective Strip Certificate's pro rata
share of the payments attributable to interest on each Receivable,
(2) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each Receivable, or
(3) a separate installment obligation for each Receivable, representing the
Strip Certificate's pro rata share of payments of principal and/or interest to
be made with respect to that Strip Certificate.
Alternatively, the holder of one or more classes of Strip Certificates may be
treated as the owner of a pro rata fractional undivided interest in each
Receivable to the extent that the related Strip Certificate, or classes of Strip
Certificates in the aggregate, represent the same pro rata portion of principal
and interest on each Receivable, and a stripped bond or stripped coupon, as the
case may be, treated as an installment obligation or contingent payment
obligation, as to the remainder. Treasury regulations regarding OID on stripped
obligations make the foregoing interpretations less likely to be applicable. The
preamble to these regulations states that they are premised on the assumption
that an aggregation approach is appropriate for determining whether OID on a
stripped bond or stripped coupon is de minimis, and solicits comments on
appropriate rules for aggregating stripped bonds and stripped coupons under Code
Section 1286.
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Because of these possible varying characterizations of Strip Certificates and
the resultant differing treatment of income recognition, holders of securities
are urged to consult their own tax advisors regarding the proper treatment of
Strip Certificates for federal income tax purposes.
Information Reporting and Backup Withholding. The trustee will furnish,
within a reasonable time after the end of each calendar year, to each holder of
Strip Certificates at any time during that calendar year, information, prepared
on the basis described above, as is necessary to enable the holder of those
Strip Certificates to prepare its federal income tax returns. The information
will include the amount of OID accrued on Strip Certificates held by persons
other than holders exempted from the reporting requirements. However, the amount
required to be reported by the trustee may not be equal to the proper amount of
OID required to be reported as taxable income by a holder of Strip Certificates
other than an original holder that purchased at the issue price. In particular,
in the case of Strip Certificates, the reporting will be based on a
representative initial offering price of each class of Strip Certificates or a
price as set forth in the related prospectus supplement. The trustee will also
file OID information with the IRS. If a holder of securities fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a holder of securities has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "Standard Certificates--Information Reporting and Backup
Withholding."
Non-U.S. Persons. To the extent that a Strip Certificate evidences ownership
in Receivables that are issued on or before July 18, 1984, interest or OID paid
by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or any lower rate as may
be provided for interest by an applicable tax treaty. Accrued OID recognized by
the holder of Strip Certificates on a sale or exchange also will be subject to
federal income tax at the same rate.
Treasury regulations provide that interest or OID paid by the trustee or
other withholding agent to a Non-U.S. Person evidencing ownership interest in
mortgage loans issued after July 18, 1984 will be "portfolio interest" and will
be treated in the manner, and these persons will be subject to the same
certification requirements, described above under "Standard
Certificates--Non-U.S. Persons."
* * *
The federal tax discussion set forth above is included for general
information only and may not be applicable to your particular tax situation. We
suggest that you consult your own tax advisor with respect to the tax
consequences of the purchase, ownership and disposition of securities, including
the tax consequences under state, local and foreign and other tax laws and the
possible effects of changes in federal or other tax laws.
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ERISA CONSIDERATIONS
GENERAL
ERISA and Section 4975 of the Code impose certain requirements on those
employee benefit plans and arrangements to which they apply and on those persons
who are fiduciaries with respect to the employee benefit plans and arrangements.
The following is a general discussion of the requirements, and certain
applicable exceptions to and administrative exemptions from the requirements.
For purposes of this discussion, an IRA is an ERISA Plan if the IRA is endorsed
by or contributed to by the IRA participant's employer or employee organization.
Other IRAs and Non-ERISA Plans are not considered ERISA Plans, but the Non-ERISA
Plans are subject to ERISA-like requirements as well as the prohibited
transaction provisions of the Code. Exempt Plans are exempt from the provisions
of Title I of ERISA and the prohibited transaction provisions of the Code.
Accordingly, Exempt Plans also are not considered ERISA Plans, but the Exempt
Plans may be subject to the provisions and special requirements of other
applicable federal, state and local law.
CERTAIN REQUIREMENTS UNDER ERISA AND THE CODE
General
In accordance with ERISA's general fiduciary standards, before investing in a
certificate, an ERISA Plan fiduciary should determine whether to do so is
permitted under the governing ERISA Plan instruments and is appropriate for the
ERISA Plan in view of its overall investment policy and the composition and
diversification of its portfolio. An ERISA Plan fiduciary should especially
consider the ERISA requirement of investment prudence and the sensitivity of the
return on the certificates to the rate of principal repayments, including
prepayments on a retail installment sale or installment loan contract, as
discussed in "The Receivables--Maturity and Prepayment Considerations" in this
prospectus.
Parties in Interest/Disqualified Persons
Other provisions of ERISA, and corresponding provisions of the Code, prohibit
certain transactions involving the assets of an ERISA Plan and persons who have
certain specified relationships to the ERISA Plan, so-called "parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code. The depositor, the master servicer or the trustee or
certain affiliates of these parties might be considered or might become "parties
in interest" or "disqualified persons" with respect to an ERISA Plan. If so, the
acquisition or holding of certificates by or on behalf of ERISA Plan could be
considered to give rise to a "prohibited transaction" within the meaning of
ERISA and the Code unless an administrative exemption or some other exemption is
available.
Special caution should be exercised before the assets of an ERISA Plan,
including assets that may be held in an insurance company's separate or general
accounts where assets in the accounts may be deemed plan assets for purposes of
ERISA, are used to purchase a certificate if, with respect these assets, the
depositor, the master servicer or the trustee or an affiliate of these parties
either:
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o has investment discretion with respect to the investment of the assets of
the ERISA Plan; or
o has authority or responsibility to give, or regularly gives, investment
advice with respect to the assets for a fee and under an agreement or
understanding that the advice will serve as a primary basis for investment
decisions with respect to the assets and that the advice will be based on
the particular investment needs of the ERISA Plan.
Delegation of Fiduciary Duty
Further, if the assets included in a trust fund were deemed to constitute
assets of an ERISA Plan, it is possible that an ERISA Plan's investment in the
certificates might be deemed to constitute a delegation, under ERISA, of the
duty to manage plan assets by the fiduciary deciding to invest in the
certificates, and certain transactions involved in the operation of the trust
estate might be deemed to constitute prohibited transactions under ERISA and the
Code. Neither ERISA nor the Code define the term "plan assets."
The U.S. Department of Labor has issued regulations concerning whether or not
an ERISA Plan's assets would be deemed to include an interest in the underlying
assets of an entity, such as a Trust Estate, for purposes of the reporting and
disclosure and general fiduciary responsibility provisions of ERISA, as well as
for the prohibited transaction provisions of ERISA and the Code, if the ERISA
Plan acquires an "equity interest", such as a Certificate, in this type entity.
Certain exceptions are provided in the Department of Labor regulations
whereby an investing ERISA Plan's assets would be deemed merely to include its
interest in the certificates instead of being deemed to include an interest in
the assets of a trust fund. However, it cannot be predicted in advance nor can
there be any continuing assurance whether the exceptions may be met, because of
the factual nature of certain of the rules set forth in the regulations. For
example, one of the exceptions in the regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of the
value of all classes of equity interests are held by "benefit plan investors,"
which term is defined to include ERISA Plans, Non-ERISA Plans and Exempt Plans
and any entity whose assets include "plan assets" by reason of benefit plan
investments in the entity, but this exception is tested immediately after each
acquisition of an equity interest in the entity whether upon initial issuance or
in the secondary market.
NON-ERISA PLANS AND EXEMPT PLANS
Although Non-ERISA Plans and Exempt Plans are not considered ERISA Plans for
purposes of the above discussion, since Non-ERISA Plans are subject to the
prohibited transaction provisions of the Code, the discussion above with respect
to "disqualified persons," prohibited transactions, delegation of fiduciary duty
and plan assets applies to Non-ERISA Plans as well as ERISA Plans, and both
Non-ERISA Plans and Exempt Plans may be subject to certain other ERISA-like
requirements of applicable law. Therefore, before purchasing any certificates by
or on behalf of a Non-ERISA Plan or any Exempt Plan, the prospective purchaser
should exercise special caution and should consult with its legal counsel
concerning the propriety and implications of the investment under the Code or
other applicable law.
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Before purchasing any certificates, an ERISA Plan fiduciary should consult
with its counsel and determine whether there exists any prohibition to the
purchase under the requirements of ERISA or the Code, whether prohibited
transaction class exemptions such as PTE 83-1 or any individual administrative
exemption applies, including whether the appropriate conditions set forth there
would be met, or whether any statutory prohibited transaction exemption is
applicable, and further should consult the applicable prospectus supplement
relating to the series of certificates.
UNRELATED BUSINESS TAXABLE INCOME--RESIDUAL CERTIFICATES
The purchase of a residual certificate by an IRA or any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of Benefit Plans, may give rise to "unrelated
business taxable income" as described in Code Sections 511 through 515 and 860E.
Further, prior to the purchase of residual certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a residual certificate on behalf of, a Disqualified
Organization. In addition, prior to the transfer of a residual certificate, the
trustee or the depositor may require an opinion of counsel to the effect that
the transferee is not a Disqualified Organization and that the transfer will not
subject the trustee, the depositor, the master servicer or any servicer to
additional obligations imposed by ERISA or the Code.
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSED UPON PERSONS
INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT POTENTIAL
INVESTORS WHO ARE ACTING ON BEHALF OF A BENEFIT PLAN OR ANY OTHER EMPLOYEE
BENEFIT PLAN OR ARRANGEMENT CONSULT WITH THEIR COUNSEL REGARDING THE
CONSEQUENCES UNDER ERISA, THE CODE OR OTHER APPLICABLE LAW OF THEIR ACQUISITION
AND OWNERSHIP OF CERTIFICATES.
THE SALE OF CERTIFICATES TO A BENEFIT PLAN OR ANY OTHER EMPLOYEE BENEFIT PLAN
OR ARRANGEMENT IS IN NO RESPECT A REPRESENTATION BY THE DEPOSITOR OR THE
APPLICABLE UNDERWRITER THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL
REQUIREMENTS WITH RESPECT TO INVESTMENTS BY EMPLOYEE BENEFIT PLANS GENERALLY OR
ANY PARTICULAR PLAN OR ARRANGEMENT, OR THAT THIS INVESTMENT IS APPROPRIATE FOR
EMPLOYEE BENEFIT PLANS GENERALLY OR ANY PARTICULAR PLAN OR ARRANGEMENT.
METHODS OF DISTRIBUTION
The securities offered by this prospectus and by the supplements to this
prospectus will be offered in series. The distribution of the securities may be
effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment for a sale. The
related prospectus supplement will specify whether the securities will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by PaineWebber Incorporated acting as
underwriter with other underwriters, if any, named in the related underwriting
agreement. If it is a firm commitment underwriting, the related prospectus
supplement may also specify that the underwriters will not be obligated to pay
for any securities agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the depositor. In connection with the sale of the
securities, underwriters may receive compensation
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from the depositor or from purchasers of the securities in the form of
discounts, concessions or commissions. The related prospectus supplement will
describe any compensation paid by the depositor to the underwriters.
Alternatively, the related prospectus supplement may specify that the
securities will be distributed by PaineWebber Incorporated acting as agent or in
some cases as principal with respect to securities which it has previously
purchased or agreed to purchase. If PaineWebber Incorporated acts as agent in
the sale of securities, PaineWebber Incorporated will receive a selling
commission with respect to each series of securities, depending on market
conditions, expressed as a percentage of the aggregate principal balance of the
related residential loans as of the related cut-off date. The exact percentage
for each series of securities will be disclosed in the related prospectus
supplement. To the extent that PaineWebber Incorporated elects to purchase
securities as principal, PaineWebber Incorporated may realize losses or profits
based on the difference between its purchase price and the sales price. The
prospectus supplement with respect to any series offered other than through
underwriters will contain information regarding the nature of the offering and
any agreements to be entered into between the depositor and purchasers of
securities of the related series.
The depositor will indemnify PaineWebber Incorporated and any underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or will contribute to payments PaineWebber Incorporated and any
underwriters may be required to make in respect of any liability.
The related prospectus supplement relating to securities of a particular
series offered by this prospectus will specify whether the depositor or any
other person or persons specified in the prospectus supplement may purchase some
or all of the securities from the underwriter or underwriters or other person or
persons specified in the related prospectus supplement. A purchaser may
thereafter from time to time offer and sell, pursuant to this prospectus and the
related prospectus supplement, some or all of the securities so purchased,
directly, through one or more underwriters to be designated at the time of the
offering of these securities, through dealers acting as agent and/or principal
or in any other manner as may be specified in the related prospectus supplement.
The related offering may be restricted in the manner specified in the related
prospectus supplement. The related transactions may be effected at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices. Any
underwriters and dealers participating in the purchaser's offering of the
related securities may receive compensation in the form of underwriting
discounts or commissions from a purchaser and dealers may receive commissions
from the investors purchasing the related securities for whom they may act as
agent. The discounts or commissions will not exceed those customary in those
types of transactions involved. Any dealer that participates in the distribution
of the related securities may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933, as amended. Any commissions and discounts
received by a dealer and any profit on the resale or the securities by that
dealer might be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended.
In the ordinary course of business, PaineWebber Incorporated and the
depositor, or their affiliates, may engage in various securities and financing
transactions. These financing transactions include repurchase agreements to
provide interim financing of the depositor's
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residential loans pending the sale of residential loans or interests in
residential loans, including the securities.
The depositor anticipates that the securities will be sold primarily to
institutional investors. Purchasers of securities, including dealers, may,
depending on the facts and circumstances of the related purchases, be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended
in connection with reoffers and sales by them of securities. Holders of
securities should consult with their legal advisors in this regard prior to any
reoffer or sale.
As to each series of securities, only those classes rated in one of the four
highest rating categories by any rating agency will be offered by this
prospectus. Any unrated class may be initially retained by the depositor, and
may be sold by the depositor at any time to one or more institutional investors.
If required by applicable law or regulation, this prospectus will be used by
PaineWebber Incorporated, our affiliate, in connection with offers and sales
related to market-making transactions in the securities previously offered by
this prospectus in transactions in which PaineWebber Incorporated acts as
principal. PaineWebber Incorporated may also act as agent in those transactions.
Sales may be made at negotiated prices determined at the time of sale.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of securities offered by this prospectus, there
are incorporated in this prospectus and in the related prospectus supplement by
reference all documents and reports filed by the depositor as required by
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 that
specifically concern the related series of securities. We will provide or cause
to be provided a copy of any or all reports incorporated in this prospectus by
reference without charge to each person to whom this prospectus and a related
prospectus supplement is delivered in connection with the offering of one or
more classes of series of securities, if they request it orally or in writing.
We will provide these reports only to the extent the reports relate to one or
more of classes of the related series of securities, and without the exhibits to
these documents, unless the exhibits are specifically incorporated by reference
in these documents. Requests should be directed in writing to PaineWebber Asset
Acceptance Corporation, 1285 Avenue of the Americas, New York, New York 10019,
Attention: General Counsel, or by telephone at (212) 713-2000.
We filed a registration statement relating to the securities with the SEC.
This prospectus is part of the registration statement, but the registration
statement includes additional information.
Copies of the registration statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549, if payment of the
prescribed charges is made, or may be examined free of charge at the SEC's
offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at the regional
offices of the Commission located at Suite 1300, 7 World Trade Center, New York,
New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. The SEC also maintains a site on the World Wide
Web at "http://www.sec.gov" at which you can view and download copies of
reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering, Analysis and Retrieval --
EDGAR -- system. The depositor filed the registration
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statement, including all exhibits to the registration statement, through the
EDGAR system and therefore these materials should be available by logging on to
the SEC's Web site. The SEC maintains computer terminals providing access to the
EDGAR system at each of the offices referred to above.
LEGAL MATTERS
The validity of the securities and certain federal income tax matters in
connection with the securities will be passed on for the depositor by
Cadwalader, Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A trust fund will be formed with respect to each series of securities and no
trust fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of securities. The
depositor's activities will be limited solely to the activities of trust funds
to be formed with respect to each series of securities. Accordingly, no
financial statements with respect to any trust fund will be included in this
prospectus or in the related prospectus supplement.
A prospectus supplement may contain the financial statements of the related
credit enhancer, if any.
ADDITIONAL INFORMATION
This prospectus, together with the prospectus supplement for each series of
securities, contains a summary of the material terms of the applicable exhibits
to the registration statement and the documents referred to in this prospectus
and in the registration statement. Copies of the exhibits are on file at the
offices of the Securities and Exchange Commission in Washington, D.C., and may
be obtained at rates prescribed by the Commission upon request to the Commission
and may be inspected, without charge, at the Commission's offices.
RATING
It will be a condition to the issuance of the securities of each series
offered by this prospectus and by the related prospectus supplement that they
shall have been rated in one of the four highest rating categories by the
nationally recognized statistical rating agency or agencies specified in the
related prospectus supplement.
Any rating would be based on, among other things, the adequacy of the value
of the assets of the trust fund and any credit enhancement with respect to the
related class. A rating will reflect the specified rating agency's assessment
solely of the likelihood that holders of a class of securities of the related
class will receive payments to which holders of securities are entitled by their
terms. The rating will not constitute:
(1) an assessment of the likelihood that principal prepayments on the
related residential loans will be made,
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(2) the degree to which the rate of prepayments might differ from that
originally anticipated or
(3) the likelihood of early optional termination of the series of securities.
The rating should not be deemed a recommendation to purchase, hold or sell
securities, inasmuch as it does not address market price or suitability for a
particular investor.
The rating will not address the possibility that prepayment at higher or
lower rates than anticipated by an investor may cause the investor to experience
a lower than anticipated yield. The rating will not address that an investor
purchasing a security at a significant premium might fail to recoup its initial
investment under certain prepayment scenarios.
We cannot assure you that any rating will remain in effect for any given
period of time or that it may not be lowered or withdrawn entirely by the rating
agency in the future if in its judgment circumstances in the future so warrant.
A rating may be lowered or withdrawn due to any erosion in the adequacy of the
value of the assets of the trust fund or any credit enhancement with respect to
a series. The rating might also be lowered or withdrawn among other reasons,
because of an adverse change in the financial or other condition of a credit
enhancement provider or a change in the rating of the credit enhancement
provider's long term debt.
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GLOSSARY OF TERMS
"ACCRUAL SECURITIES" are one or more classes of fixed income securities as to
which a portion of the accrued interest will not be paid but rather will be
added to the principal balance, or nominal balance in the case of Accrual
Securities which are also Strip Securities, of those classes of fixed income
securities on each payment date.
"BENEFIT PLANS" are Exempt Plans, ERISA Plans and Non-ERISA Plans referred to
collectively.
"CLEARSTREAM" is Clearstream Banking, societe anonyme.
"CLEARSTREAM PARTICIPANTS" are participating organizations for which
Clearstream holds securities.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACTS" are Lease Contracts and Loan Contacts.
"COOPERATIVE" is the Euroclear Clearance System, S.C., a Belgian cooperative
corporation.
"DEFINITIVE SECURITY" is a physical certificate representing a security
issued in the name of the beneficial owner of the security rather than DTC.
"DISCOUNTED CONTRACT BALANCE" of a Contract as of any cut-off date is the
present value of all of the remaining payments scheduled to be made with respect
to that Contract, discounted at a rate specified in the related prospectus
supplement and the Trust Agreement
"DISQUALIFIED ORGANIZATION" means the United States, any state or political
subdivision of the United States, any foreign government, any international
organization, any agency or instrumentality of any of those bodies, provided
that the term does not include an instrumentality if all of its activities are
subject to tax and a majority of its board of directors is not selected by these
governmental entities, any cooperative organization furnishing electric energy
or providing telephone service to persons in rural areas as described in Code
Section 1381(a)(2)(C), and any organization, other than a farmers' cooperative
described in Code Section 521, that is exempt from taxation under the Code
unless that organization is subject to the tax on unrelated business income
imposed by Code Section 511.
"ERISA PLANS" are retirement plans and other employee benefit plans and
arrangements, including individual retirement accounts and annuities and Keogh
plans, which are subject to ERISA, and bank collective investment funds and
insurance company general and separate accounts in which the plans, accounts or
arrangements are invested.
"EUROCLEAR" is the Euroclear System.
"EUROCLEAR OPERATOR" is the Belgian branch of a New York banking corporation
which is a member bank of the Federal Reserve System.
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"EUROCLEAR PARTICIPANTS" are participating organizations for which Euroclear
holds securities.
"EXEMPT PLANS" are employee benefit plans that are governmental plans, (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA).
"FASIT" is a financial asset securitization investment trust.
"FIXED VALUE CONTRACTS" are Loan Contracts that provide for monthly payments
with a final fixed value payment which is greater than the scheduled monthly
payment.
"INSOLVENCY EVENT" is financial insolvency, bankruptcy, readjustment of debt,
marshaling of assets and liabilities, or similar proceedings with respect to the
servicer or the Receivables seller and actions by the servicer or the related
Receivables seller indicating its insolvency, reorganization under bankruptcy
proceedings, or inability to pay its obligations.
"LEASE CONTRACTS" with respect to each trust fund consists of closed-end or
open-end lease contracts secured by new and used Vehicles financed by those
contracts, or participation or security interests in them, together with all
related monies.
"LOAN CONTRACTS" with respect to each trust fund consists of retail
installment sales contracts and note and security agreements secured by new and
used Vehicles financed by those contracts, or participation or security
interests in them, together with all related monies.
"NON-U.S. PERSON" is a person who is not a U.S. Person.
"OID" is original issue discount.
"OID REGULATIONS" are U.S. Treasury regulations relating to OID.
"PARTICIPANTS" are participating organizations through which a securityholder
can hold its book-entry security.
"RECEIVABLES" are Contracts.
"RECEIVABLES ACQUISITION AGREEMENT" the agreement between the Receivables
seller and the depositor under which the Receivables will be acquired by the
depositor from the related Receivables seller.
"RULE OF 78S" is the provision of payments according to a "sum of periodic
balances" or "sum of monthly payments" method and under which the portion of
each payment allocable to interest is higher during the early months of the term
of a Loan Contract and lower during later months than that under a constant
yield method for allocating payments between interest and principal.
"RULE OF 78S CONTRACTS" are contracts that provide for fixed level monthly
payments which will amortize the full amount of the Loan Contract over its term
and that provide for allocation of payments according to the "sum of periodic
balances" or "sum of monthly payments" method. Each Rule of 78s Contract
provides for the payment by the obligor of a specified total amount of payments,
payable in monthly installments on the related due date, which total represents
the
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principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate for the term of the Loan Contract.
"SIMPLE INTEREST CONTRACTS" are contracts that provide for the amortization
of the amount financed under the Receivable over a series of fixed level monthly
payments. Unlike the monthly payment under Rule of 78s Contracts, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed, as a fraction of a calendar
year, since the preceding payment of interest was made. As payments are received
under a Simple Interest Contract, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance.
"STRIP CERTIFICATES" means securities subject to Code Section 1286, under
which the separation of ownership of the right to receive some or all of the
principal payments on an obligation from ownership of the right to receive some
or all of the interest payments results in the creation of "stripped bonds" with
respect to principal payments and "stripped coupons" with respect to interest
payments.
"STRIP SECURITIES" are one or more classes of fixed income securities
entitled to:
(1) principal payments, with disproportionate, nominal or no interest
payments; or
(2) interest payments, with disproportionate, nominal or no principal
payments.
"TRUST AGREEMENT" as used with respect to a trust fund means any and all
agreements relating to the establishment of the trust, the servicing of the
related Receivables and the issuance of the related securities, including an
indenture and a pooling and servicing agreement.
"UCC" means the Uniform Commercial Code.
"U.S. PERSON" means a citizen or resident of the United States, a
corporation, partnership (except as provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States,
any state or the District of Columbia, including an entity treated as a
corporation or partnership for U.S. federal income tax purposes, an estate that
is subject to U.S. federal income tax regardless of the source of its income or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more of those U.S.
Persons have the authority to control all substantial decisions of the trust
(or, to the extent provided in applicable Treasury regulations, certain trusts
in existence on August 20, 1996, which are eligible to elect to be treated as
U.S. Persons).
"VEHICLES" means new and used automobiles], [motorcycles], [light duty
trucks], [Recreational Vehicles] and any related property, together with any
related proceeds which may be financed or leased under Loan Contracts or Lease
Contracts, respectively.
"VSI INSURANCE POLICY" means a policy of vendor's single interest physical
damage insurance which provides insurance against physical damage risks.
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The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
--------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED __________, 200_
PROSPECTUS SUPPLEMENT DATED __________, 200_
TO PROSPECTUS DATED __________, 200_
$____________ (APPROXIMATE)
________ EQUIPMENT CONTRACT TRUST 200_-_
EQUIPMENT CONTRACT-BACKED CERTIFICATES, SERIES 200_-_
$__________ ______% CLASS A CERTIFICATES
PAINEWEBBER ASSET ACCEPTANCE CORPORATION
(DEPOSITOR)
[____________________________]
(ORIGINATOR/SERVICER)
The Trust Fund--
o The trust fund consists primarily of a pool of receivables consisting of
direct finance leases and commercial loans and the security interests in
the underlying equipment, including [describe types of equipment].
The Offered Certificates--
o The trust will issue 3 classes of certificates. Only the Class A
certificates are offered by this prospectus supplement.
PRICE TO THE UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT DEPOSITOR
------------ ------------ ---------------
% % $
The proceeds to depositor are less expenses, estimated at $[ ]. See
"Underwriting" in this prospectus supplement.
--------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ OF THIS
PROSPECTUS SUPPLEMENT AND PAGE ___ IN THE PROSPECTUS.
The certificates will not represent obligations of the depositor, originator,
the trustee or any other person or entity. No governmental agency will insure
the certificates or the collateral securing the certificates.
We suggest that you consult with your own advisors to determine if the
offered certificates are appropriate investments for you and to determine the
applicable legal, tax, regulatory and accounting treatment of the offered
certificates.
--------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE OFFERED
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PAINEWEBBER INCORPORATED
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information about the certificates in two separate documents that
progressively include more detail:
(1) the accompanying prospectus dated ___________, 200_. The accompanying
prospectus provides general information, some of which may not apply to your
series of certificates.
(2) this prospectus supplement, which describes the specific terms of your
series of certificates. Sales of the certificates may not be completed unless
you have received both this prospectus supplement and the prospectus. You are
urged to read both this prospectus supplement and the prospectus in full.
IF THE TERMS OF THE CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS, THEN YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.
Cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials are included to assist in locating
further related discussions. The following table of contents and the table of
contents in the accompanying prospectus provide the pages on which these
captions are located.
S-2
<PAGE>
TABLE OF CONTENTS
Page
Summary......................................................................S-4
Risk Factors.................................................................S-9
Forward-Looking Statements..................................................S-10
Defined Terms...............................................................S-11
The Contract Pool...........................................................S-11
The Contracts............................................................S-11
The Equipment Subject to the Contracts...................................S-12
Subsequent Contracts.....................................................S-13
Substitutions and Modifications..........................................S-13
Description of Originator and its Originating Practices.....................S-23
Description of Servicer and its Servicing Standards.........................S-23
Description of Servicer's Delinquency and Loss Experience...................S-24
Formation of the Trust......................................................S-23
Description of the Certificates.............................................S-24
The Offered Certificates.................................................S-24
Conveyance of Receivables................................................S-24
Representations and Warranties of the Originator.........................S-25
Indemnification..........................................................S-25
Servicer Advances........................................................S-26
Flow of Funds............................................................S-26
Withholding..............................................................S-27
Reports to Certificateholders............................................S-27
Optional Purchase........................................................S-28
Servicing................................................................S-28
The Servicer Not to Resign...............................................S-28
Events of Servicing Termination..........................................S-29
Rights Upon an Event of Servicing Termination............................S-30
Amendment................................................................S-30
The Trustee.................................................................S-31
Duties and Immunities of the Trustee.....................................S-31
Prepayment and Yield Considerations.........................................S-32
Weighted Average Lives of the Offered Certificates.......................S-32
Federal Income Tax Considerations...........................................S-34
ERISA Considerations........................................................S-35
Legal Investment............................................................S-38
Underwriting................................................................S-38
Additional Information......................................................S-39
Legal Matters...............................................................S-40
Ratings.....................................................................S-40
Glossary of Terms...........................................................S-41
S-3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN INVESTMENT
DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE CERTIFICATES,
YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS.
RELEVANT PARTIES
Issuer....................... ___________ Trust 200_-_ will issue the
certificates.
Depositor.................... PaineWebber Asset Acceptance Corporation will
transfer the receivables to the trustee.
PaineWebber Asset Acceptance Corporation is a
Delaware corporation. The depositor's principal
executive offices are located at 1285 Avenue of
the Americas, New York, New York 10019,
telephone number (212) 713-2000.
Servicer..................... ______________ will service the receivables
transferred to the trustee. The servicer is a
_________ with its principal place of business
in __________. The servicer is a wholly owned
subsidiary of __________, a ________
corporation. The servicer's address is
____________, telephone number (___) ____. ____.
Trustee...................... The ____________________, a
____________________. The trustee's address is
____________________________________, and its
telephone number is ___________________. For a
description of the trustee and its
responsibilities with respect to the
certificates, see "The Trustee" in this
prospectus supplement.
RELEVANT DATES
Cut-Off Date................. ________, 200_.
Closing Date................. On or about ________, 200_.
Distribution Dates
and Record Dates........... Distribution dates will be on the _____ day of
each month, or the next succeeding business day,
commencing in __________. Record dates are the
calendar day of each month.
The Transfer Agreements...... The initial leases and loan contracts are
originated by the servicer and assigned by the
servicer to one of two subsidiaries of the
servicer. On or prior to the date of
S-4
<PAGE>
formation of the trust, these subsidiaries will
assign the initial leases and loan contracts back
to the servicer. On the date of formation of
the trust, the servicer will transfer all of its
right, title and interest in and to the initial
leases and loan contracts, the initial equipment
and the related property to a special-purpose
finance vehicle, ___________ under a contribution
agreement. ______________ will then transfer the
initial transferred property to the depositor
under a receivables transfer agreement. Under the
pooling and servicing agreement, the depositor
will transfer the trust assets to the trust.
Trust Assets................. The assets of the trust will initially consist of:
o non-cancelable equipment leases;
o installment sale contracts and loans
relating to the equipment;
o all related payments due and related proceeds
received after the cut-off date with respect to
the initial leases;
o a security interest in the underlying
equipment; and
o other related property.
The assest of the trust will not initially
include an ownership interest in the equipment.
The Class A Certificates..... The Class A certificates will represent the right
to receive a specified principal amount and
monthly interest at a rate of ______% per annum on
the unpaid portion of that principal amount. The
rights to the payments are based solely on the
interest in the trust represented by the Class A
certificates. The Class A certificates will be
issued in a principal amount of $__________, which
is approximately _____________% of the aggregate
lease principal balance of the initial leases as
of the cut-off date with respect to the initial
leases. The Class A certificates are available in
book-entry form only, through the facilities of
DTC.
The trust will also issue two classes of
subordinate certificates, the Class B certificates
and the trust certificate.
The subordinate certificates are not offered by
this prospectus supplement, and will be issued
initially to the depositor. The depositor will
deliver the subordinate certificates to __________
as partial consideration for the conveyance of the
property initially transferred to the depositor.
S-5
<PAGE>
____________________ expects that the Class B
certificates will be privately placed with one or
more qualified institutional investors.
____________________ will retain the trust
certificate. From time to time the depositor may
transfer new property to the trust.
Credit Enhancement........... Credit enhancement is provided by means of the
subordination.
Subordination................ The Class A certificates are senior to the
Class B certificates, which are senior to the
residual interests. More senior classes are
entitled to principal payments prior to the
subordinate classes or interests, which
provides credit enhancement for the senior
classes. Losses resulting from defaults on the
underlying contracts will be absorbed first, by
the residual interest holders, second, by the
Class B certificateholders, and third, by the
Class A certificateholders.
The Contracts................ The principal source of payment for the
certificates will be the payments received from
the contract pool. You should not rely on the sale
of the underlying leased or financed equipment for
payments on your certificate.
The contracts have the following characteristics:
o The contracts are equipment leases and
commercial loans, with an initial aggregate
discounted principal balance expected to be
approximately $__________ on the closing date.
o The discounted principal balance of a contract
at any time will be calculated by discounting
the remaining scheduled payments and any final
scheduled payment on the contract at a discount
rate equal to ______%.
o [The contracts are triple-net leases. This
means that the obligor is required to pay all
taxes, maintenance and insurance associated
with the leased equipment.]
o The contracts are noncancellable by the
obligors.
o A contract cannot be prepaid unless the obligor
pays at least the outstanding discounted
contract principal balance of the contract and
any other delinquent scheduled payments due
under the contract.
S-6
<PAGE>
o All payments under the contracts are absolute,
unconditional obligations of the obligors.
o The contracts provide that the payments are not
subject to set-off or reduction without the
lessor's consent.
Underlying equipment type concentration:
---------------------------------------------------
PRINCIPAL BALANCE
EQUIPMENT TYPE CONCENTRATION
-------------- -------------
---------------------------------------------------
[information technology
equipment, including:]
---------------------------------------------------
[computer work stations,] %
---------------------------------------------------
[personal computers,] %
---------------------------------------------------
[data storage devices,] %
---------------------------------------------------
[mainframe and %
mini-computers]
---------------------------------------------------
[computer related %
peripheral equipment,]
---------------------------------------------------
[communications equipment, %
including telephone
switching and networking
systems,]
---------------------------------------------------
[commercial business and
industrial equipment,
including:]
---------------------------------------------------
[printing presses,] %
---------------------------------------------------
[machine tools and other %
manufacturing equipment,]
---------------------------------------------------
[photocopiers, facsimile %
machines and other office
equipment,]
---------------------------------------------------
[energy savings and control %
equipment,]
---------------------------------------------------
[automotive diagnostic %
equipment,]
---------------------------------------------------
[automated testing %
equipment,]
---------------------------------------------------
[medical equipment, %
including diagnostic and
therapeutic examination
equipment for radiology,
nuclear medicine and
ultrasound and laboratory
analysis equipment,]
---------------------------------------------------
[resources equipment, %
including feller-bunchers
and grapplers,]
---------------------------------------------------
[transportation and %
construction equipment,
including:]
---------------------------------------------------
[bulldozers,] %
---------------------------------------------------
[loaders,] %
---------------------------------------------------
[graders,] %
---------------------------------------------------
[excavators,] %
---------------------------------------------------
[forklifts,] %
---------------------------------------------------
[other materials handling %
equipment,]
---------------------------------------------------
[golf carts,] %
---------------------------------------------------
[other road and off-road %
machinery and electronics
manufacturing equipment.]
---------------------------------------------------
Pre-Funding Account.......... On the closing date, approximately $__________
will be deposited into a pre-funding account.
These funds will be used from time to time, on or
before ____________, 200_, to fund the acquisition
of subsequent contracts for addition to the
contract pool.
To the extent that any amounts on deposit in the
pre-funding account are not used to purchase
subsequent contracts by ____________, 200_, the
trust will apply these amounts as a pro rata
prepayment of the principal balance of the
certificates on the distribution date immediately
succeeding the end of the pre-funding period.
Servicing of
The Contracts.............. ________________________ will act as servicer
and will be obligated to service and administer
the contracts.
Optional Purchase............ The servicer may purchase all of the
receivables as of the last day of any month in
which the aggregate principal balance as a
percentage of the original aggregate principal
balance is 10% or less. See "Description of
the Certificates--Optional Purchase" in this
prospectus supplement.
Federal Income
Tax Considerations......... In the opinion of Cadwalader, Wickersham & Taft,
special tax counsel to the depositor, for federal
income tax purposes the trust will not be treated
as an association taxable as a corporation or as a
"publicly traded partnership" taxable as a
corporation.
The trustee and the certificateholders will agree
to treat the trust as a partnership for federal
income tax purposes. As a partnership, the trust
will not be subject to federal income tax and the
certificateholders will be required to report
their respective shares of the trust's taxable
income, deductions and other tax attributes. See
"Federal Income Tax Considerations" in this
prospectus supplement and in the accompanying
prospectus.
ERISA Considerations......... As described in this prospectus supplement, the
Class A certificates may be purchased by employee
benefit plans
S-7
<PAGE>
that are subject to ERISA or entities using assets
of the plans. Any benefit plan fiduciary
considering purchase of the Class A certificates
should, among other things, consult with its
counsel in determining whether all required
conditions have been satisfied. See "ERISA
Considerations" in this prospectus supplement.
Ratings...................... The trust will not issue the certificates
unless they have been assigned the following
ratings:
CLASS
----------- ----------- ----------- -----------
A
These ratings may be lowered, qualified or
withdrawn by the rating agencies.
S-8
<PAGE>
RISK FACTORS
Before making an investment decision, you should carefully consider the
following risks in addition to the risk factors discussed in the prospectus
which we believe describe the principal factors that make an investment in the
certificates speculative or risky. In particular, payments on your certificates
will depend on payments received on and other recoveries with respect to the
receivables. Therefore, you should carefully consider the risk factors relating
to the receivables. Unless otherwise noted, all statistical percentages are
based upon the contract pool that existed on a statistical calculation date of
_____________, 200_.
CONCENTRATIONS OF THE OBLIGORS AND THE EQUIPMENT UNDERLYING THE CONTRACTS IN
PARTICULAR GEOGRAPHIC JURISDICTIONS MAY RESULT IN LOSSES ON YOUR CERTIFICATE IF
THOSE REGIONS EXPERIENCE ECONOMIC DOWNTURNS.
As of the statistical calculation date, the obligors and underlying equipment
with respect to approximately _____% and _____% of the contracts were located in
the states of ____________ and ______________, respectively. To the extent
adverse events or economic conditions are particularly severe in these
jurisdictions or in the event an obligor or group of obligors in these
jurisdictions were to experience financial difficulties due to the economic
conditions specific to these jurisdictions, the delinquency and loss experience
of the contract pool could be adversely impacted. As a result, you could
experience delays in receiving payments or suffer losses on your certificate.
PREPAYMENTS OF PRINCIPAL MAY ADVERSELY AFFECT THE YIELD ON YOUR CERTIFICATE.
Payments on the contracts may include several types of prepayments. These
prepayments include partial and full prepayments by the obligor, payments upon
the liquidation of defaulted contracts and payments by the originator or the
servicer on account of breaches of representations and warranties concerning the
receivables. These prepayments will be distributed to the certificateholders in
reduction of the principal balance of the certificates. The risk of reinvesting
these early distributions of the principal will be borne by you and we cannot
assure you that you will be able to reinvest them at a yield equaling or
exceeding the yield on your certificate.
The yield to maturity on certificates purchased at premiums or discounts to
par will be extremely sensitive to the rate of prepayments. You should consider,
in the case of certificates purchased at a discount, the risk that a slower than
anticipated rate of prepayments on the contracts could result in an actual yield
that is less than the anticipated yield. In the case of any certificates
purchased at a premium, the risk that a faster than anticipated rate of
prepayments on the contracts could result in an actual yield that is less than
the anticipated yield.
In addition, if the funds on deposit in the pre-funding account are not fully
applied to the purchase of subsequent contracts during the pre-funding period,
the remaining funds will be used to make a principal prepayment on the
certificates following the end of the pre-funding period. The purchase of
subsequent contracts is dependent on the ability of the originator to originate
sufficient subsequent contracts that meet the eligibility criteria described in
this prospectus supplement. The ability of the originator to originate
subsequent contracts may be affected by a variety of social and economic
factors, including:
o interest rates;
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o unemployment levels;
o the rate of inflation; and
o consumer perception of economic conditions generally.
If the originator does not originate sufficient subsequent contracts, there
will be a prepayment on the certificates. The risk of reinvesting a prepayment
of the principal will be borne by you and there can be no assurance that you
will be able to reinvest them at a yield equaling or exceeding the yield on your
certificate.
PAYMENTS ON THE CERTIFICATES ARE PRIMARILY FUNDED BY COLLECTIONS ON THE CONTRACT
POOL; IF CREDIT ENHANCEMENT IS EXHAUSTED FOR YOUR CLASS OF CERTIFICATES, LOSSES
ON THE CONTRACT POOL WILL LEAD TO LOSSES ON YOUR CERTIFICATE.
The principal source of funds for the repayment of the certificates are the
collections on the contract pool. Thus, losses on the contract pool may cause
losses on your certificate. The structure of the transaction provides for a
limited level of credit enhancement for the certificates by means of
subordination. The residual interests are in a first-loss position. Losses on
the contract pool will be allocated to the residual interests prior to any
losses being allocated to the certificates.
THE BANKRUPTCY OF THE ORIGINATOR COULD LEAD TO DELAYS IN PAYMENTS OR LOSSES ON
YOUR CERTIFICATE.
If the originator, or the third-party companies from which the originator
purchased the contracts, were to file for bankruptcy, the bankruptcy trustee
might seek to repudiate the contracts and/or claim an interest in the contract
pool. This attempt, even if unsuccessful, could result in delays in payments on
your certificate. If these attempts were successful, the recovery on the
contracts would be limited to the then current value of the contracts. Thus, the
certificateholders would lose the right to future payments and could possibly
incur reinvestment losses on amounts recovered.
FORWARD-LOOKING STATEMENTS
In this prospectus supplement and the accompanying prospectus, we use certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These forward-looking statements are
found in the material, including each of the tables, set forth under "Risk
Factors" and "Prepayment and Yield Considerations" in this prospectus
supplement. Forward-looking statements are also found elsewhere in this
prospectus supplement and prospectus and include words like "expects,"
"intends," "anticipates," "estimates" and other similar words. These statements
are intended to convey our projections or expectations as of the date of this
prospectus supplement. These statements are inherently subject to a variety of
risks and uncertainties. Actual results could differ materially from those we
anticipate due to changes in, among other things:
(1) economic conditions and industry competition,
(2) political and/or social conditions, and
(3) the law and government regulatory initiatives.
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We will not update or revise any forward-looking statement to reflect changes
in our expectations or changes in the conditions or circumstances on which these
statements were originally based.
DEFINED TERMS
We define and use capitalized terms in this prospectus supplement and the
prospectus to assist you in understanding the terms of the offered certificates
and this offering. We define the capitalized terms we used in this prospectus
supplement under the caption "Glossary of Terms" beginning on page S-[__] in
this prospectus supplement.
THE CONTRACT POOL
THE CONTRACTS
The Contracts consist of small-ticket leases and commercial loans acquired by
the originator from third parties or originated directly by the originator or
its affiliates. The Receivables consist of the Contracts and certain interests
in the related Equipment or other property. See "Description of Originator and
its Originating Practices" in this prospectus supplement.
The statistical information concerning the pool of Contracts set forth in
this prospectus supplement is based upon the Contract pool that existed on a
statistical calculation date of _______________, 200_. As of the statistical
calculation date, the Contracts had an Aggregate Discounted Contract Principal
Balance of $_____________, which was calculated using a statistical discount
rate ____%. The Aggregate Discounted Contract Principal Balance of the actual
Contracts pool will be calculated using an actual discount rate of _____%, which
is equal to the sum of the servicing fee rate, the trustee fee rate and the
Class B Certificate Rate. The Aggregate Discounted Contract Principal Balance of
the Contracts in the actual Contract pool on the closing date is expected to be
greater than the Aggregate Discounted Contract Principal Balance of the
Contracts in the statistical Contract pool as set forth in this prospectus
supplement. The additional Contracts will represent Contracts acquired by the
transferors on or prior to the closing date.
Between the statistical calculation date and the closing date, some
amortization of the pool is expected to occur. In addition, certain Contracts
included in the pool as of the statistical calculation date may be determined
not to meet the eligibility requirements for the final Contract pool, and may
not be included in the final Contract pool. While the statistical distribution
of the characteristics as of the closing date for the final Contract pool and
calculated at the discount rate will vary somewhat from the statistical
distribution of those characteristics as of the statistical calculation date and
calculated at the statistical discount rate as presented in this prospectus
supplement, we do not expect that variance to be material.
In the event that the transferors do not, as of the closing date, have the
full amount of Contracts which they expected, the pre-funding account will be
increased accordingly. However, the Pre-Funded Collateral Amount will in no
event exceed 25% of the Initial Aggregate Collateral Balance. Unless otherwise
noted, all statistical percentages in this prospectus supplement are measured by
the Aggregate Discounted Contract Principal Balance of the statistical Contract
pool.
The Contracts generally require the periodic, scheduled payment of rent or
other payments on a monthly basis, in arrears. In connection with all
calculations required to be made under the transaction documents with respect to
the determination of Discounted Contract Principal
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Balances, on any determination date the Discounted Contract Principal Balance
for each Contract will be calculated assuming:
(1) scheduled payments are due on the last day of each collection period;
(2) scheduled payments are discounted on a monthly basis using a 30-day month
and a 360-day year; and
(3) scheduled payments are discounted to the last day of the collection
period prior to the determination date.
The Contracts have the characteristics specified in the Transfer Agreements
and described in this prospectus supplement, and the Contracts eligible to be
designated as substitute Contracts or subsequent Contracts will conform to the
characteristics specified in the Transfer Agreements or subsequent Transfer
Agreements, as applicable, and in this prospectus supplement.
References in this prospectus supplement to percentages refer in each case to
the percentage of the Aggregate Discounted Contract Principal Balance of the
statistical Contract pool as of the statistical calculation date.
As of the statistical calculation date, the Contracts in the statistical
Contract pool had the following characteristics:
o the Contracts had original terms to maturity of __ to __ months, with a
weighted average original term to maturity of approximately __ months;
o the Contracts had remaining terms to maturity of __ to __ months, with a
weighted average remaining term to maturity of approximately __ months;
o the Discounted Contract Principal Balances of the Contracts ranged from
$________ to $__________;
o the Contracts relating to the largest obligor are equal to ____% of the
Aggregate Discounted Contract Principal Balance of the statistical
Contract pool; and
o the average Discounted Contract Principal Balance is $_________.
THE EQUIPMENT SUBJECT TO THE CONTRACTS
The Equipment underlying the Contracts consists of:
o [information technology equipment, including:]
o [computer work stations,]
o [personal computers,]
o [data storage devices,]
o [mainframe and mini-computers, and]
o [computer related peripheral equipment,]
o [communications equipment, including telephone switching and networking
systems,]
o [commercial business and industrial equipment, including:]
o [printing presses,]
o [machine tools and other manufacturing equipment,]
o [photocopiers, facsimile machines and other office equipment,]
o [energy savings and control equipment,]
o [automotive diagnostic equipment and]
o [automated testing equipment,]
o [medical equipment, including diagnostic and therapeutic examination
equipment for radiology, nuclear medicine and ultrasound and laboratory
analysis equipment,]
o [resources equipment, such as feller-bunchers and grapplers,]
o [transportation and construction equipment, including:]
o [bulldozers,]
o [loaders,]
o [graders,]
o [excavators,]
o [forklifts,]
o [other materials handling equipment,]
o [golf carts,]
o [other road and off-road machinery and electronics manufacturing
equipment.]
The trust fund will also include a security interest in the Equipment
subject to each related Contract. The trust fund will not initially include
any ownership interests in the Equipment.
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SUBSEQUENT CONTRACTS
Subject to the conditions set forth below, prior to the end of the
pre-funding period, all or a portion of the balance of funds in the pre-funding
account may be released for the purchase by the transferors of subsequent
Receivables consisting of subsequent Contracts and the related Equipment.
SUBSTITUTIONS AND MODIFICATIONS
Under the Pooling and Servicing Agreement, one or more substitute Contracts
and the related Equipment may be substituted for a Contract and the related
Equipment that
(x) becomes a Defaulted Contract, a Prepayment or an Early Termination
Contract or
(y) is required to be reacquired by the originator pursuant to the Pooling
and Servicing Agreement.
Each substitute Contract will be a Contract which satisfies certain
representations and warranties set forth in this prospectus supplement and in
the Pooling and Servicing Agreement as of the Cut-Off Date for that substitute
Contract. In addition, the following conditions must be satisfied:
o With respect to Contracts substituted for Defaulted Contracts, Prepayments
or Early Termination Contracts, on a cumulative basis from the initial
Cut-Off Date, the sum of the Discounted Contract Principal Balance of the
substitute Contracts, as of the Cut-Off Date for the substitute Contract,
would not exceed __% of the Initial Aggregate Collateral Balance;
o As of the Cut-Off Date for the substitute Contract, the substitute
Contract then being transferred have an Aggregate Discounted Contract
Principal Balance that is not less than the Discounted Contract Principal
Balance of the __________ being replaced;
o The servicer makes a good faith determination, in accordance with its
underwriting guidelines, that the credit quality of the substitute
Contract is not worse than that of the Contract being replaced; and
o No substitution will be permitted if, as a result of the substitution, (x)
the sum of the scheduled payments and any Final Scheduled Payments on all
Contracts, after giving effect to the substitutions, due in any collection
period thereafter would be less than (y) the sum of the scheduled payments
and any Final Scheduled Payments which would otherwise be due in that
collection period, prior to giving effect to the substitution.
Under the Pooling and Servicing Agreement, the servicer is permitted to allow
an obligor to prepay a Contract in an amount not less than the Prepayment
Amount. In addition, in the event that an obligor requests an upgrade or
trade-in of Equipment, the servicer may remove the
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Equipment and related Contract from the pool, but only upon payment of an amount
equal to the Reacquisition Amount.
The servicer may waive, modify or vary any term of a Contract if the
servicer, in its reasonable and prudent judgment, determines that it will not be
materially adverse to the certificateholders. However, the servicer will
covenant in the Pooling and Servicing Agreement that,
o it will not forgive any payment of rent or principal,
o unless an obligor is in default, it will not permit any modification with
respect to a Contract which would defer the payment of any scheduled
payment or Final Scheduled Payment or change the final maturity date on
any Contract. However, no change in the final maturity date of any
Contract will be permitted under any circumstances if the new maturity
date for the Contract is later than the maturity date of the latest
maturing Contract then transferred to the trust, and
o the servicer may accept Prepayment in part or in full;
provided, however, that,
o in the event of Prepayment in full, the servicer may consent to the
Prepayment only in an amount not less than the Prepayment Amount, and
o in the event of a partial Prepayment, the servicer may consent to
the partial Prepayment only if
(1) following the partial Prepayment, all delinquent scheduled
payments then due under the Contract have been paid,
(2) the partial Prepayment is paid along with an amount equal to the
product of (x) one-twelfth, (y) the discount rate and (z) the
Discounted Contract Principal Balance of the Contract prior to the
partial Prepayment and
(3) the partial Prepayment will not reduce the Discounted Contract
Principal Balance by more than the amount of the partial
Prepayment.
In the case of a partial Prepayment, the servicer is required to
accurately recalculate the Discounted Contract Principal Balance of the
Contract, and the allocation of scheduled payments to principal and
interest.
Under to the Pooling and Servicing Agreement, the servicer will manage,
administer, service and make collections on the Contracts, in accordance with a
servicing standard which satisfies the terms of the Pooling and Servicing
Agreement, the Contracts, the servicer's current credit and collection policies
and applicable law. To the extent consistent with those terms, the servicer will
service the Contracts in the same manner in which, and with the same care,
skill, prudence and diligence with which, it services and administers leases of
similar credit quality for itself or others, if any, giving due consideration to
customary and usual standards of practice of prudent institutional small-ticket
equipment finance lease servicers and, in each case, taking into account its
other obligations under the Pooling and Servicing Agreement. The servicer will
use commercially reasonable best efforts consistent with the servicing standard
and its customary servicing procedures, to repossess or otherwise comparably
convert the ownership of any
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Equipment that it has reasonably determined should be repossessed or otherwise
converted following a default under the Contract and remarket, either through
sale or re-lease, the Equipment and act as sales and processing agent for
Equipment which it repossesses. The servicer will follow the practices and
procedures as are consistent with the servicing standard and as it deems
necessary or advisable and as is customary and usual in its servicing of
equipment leases and loans and other actions by the servicer in order to realize
recoveries upon the Contract, which may include reasonable efforts to enforce
any recourse obligations of obligors and repossessing and selling the Equipment
at a public or private sale. The foregoing is subject to the provision that, in
any case in which the Equipment has suffered damage, the servicer will not be
required to pay for any repair or towards the repossession of the Equipment
unless it determines in its discretion that the repair and/or repossession will
increase the proceeds and recoveries on the Equipment by an amount greater than
the amount of the expenses.
The following tables set forth certain statistical information relating to
the Contract pool that existed on the statistical calculation date of
__________, 200_ and are calculated using a statistical discount rate of ____%.
Certain columns may not total 100% due to rounding.
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DISTRIBUTION OF THE CONTRACTS BY
CURRENT DISCOUNTED CONTRACT PRINCIPAL BALANCE
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
RANGE OF CONTRACT CONTRACT
DISCOUNTED CONTRACT NUMBER OF PRINCIPAL PRINCIPAL
PRINCIPAL BALANCE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
-------------- --------------
$ $ $
%
----------- ---------- -------
Total...................... $ 100.00%
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
ORIGINAL EQUIPMENT COST
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
ORIGINAL EQUIPMENT COST CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
$ $ $
%
----------- ---------- -------
Total...................... $ 100.00%
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
TOP 10 INDUSTRIES
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
INDUSTRY CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
%
$
----------- ---------- -------
Total...................... $ 100.00%
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
EQUIPMENT TYPE
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
EQUIPMENT TYPE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
$ %
----------- ---------- -------
Total......................
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
OBLIGOR BILLING ADDRESS
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
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PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
Rhode Island
South Carolina
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total......................
DISTRIBUTION OF THE CONTRACTS BY
REMAINING TERM TO MATURITY
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
RANGE OF REMAINING TERM (IN NUMBER OF PRINCIPAL PRINCIPAL
MONTHS) CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
----------- ---------- -------
Total......................
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS
BY ORIGINAL TERM TO MATURITY
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
RANGE OF ORIGINAL TERM (IN NUMBER OF PRINCIPAL PRINCIPAL
MONTHS) CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
----------- ---------- -------
Total......................
=========== ========== =======
DISTRIBUTION OF THE CONTRACTS
BY AGE OF CONTRACTS
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF AGE OF CONTRACTS CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
----------- ---------- -------
Total......................
=========== ========== =======
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DESCRIPTION OF ORIGINATOR AND ITS ORIGINATING PRACTICES
[TO BE PROVIDED]
DESCRIPTION OF SERVICER AND ITS SERVICING STANDARDS
[TO BE PROVIDED]
FORMATION OF THE TRUST
The trust, _____________ ____________________ Trust 200_-_, will be formed in
accordance with the laws of the State of [____________________________________]
pursuant to the Pooling and Servicing Agreement, solely for the purpose of
effectuating the transactions described in this prospectus supplement. Prior to
formation, the trust will have had no assets or obligations and no operating
history. Upon formation, the trust will not engage in any business activity
other than acquiring and transferring the Receivables, issuing the certificates
and distributing payments on the certificates. As described under "Description
of the Certificates--Flow of Funds," a portion of the monthly collections with
respect to the Receivables will be paid to the servicer as servicing
compensation and to the trustee, as fees. All other expenses of the trust will
be paid as provided in the Pooling and Servicing Agreement.
The trust fund will consist of the following as well as any and all related
income and proceeds:
o the Receivables;
o the Contracts;
o any scheduled payments on the Contracts;
o Residual Receipts and Defaulted Contract Recoveries to be made by lessees;
o any guaranties of a lessee's or obligor's obligations under a Contract;
o the insurance policies maintained by the lessees or obligors with respect
to the Equipment and the proceeds of those insurance policies;
o any rights of the depositor under the Receivables Transfer Agreement,
including the right to instruct ___________ to exercise any unassignable
rights of enforcement under the Contracts and any guaranties of that
right;
o funds from time to time deposited in the collection account, the advance
payment account and the subsequent contract funding account.
The Pooling and Servicing Agreement does not permit the trust to acquire any
additional assets other than subsequent Contracts. The trust does not have any
operating history and will not engage in any business activity other than owning
the trust fund, issuing the certificates and making distributions on the
certificates. Thus, there has not been included any historical or pro forma
financial statements or ratios of earnings to fixed charges with respect to the
trust.
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DESCRIPTION OF THE CERTIFICATES
The certificates will be issued pursuant to the Pooling and Servicing
Agreement to be entered into by the servicer, the trust and the trustee. The
servicer will provide a copy of the Pooling and Servicing Agreement to
subsequent certificateholders without charge on written request addressed to it
at _______.
The following summary describes certain terms of the Transfer Agreements. The
summary does not purport to be complete, and is subject to and qualified in its
entirety by reference to the Transfer Agreements.
THE OFFERED CERTIFICATES
The offered certificates, together with the subordinate certificates, will
represent in the aggregate the entire beneficial interest in a trust.
The trust will agree in the Pooling and Servicing Agreement and in the
respective offered certificates to distribute, in each case, at the times, from
the sources and on the terms and conditions set forth in the Pooling and
Servicing Agreement and in the respective offered certificates:
o to the holders of each Class A certificates (a) an amount of principal
equal to the initial certificate principal balance of their class and (b)
Class A Certificate Interest, and
o to the Class B certificateholders (a) an amount of principal equal to the
initial Class B certificate principal balance and (b) Class B Certificate
Interest.
The Class A Certificates will be issued in book-entry form only through DTC.
The trustee is required to make payments on the offered certificates on each
distribution date.
The first distribution date for distributions to the Class A certificates
will be __________, 200_. Distributions are required to be made by the trustee,
by check mailed, or, if requested by the certificateholder, by wire transfer of
immediately available funds, to the certificateholder entitled to the funds at
the address appearing on the certificate register on the record date. For as
long as the Class A certificates are in book-entry form they will be registered
in the name of Cede & Co.
CONVEYANCE OF RECEIVABLES
On the closing date, the trust will acquire all right, title and interest in
and to and all income and proceeds of:
o the initial Receivables;
o insurance policies with respect to the initial Receivables and any related
insurance proceeds;
o the rights of the depositor under the Receivables Transfer Agreement; and
o the security deposits relating to the initial Receivables.
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The servicer will retain possession of the Contracts and the Contract files.
The servicer also will retain copies of any other documents which relate to:
o the Receivables;
o any related evidence of insurance and payment;
o delinquency and related reports maintained by the servicer in the ordinary
course of business with respect to each Receivable.
Prior to transfer of the Receivables to the trust, the servicer will cause
its electronic ledger to be marked to show that the Receivables have been
transferred to ______________, then to the depositor and then to the trust. See
"Certain Legal Aspects of the Receivables" in the prospectus.
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR
The originator will make certain warranties in the Pooling and Servicing
Agreement with respect to the Contracts for the benefit of the trustee. These
warranties relate to the quality and characteristics of the Contracts and the
Equipment.
Under the terms of the Pooling and Servicing Agreement, following its
discovery or receipt of notice of a breach of a warranty that materially and
adversely affects any Receivable, which breach has not been cured or waived in
all material respects, the originator will be obligated to reacquire that
Receivable and deposit the Reacquisition Amount in the collection account on or
before the earlier of (x) two weeks after discovery or receipt of notice of the
breach or (y) the end of the calendar month.
INDEMNIFICATION
The Pooling and Servicing Agreement will provide that the originator will
defend and indemnify the trust, the trustee and the certificateholders against
any and all losses, claims, damages and liabilities to the extent, but only to
the extent, that the same have been suffered by that party by virtue of:
(x) a breach by the originator of its obligations, other than breach of the
originator's representations and warranties, with respect to which the sole
remedy is expressly limited to the originator's reacquisition of the affected
Receivables and the remittance of the Reacquisition Amount by the originator or
(y) in the case of the trustee, its performance of its duties, except to the
extent that the loss, claim, damage or liability resulted from the trustee's
breach of the terms of the Pooling and Servicing Agreement, negligence or
willful misconduct.
The Pooling and Servicing Agreement will provide that the servicer will
defend and indemnify the trust and the certificateholders against any and all
costs, expenses, losses, damages, claims and liabilities, arising out of or
resulting from the use, repossession or operation by the servicer or any
affiliate of the servicer of any Equipment, as well as from the failure of the
servicer to perform its duties under the Pooling and Servicing Agreement. The
servicer's obligations to indemnify the trust and the certificateholders for
acts or omissions of the servicer will survive the removal of the servicer but
will not apply to any acts or omissions of a successor servicer. This
indemnification does not extend to indirect, incidental, special or
consequential damages.
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SERVICER ADVANCES
In the event that any obligor fails to remit the full scheduled payment or
Final Scheduled Payment due from it with respect to a collection period by the
determination date related to the collection period, the servicer is required to
make a servicer advance from its own funds of an amount equal to the unpaid
portion of a scheduled payment or Final Scheduled Payment if the servicer, in
its sole discretion, determines that eventual recovery of the servicer advance
is likely from collections from or on behalf of the related obligor. The Pooling
and Servicing Agreement provides for the reimbursement of the servicer for these
servicer advances from funds available for distribution in the collection
account on each subsequent distribution date before the required payments to
certificateholders have been made as set forth in "Flow of Funds" below in this
prospectus supplement. If a Contract becomes a Delinquent Contract, and the
servicer determines that recovery of further servicer advances is unlikely, the
servicer will not be required to make a servicer advance or partial servicer
advance, but will be required to enforce its remedies, including acceleration,
under that Contract. Furthermore, if at any time the originator or an affiliate
is no longer the servicer, servicer advances will be permitted but will not be
required. The Pooling and Servicing Agreement will provide that, in the event
that the servicer determines that any servicer advances previously made are not
recoverable from the related obligor, or any Delinquent Contracts for which the
servicer has made a servicer advance then become Defaulted Contracts, the
trustee will draw on the collection account to repay the servicer advances as
set forth in "Flow of Funds" below in this prospectus supplement.
FLOW OF FUNDS
On each determination date, the servicer is required to deliver to the
trustee and each rating agency a servicer's certificate setting forth the
information needed to make payments on the upcoming distribution date.
On each distribution date, the trustee will be required to make the following
payments from the Available Funds and the Residual Receipts then on deposit in
the collection account, in the following order of priority:
(1) to the servicer, the servicer fee then due, together with any
unrecoverable servicer advances and certain miscellaneous amounts;
(2) to the Class A certificateholders, the Class A Certificate Interest and
Class A Overdue Interest for the related collection period;
(3) until the Class A Certificate Principal Balance has been reduced to zero,
to the Class A certificateholders, (a) from the Available Funds then
remaining in the collection account, the sum of (1) the Class A Base
Principal Distribution Amount for that distribution date, and (2) any
Class A Overdue Principal and (b) one-half of the Residual Receipts
received by the servicer during the prior collection period;
(4) to the Class B certificateholders, the Class B Certificate Interest and
the Class B Overdue Interest for the related collection period;
(5) until the Class B Certificate Principal Balance has been reduced to zero,
to the Class B certificateholders, (a) from the Available Funds then
remaining in the collection account, the sum of (1) the Class B Base
Principal Distribution Amount for that distribution date, and (2) any
Class B Overdue Principal and (b) one-half of the Residual Receipts
received by the servicer during the prior collection period;
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(6) from the Available Funds then remaining in the collection account, to the
servicer, certain miscellaneous amounts; and
(7) to the holder of the trust certificate, any remaining amounts.
WITHHOLDING
The trustee is required to comply with all applicable federal income tax
withholding requirements respecting payments to certificateholders of interest
with respect to the offered certificates. The consent of the certificateholders
is not required for this withholding. In the event the certificateholder is
other than DTC, then in the event that the trustee does withhold or causes to be
withheld any amount from interest payments or advances of interest payments to
any certificateholders under federal income tax withholding requirements, the
trustee will indicate the amount withheld annually to those certificateholders.
REPORTS TO CERTIFICATEHOLDERS
On each distribution date, the trustee will furnish or cause to be furnished
with each payment to certificateholders, a statement prepared by the servicer
setting forth the following information:
o With respect to a statement to a Class A certificateholder or a Class B
certificateholder, the amount of the payment allocable to the payment of
the Class A Base Principal Distribution Amount or Class B Base Principal
Distribution Amount and Class A Overdue Principal or Class B Overdue
Principal, as applicable;
o With respect to a statement to a Class A certificateholder or a Class B
certificateholder, the amount of the payment allocable to Class A
Certificate Current Interest or Class B Certificate Current Interest and
Class A Overdue Interest or Class B Overdue Interest, as applicable, for
the certificateholder's class;
o The aggregate amount of fees and compensation received by the servicer
pursuant to the Pooling and Servicing Agreement for the collection period;
o The outstanding aggregate principal balance of each class of certificates
and the ratio of the outstanding aggregate principal balance of each class
of certificates to the initial aggregate principal balance of that class,
after taking into account all distributions made on the distribution date;
o The Aggregate Discounted Contract Principal Balance and the ratio of the
Aggregate Discounted Contract Principal Balance to the Initial Aggregate
Collateral Balance, after taking into account all distributions made on
that distribution date;
o The total unreimbursed servicer advances with respect to the related
collection period;
o The amount of Defaulted Contract Recoveries for the related collection
period and the Aggregate Discounted Contract Principal Balances for all
Contracts that became Defaulted Contracts during the related collection
period, calculated immediately prior to the time the Contracts became
Defaulted Contracts;
o The total number of Contracts and the Aggregate Discounted Contract
Principal Balances of those Contracts, together with the number and
Aggregate Discounted Contract Principal Balances of all Contracts as to
which the obligors were one, two, three or four scheduled payments
delinquent, and Delinquent Contracts reconveyed; and
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o During the pre-funding period only, the amount on deposit in the
pre-funding account and the capitalized interest account after giving
effect to the withdrawals from those accounts on the distribution date.
In addition, by January 31 of each calendar year following any year during
which the certificates are outstanding, commencing January 31, 200__, the
trustee will furnish to each certificateholder of record at any time during the
preceding calendar year, information as to the aggregate of amounts reported
pursuant to items (1) and (2) above for the calendar year to enable
certificateholders to prepare their federal income tax returns.
OPTIONAL PURCHASE
The Pooling and Servicing Agreement will provide that the servicer is
permitted at its option to purchase from the trust, as of the last day of any
month as of which the Aggregate Principal Balance with respect to the
Receivables is less than 10% of the original Aggregate Principal Balance, all
remaining Receivables at a price equal to the aggregate of the Purchase Amounts
of the Receivables as of the last day, plus the appraised value of any other
property held by the trust.
SERVICING
The servicer, as an independent contractor or on behalf of the trust and for
the benefit of the certificateholders, as their interests may appear, will be
responsible for managing, servicing and administering the Receivables and
enforcing and making collections on the Contracts and any insurance policies and
for the enforcing of any security interest in any item of Equipment, all as set
forth in the Pooling and Servicing Agreement. The servicer's responsibilities
will include collecting and posting of all payments, responding to inquiries of
obligors, investigating delinquencies, accounting for collections, furnishing
monthly and annual statements to the trustee with respect to distributions,
making servicer advances, providing appropriate federal income tax information
to certificateholders and collecting and remitting sales and property taxes on
behalf of taxing authorities.
The servicer has agreed to manage, administer and service the Receivables and
to enforce and make collections on the Receivables and any insurance policies,
exercising the degree of skill and care consistent with that which the servicer
customarily exercises with respect to similar property owned, managed or
serviced by it.
For its servicing of the Contracts, the servicer will receive servicing
compensation including the monthly servicer fee for each collection period,
which is payable on the next succeeding distribution date, and servicing charges
consisting of certain fees paid by obligors, including late payment fees.
The servicing compensation will compensate the servicer for customary
contract servicing activities to be performed by the servicer for the trust,
additional administrative services performed by the servicer on behalf of the
trust and expenses paid by the servicer on behalf of the trust.
THE SERVICER NOT TO RESIGN
The Pooling and Servicing Agreement will provide that the servicer may not
resign from its obligations and duties as servicer under the Pooling and
Servicing Agreement, except upon consent of the majority certificateholders or a
determination that the servicer's performance of its duties is no longer
permissible under applicable law.
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EVENTS OF SERVICING TERMINATION
An "Event of Servicing Termination" under the Pooling and Servicing Agreement
includes the following:
o a change of "control" of the servicer. "Control" has the meaning ascribed
to it in the Rules and Regulations under the Securities Exchange Act of
1934, as amended;
o if the servicer fails to make (x) any servicer advance within two business
days of the related determination date, or (y) any other payment or
deposit required under the Pooling and Servicing Agreement within three
business days of the date the payment or deposit is required to be made,
but not more than once in any collection period;
o if the servicer fails to submit a servicer's certificate within two
business days following knowledge or notice of non-receipt;
o (x) if the servicer fails to observe or perform in any material respect
any other covenant or agreement in the Pooling and Servicing Agreement or
the certificates or
(y) if any representation or warranty of the servicer in the Pooling and
Servicing Agreement is incorrect, and the failure or breach materially and
adversely affects the rights of the trustee, the certificateholders and
continues unremedied for 30 days after the earlier to occur of (A) written
notice to the servicer by the trustee or to the trustee or the servicer by
any certificateholder or (B) the date on which any servicing officer or
authorized officer of the trustee knows, or reasonably should have known,
of the failure or of the breach;
o upon the filing of an involuntary petition in bankruptcy or the decree or
order of a court, agency or supervisory authority having jurisdiction over
the servicer for the appointment of a conservator, receiver, trustee in
bankruptcy or liquidator in any bankruptcy, insolvency or similar
proceedings, and the continuance of the petition, decree or order
undismissed or unstayed and in effect for a period of 60 consecutive days;
o upon the voluntary filing of a bankruptcy petition or assignment for the
benefit of creditors, the consent by the servicer to that appointment, the
admission in writing by the servicer of its inability to pay its debts as
they become due or the determination by a court that the servicer is
generally not paying its debts as they come due;
o in the event that the servicer assigns or attempts to assign its rights
and duties under the Pooling and Servicing Agreement except as
specifically permitted in the Pooling and Servicing Agreement;
o a final judgment or order shall be rendered against the servicer for
payment in excess of $_________ and continues for 90 days without a stay;
o ____________________________________ shall fail to have a U.S. GAAP net
worth, excluding goodwill, of at least $__________; or
o (x) the average Delinquency Trigger Ratio for any distribution date and
the two immediately preceding distribution dates exceeds ___%, or (y) the
average Net Charge-
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Off Ratio for any distribution date and the immediately preceding two
distribution dates exceeds ___%.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
If an Event of Servicing Termination has occurred and is continuing, the
trustee may with the consent of the majority of the holders of the certificates,
terminate all, but not less than all, of the servicer's rights and obligations
under the Pooling and Servicing Agreement. Upon the termination, a successor
servicer shall be appointed by the trustee or, if none has been so appointed,
the trustee will succeed to all the responsibilities, duties and liabilities of
the servicer under the Pooling and Servicing Agreement; provided, however, that
the trustee will not:
o assume any obligation to reacquire Receivables by reason of
misrepresentations or breaches of warranties,
o be required to make any servicer advance if the servicer advance would be
prohibited by applicable law or if the trustee determines that the
servicer advance would not be reimbursed, or
o be liable for acts, omissions or breaches of representations or warranties
by the servicer occurring prior to transfer of the servicing functions.
Regardless of the termination, the servicer will be entitled to payment of
amounts payable to it prior to the termination for services rendered prior to
the termination. The trustee also may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor servicer in accordance with the
procedures set forth in the Pooling and Servicing Agreement.
AMENDMENT
The Transfer Agreements may be amended by the respective parties to them at
any time, without consent of the certificateholders, to cure any ambiguity, upon
receipt of an opinion of counsel to the servicer that the amendment will not
adversely affect in any respect the interests of any certificateholder.
The Transfer Agreements may also be amended from time to time by the
respective parties to them and the majority of the holders of the certificates
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Transfer Agreements or of modifying in
any manner the rights of the certificateholders; provided, that the amendment
will not:
(a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the Receivables or distributions
which are required to be made on any certificate without the consent of the
holder of the certificate and written confirmation from each rating agency
that the amendment will not result in the reduction or removal of the rating
then assigned to the certificates or
(b) reduce the percentage of certificateholders required to consent to any
amendment, without unanimous consent of the certificateholders and written
confirmation from each rating agency that the amendment will not result in
the reduction or removal of the rating then assigned to the certificates.
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The trustee is required under the Pooling and Servicing Agreement to furnish
the certificateholders and the rating agencies with written notice of the
substance of any amendment to the Pooling and Servicing Agreement promptly upon
execution of the amendment.
THE TRUSTEE
The trustee has a trust office at ________________________. The trustee's
duties in connection with the certificates are limited solely to its express
obligations under the Pooling and Servicing Agreement.
The trustee may resign, subject to the conditions set forth below, at any
time upon written notice to the transferors and the servicer, in which event the
servicer will be obligated to appoint a successor trustee. If no successor
trustee is appointed and accepted the appointment within 30 days after the
giving of a notice of resignation, the resigning trustee may petition a court of
competent jurisdiction for the appointment of a successor trustee. Any successor
trustee will meet the financial and other standards for qualifying as a
successor trustee under the Pooling and Servicing Agreement. The servicer may
and will, at the direction of the certificateholders of any class evidencing
more than 25% of the percentage interests of that class may also remove the
trustee if the trustee ceases to be eligible to continue as the trustee under
the Pooling and Servicing Agreement and fails to resign after written request
for resignation, or is legally unable to act, or if the trustee is adjudicated
to be insolvent. In these circumstances, the servicer or the certificateholders
will also be obligated to appoint a successor trustee. Any resignation or
removal of the trustee and appointment of a successor trustee will not become
effective until acceptance of the appointment by the successor trustee.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The trustee will make no representations as to the validity or sufficiency of
the Pooling and Servicing Agreement, the certificates, other than the
authentication of the certificates, or of any Receivable or related document and
will not be accountable for the use or application by the originator or the
transferors of any funds paid to the transferors in consideration of the sale of
any certificates. If no Event of Servicing Termination has occurred, the trustee
will be required to perform only those duties specifically required of it under
the Pooling and Servicing Agreement. However, upon receipt of the various
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments required to be furnished to it, the trustee will be required
to examine them to determine whether they conform to the requirements of the
Pooling and Servicing Agreement.
No recourse is available based on any provision of the Pooling and Servicing
Agreement, the certificates or any Receivable or assignment of a Receivable
against the trustee, in its individual capacity, and the trustee will not have
any personal obligation, liability or duty whatsoever to any certificateholder
or any other person with respect to these claims and the claim will be asserted
solely against the trust assets or any indemnitor, except for any liability as
is determined to have resulted from the trustee's own negligence or willful
misconduct.
The trustee will be entitled to receive, pursuant to the priority set forth
in the Pooling and Servicing Agreement, a reasonable trustee fee as compensation
for its services as trustee, and reimbursement for the Trustee Expenses.
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PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on, and the weighted average life of, the
offered certificates will be directly related to the rate of payments on the
underlying Contracts. If purchased at a price other than par, the yield to
maturity will also be affected by the rate of the principal payments. Payments
on the Contracts may be in the form of scheduled payments, prepayments, early
terminations or liquidations due to default, casualty, repurchases for breach
and the like. These payments will result in distributions to certificateholders
of amounts which would otherwise have been distributed over the remaining term
of the Contracts. In general, the rate of these payments may be influenced by a
number of factors, including general economic conditions.
The Contracts generally do not provide for the right of the obligor to
prepay. Under the Pooling and Servicing Agreement, the servicer will be
permitted to allow the Prepayments in full or in part, provided that no
Prepayment of a Contract will be allowed in an amount less than the Prepayment
Amount.
The expected final distribution date for the Class A certificates is
__________, 200_. This date is the dates on which the certificate principal
balance of the related class of certificates would be reduced to zero, assuming,
among other things:
(x) Prepayments with respect to the Contracts are received at a rate of _%
CPR and
(y) the modeling assumptions apply.
The weighted average life of the offered certificates could be shorter than
would be the case if payments actually made on the Contracts conformed to the
foregoing assumptions, and the final distribution dates with respect to the
offered certificates could occur significantly earlier than the final scheduled
distribution dates due to defaults, and because the originator is obligated to
reacquire Contracts in the event of breaches of representations and warranties.
"Weighted average life" refers to the average amount of time that will elapse
from the date of issuance of a certificate to the date of distribution to the
investor in the certificate of each dollar distributed in reduction of principal
of the certificate, assuming no losses. The weighted average lives of the
offered certificates will be influenced by the rate at which payments on the
Contracts are made. Payments on Contracts may be in the form of scheduled
payments or prepayments. For this purpose, the term "prepayment" includes
prepayments and liquidations due to defaults or other dispositions of the
Contracts. The weighted average lives of the offered certificates will also be
influenced by delays associated with realizing on Defaulted Contracts. The
prepayment model used in this prospectus supplement, the CPR, represents an
assumed annualized rate of prepayment relative to the then outstanding balance
on a pool of Contracts. The CPR assumes that a fraction of the outstanding
Contract pool is prepaid on each distribution date, which implies that each
Contract in the Contract pool is equally likely to prepay. This fraction,
expressed as a percentage, is annualized to arrive at the CPR for the Contract
pool. The CPR measures prepayments based on the outstanding principal on the
previous distribution date. The CPR further assumes that all Contracts are the
same size and make scheduled payments at the same rate and that each Contract
will be either paid as scheduled or prepaid in full.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The tables below were prepared assuming, among other things, that the
following modeling assumptions apply:
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o the closing date for the certificates occurs on __________, 200_,
o distributions on the certificates are made on the __th day of each month
regardless of the day on which the distribution date actually occurs,
commencing in __________, 200_ in accordance with the priorities described
in this prospectus supplement,
o no delinquencies or defaults in the payment of scheduled payments on the
Contracts are experienced and the payments are timely received,
o no Contract is reacquired for breach of a representation and warranty or
otherwise,
o the actual discount rate is _____% per annum,
o Prepayments with respect to the Contracts are received on the last day of
each calendar month, commencing on __________, 200_,
o no Restricting Event occurs,
o the Class A certificate rate is ______% per annum.
o the Contract pool consists of a pool of Contracts with an Aggregate
Discounted Contract Principal Balance equal to approximately $__________
available on the closing date that make their first payment in __________,
200_, and
o the Contract pool consists of a pre-funded pool of Contracts with an
Aggregate Discounted Contract Principal Balance equal to approximately
$__________ available on __________, 200_, that make their first payment
in __________, 200_.
Since the tables were prepared on the basis of the modeling assumptions,
there are discrepancies between the characteristics of the actual Contracts and
the characteristics of the Contracts assumed in preparing the tables. These
discrepancies may have an effect upon the percentages of the certificate
principal balances outstanding and weighted average lives of the offered
certificates set forth in the tables. In addition, since the actual Contracts in
the trust have characteristics which differ from those assumed in preparing the
tables set forth below, the related weighted average life may be longer or
shorter than as indicated in the tables.
The following tables set forth the percentages of the initial principal
amount of the Class A certificates, assuming a CPR of _%, _%, _%, _%, _% and _%,
respectively.
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PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL BALANCE OUTSTANDING
CLASS A CERTIFICATES
Prepayment Speed (CPR)
Distribution Date 0% 2% 4% 5% 6% 8%
----------------- -- -- -- -- -- --
Closing Date
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
Weighted Average Life
(years)
The Contracts will not have the characteristics assumed above, and we cannot
assure you that (1) the Contracts will prepay at any of the rates shown in the
tables or at any other particular rate or will prepay proportionately or (2) the
weighted average lives of the offered certificates will be as calculated above.
Because the rate of distributions of principal of the offered certificates will
be a result of the actual payments, including prepayments, of the Contracts,
which will include Contracts that have remaining terms to stated maturity
shorter or longer than those assumed, the weighted average lives of the offered
certificates will differ from those set forth above, even if all of the
Contracts prepay at the indicated constant prepayment rates.
The effective yield to certificateholders will depend upon, among other
things, the price at which the offered certificates are purchased, and the
amount of and rate at which principal, including both scheduled and unscheduled
payments of principal, is paid to the certificateholders.
Due to the subordination provisions applicable to the offered certificates,
it is likely that the certificate principal balance of the certificates will
amortize more rapidly than will the initial Aggregate Discounted Contract
Principal Balance of the Contract pool. See "Description of Certificates--Flow
of Funds" in this prospectus supplement.
FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a summary of certain United States federal income tax
considerations relevant to the beneficial owner of a certificate that holds the
certificate as a capital asset and, unless otherwise indicated below, is a U.S.
Person. This summary does not address special tax rules which may apply to
certain types of investors, and investors that hold certificates as part of an
integrated investment. This summary supplements the discussion contained in the
accompanying prospectus under the heading "Federal Income Tax Considerations."
The authorities on which we based this discussion are subject to change or
differing interpretations, and these changes or interpretations could apply
retroactively. This discussion reflects the
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applicable provisions of the Code, as well as regulations promulgated by the
U.S. Department of Treasury. You should consult your own tax advisors in
determining the federal, state, local and any other tax consequences of the
purchase, ownership and disposition of the certificates.
In the opinion of Cadwalader, Wickersham & Taft, special tax counsel to the
seller, the trust will not be treated as an association taxable as a corporation
or a publicly traded partnership taxable as a corporation for federal income tax
purposes, but rather will be disregarded as a separate entity and treated as a
mere security device when there is a single beneficial owner of the trust, or
will be treated as a domestic partnership when there are two or more beneficial
owners of the trust.
The trustee will treat each holder of a certificate for federal income
purposes as a partner in the trust. As a result, such holders will be required
to report their allocable share of the income or losses of the trust as and when
earned thereby, and whether or not distributed. The trustee will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the trust and will report each holder's allocable share of income and
expense to the holders and the IRS on Schedule K-1. Such Schedule will indicate
that each holder will have income in an amount approximately equal to the amount
of income such holder would recognize if the certificates were debt instruments
subject to the rules described above. Generally, holders will be required to
file tax returns that are consistent with any such information return filed by
the trust or be subject to penalties unless the holder notifies the IRS of all
such inconsistencies. See "Federal Income Tax Considerations -- Trusts Treated
as Partnership" in the accompanying prospectus.
Payments of interest and principal, as well as payments of proceeds from the
sale of certificates, may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if you fail to furnish to the trust
certain information, including your taxpayer identification number, or otherwise
fail to establish an exemption from this tax. Any amounts deducted and withheld
from a payment should be allowed as a credit against your federal income tax.
Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
We will report to certificateholders and to the IRS for each calendar year
the amount of any "reportable payments" during that year and the amount of tax
withheld, if any, with respect to payments on the certificates.
Non-U.S. Persons who purchase certificates should note that the trustee will
treat the income received with respect thereto as subject to U.S. tax
withholding at a rate of 30%, unless it is established to the satisfaction of
the trustee that such rate is reduced or eliminated by an applicable tax treaty.
In addition, other U.S. tax withholding and reporting rules may be applicable to
a certificateholder who is a non-U.S. person.
On October 6, 1997, the Treasury Department issued regulations which make
certain modifications to the withholding rules for investors who are non-U.S.
Persons and the backup withholding and information reporting rules described
above. The regulations attempt to unify certification requirements and modify
reliance standards. These regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Non-U.S.
Persons are urged to consult their tax advisors regarding the effect of these
regulations.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing, or other employee benefit plan from engaging in certain transactions
involving "plan assets" with
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persons that are "parties in interest" under ERISA or "disqualified persons"
under the Code with respect to the Plan. ERISA also imposes certain duties on
persons who are fiduciaries of Plans subject to ERISA and prohibits certain
transactions between a plan and parties in interest with respect to these Plans.
Under ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered to be a
fiduciary of the Plan, subject to certain exceptions not here relevant. A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and the Code for these persons.
In addition to the matters described below, purchasers of Class A
certificates that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank, 114 S. Ct. 517 (1993). In John Hancock, the Supreme
Court ruled that assets held in an insurance company's general account may be
deemed to be "plan assets" for ERISA purposes under certain circumstances.
Prospective purchasers should determine whether the decision affects their
ability to make purchases of the Class A certificates.
Under a final regulation issued by the Department of Labor concerning the
definition of what constitutes the "plan assets" of an employee benefit plan
subject to ERISA or the Code, or an IRA, or any entity whose underlying assets
are deemed to be assets of an employee benefit plan or an IRA by reason of the
employee benefit plan's or the IRA's investment in that entity, the assets and
properties of certain entities in which a Plan makes an equity investment could
be deemed to be assets of the Plan unless certain exceptions under the final
regulation apply or an exemption is available. If Plans that purchase the Class
A certificates are deemed to own an interest in the underlying assets of the
trust, the operations of the trust could result in prohibited transactions.
The Department Of Labor has granted to PaineWebber Incorporated an
administrative exemption, Prohibited Transaction Exemption 90-36 which generally
exempts from the application of the prohibited transaction provisions of Section
406(a), Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the
excise taxes imposed under Sections 4975(a) and (b) of the Code, certain
transactions relating to the servicing and operation of asset pools, and the
purchase, sale and holding of asset-backed pass-through certificates, including
pass-through certificates evidencing interests in certain receivables, loans and
other obligations, such as the Class A certificates, provided that certain
conditions set forth in the exemption are satisfied.
If the general conditions of the exemption are satisfied, the exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA, as well as the excise taxes imposed by Sections 4975(c)(1)(A) through
(D) of the Code, in connection with the direct or indirect sale, exchange or
transfer of Class A certificates by Plans in the initial issue of certificates,
the holding of Class A certificates by Plans or the direct or indirect
acquisition or disposition in the secondary market of Class A certificates by
Plans. However, no exemption is provided from the restrictions of Section
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Class A certificate on behalf of an Excluded Plan by any person who has
discretionary authority or renders investment advice with respect to the assets
of the Excluded Plan.
If the specific conditions of paragraph I.B. of Section I of the exemption
are also satisfied, the exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the
Code in connection with
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(1) the direct or indirect sale, exchange or transfer of Class A certificates
in the initial issuance of Class A certificates to a Plan when the person
who has discretionary authority or renders investment advice with respect
to the investment of plan assets in Class A certificates is (a) an
obligor with respect to 5 percent or less of the fair market value of the
Contracts or (b) an affiliate of that person,
(2) the direct or indirect acquisition or disposition in the secondary market
of Class A certificates by Plans and
(3) the holding of Class A certificates by Plans.
Among the specific conditions that must be satisfied is the condition that
immediately after the acquisition of the Class A certificates no more than 25%
of the assets of the Plan with respect to which the person is a fiduciary are
invested in certificates representing an interest in a trust containing assets
sold or serviced by the same entity. As of the date hereof, the seller believes
no obligor with respect to Receivables included in the trust constitutes more
than 5 percent of the aggregate unamortized principal balance of the trust.
If the specific conditions of paragraph I.C. of Section I of the exemption
are satisfied, the exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust.
The exemption may provide an exemption from the restrictions imposed by
Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if the restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the plan, or by virtue of
having certain specified relationships to that person, solely as a result of the
Plan's ownership of Class A certificates.
The exemption sets forth the following six general conditions which must be
satisfied for a transaction to be eligible for exemptive relief thereunder:
(1) The acquisition of the certificates by a Plan is on terms, including the
price for the certificates, that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust;
(3) The certificates acquired by the Plan have received a rating at the time
of the acquisition that is one of the three highest general rating
categories from either Standard & Poor's Ratings Services, Moody's
Investors Services, Fitch IBCA, Inc. or Duff & Phelps Credit Rating Co.;
(4) The trustee is not an affiliate of any other member of the restricted
group;
(5) The sum of all payments made to and retained by PaineWebber Incorporated
in connection with the distribution of certificates represents not more
than reasonable
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compensation for its services. The sum of all payments made and retained
by the seller under the assignment of the Receivables TO the trust
represents not more than the fair market value of the Receivables. The
sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for that person's services under the
Pooling and Servicing Agreement and reimbursement of that person's
reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the 1933 Act.
The trust must also meet the following requirements:
(1) the Receivables must consist solely of assets of the type that have been
included in other investment pools;
(2) certificates in the other investment pools must have been rated in one of
the three highest rating categories of Standard & Poor's Ratings
Services, Moody's Investors Services, Fitch IBCA, Inc. or Duff & Phelps
Credit Rating Co. for at least one year prior to the Plan's acquisition
of certificates; and
(3) certificates evidencing interest in the other investment pools must have
been purchased by investors other than Plans for at least one year prior
to the Plan's acquisition of certificates
It is a condition of issuance of the Class A certificates that they be rated
AAA or its equivalent by a nationally recognized rating agency. Before
purchasing a Class A certificate based on the exemption, a fiduciary of a Plan
should itself confirm (1) that the certificate constitutes a "certificate" for
purposes of the exemption and (2) that the specific conditions and other
requirements set forth in the exemption would be satisfied. Any Plan fiduciary
considering the purchase of a Class A certificate should consult with its
counsel with respect to the potential applicability of ERISA and the Code to
that investment. Moreover, each Plan fiduciary should determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the Class A certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio. The subordinate certificates may not be acquired by
any Plan.
LEGAL INVESTMENT
The Class A certificates will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
the depositor has agreed to cause the issuer to sell to each of the underwriters
listed below, and each of the underwriters has agreed to purchase, the principal
amount of each class of the certificates set forth opposite its name below.
Under the terms and conditions of the underwriting agreement, each of the
underwriters is obligated to take and pay for all of the certificates if any are
taken.
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CLASS A
UNDERWRITERS CERTIFICATES
------------ ------------
PaineWebber Incorporated............... $
[--------------------].................
Total..................................
The depositor has been advised by the underwriters that they propose
initially to offer the certificates to the public at the prices set forth below,
and to selling group members at those prices less a selling concession not in
excess of the percentage set forth below for each class of certificates. The
underwriters may allow, and the selling group members may also allow, a
subsequent concession not in excess of the percentage set forth below for each
class of certificates. After the initial public offering, the public offering
price and such concessions may be changed.
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT CONCESSION REALLOWANCE
-------- ------------ ---------- -----------
Class A Certificates % % % %
The depositor does not intend to apply for listing of the certificates on a
national securities exchange, but has been advised by the underwriters that they
may make a market in the certificates. The underwriters are not obligated,
however, to make a market in the certificates and may discontinue market making
at any time without notice. We cannot assure you as to the liquidity of the
trading market for the certificates.
The depositor, the transferor and the servicer have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, each underwriter and
its affiliates have engaged and may in the future engage in commercial banking
and investment banking transactions with the depositor, the transferor and the
servicer.
After the initial distribution of the certificates by the underwriters, this
prospectus supplement may be used by the underwriters or its successors, in
connection with offers and sales relating to market making transactions in the
certificates. The underwriters may act as principal or agent in these
transactions. The transactions will be at prices related to prevailing market
prices at the time of sale. Each underwriter is a member of the New York Stock
Exchange, Inc.
The underwriter is an affiliate of the depositor.
ADDITIONAL INFORMATION
PaineWebber Asset Acceptance Corporation has filed with the SEC a
registration statement (Registration No. 333-37164) under the Securities Act of
1933, as amended, with respect to the certificates offered under this prospectus
supplement. This prospectus supplement and the accompanying prospectus, which
form a part of the registration statement, omit certain information contained in
the registration statement under the rules and regulations of the SEC. You may
read and copy the registration statement at the Public Reference Room at the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at
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the SEC's regional offices at Seven World Trade Center, 13th Floor, New York,
New York, 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Rooms. In addition, the SEC maintains a site
on the World Wide Web containing reports, proxy materials, information
statements and other items. The address is http://www.sec.gov.
LEGAL MATTERS
The validity of the certificates and certain federal income tax matters will
be passed upon for the depositor by Cadwalader, Wickersham & Taft, New York, New
York.
RATINGS
As a condition to the issuance of the Class A certificates, the Class A
certificates must be rated "____" by __________________________________ and
"___" by _____________________________.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time. The ratings assigned to
the offered certificates address the likelihood of the receipt by
certificateholders of all distributions to which such certificateholders are
entitled. The ratings assigned to the offered certificates do not represent any
assessment of the likelihood that principal prepayments might differ from those
originally anticipated or address the possibility that certificateholders might
suffer a lower than anticipated yield.
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GLOSSARY OF TERMS
As used in this prospectus supplement, the following terms have the following
meanings:
ADVANCE PAYMENT: With respect to a Contract and a collection period, any
scheduled payment, Final Scheduled Payment, Purchase Option Payment or portion
of either made by or on behalf of an obligor and received by the servicer during
the collection period, which payment or portion of the payment does not become
due until a subsequent collection period. However, Advance Payments do not
include Prepayment Amounts.
AGGREGATE DISCOUNTED CONTRACT PRINCIPAL BALANCE: Means, at any time of
determination and with respect to any Contracts, any amount equal to the sum of
the Discounted Contract Principal Balances of the Contracts.
AVAILABLE FUNDS: With respect to a distribution date, all amounts-including
scheduled payments, Unscheduled Payments, and servicer advances-held in the
collection account on the related determination date, after taking into account
all deposits required to be made on that determination date, other than any
Advance Payment.
BASE PRINCIPAL AMOUNT: With respect to any distribution date, an amount equal
to the excess of:
o the sum of (1) the Aggregate Discounted Contract Principal Balance of the
Contracts, as of the close of business on the last day of the second
preceding collection period, and (2) the Pre-Funded Collateral Amount, as
of the close of business on the last day of the second preceding
collection period, over
o the sum of (1) the Aggregate Discounted Contract Principal Balance of the
Contracts, as of the close of business on the last day of the immediately
preceding collection period, (2) the Pre-Funded Collateral Amount, as of
the close of business on the last day of the immediately preceding
collection period, (3) the aggregate Prepayment Amounts received by the
servicer during the related collection period, (4) any Defaulted Contract
Amounts relating to the related collection period and (5) the amount of
any funds released from the pre-funding account as a prepayment of
principal on the offered certificates, divided by ____%.
CLASS A ACCELERATED PERCENTAGE: _____%.
CLASS A ADDITIONAL PRINCIPAL DISTRIBUTION AMOUNT: Means (a) with respect to
any distribution date prior to the Class A Termination Date, any Unscheduled
Payments with respect to the related collection period; and (b) with respect to
the Class A Termination Date, the amount described in clause (a) above, to the
extent necessary to reduce the certificate principal balance of each class of
Class A certificates to zero.
CLASS A BASE PRINCIPAL DISTRIBUTION AMOUNT: Means (x) with respect to any
distribution date prior to the Class A Termination Date, the sum of:
(1) the product of (A) the Class A Percentage and (B) the Base Principal
Amount for this distribution date;
(2) the Class A Additional Principal Distribution Amount; and
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(3) the product of (A) the Class A Accelerated Percentage and (B) the amount
of any funds released from the pre-funding account as a prepayment of principal;
and
(y) with respect to the Class A Termination Date, the amount described in
clause (x) above, to the extent necessary to reduce the certificate principal
balance of each class of Class A certificates to zero.
CLASS A CERTIFICATE CURRENT INTEREST: With respect to any distribution date
and each class of Class A certificates, the interest accrued during the related
Interest Accrual Period, equal to the product of:
(1) (A) for the Class A certificates, the actual number of days elapsed in
the Interest Accrual Period divided by 360 days and (B) for each other class of
Class A certificates, one-twelfth;
(2) the certificate rate for that class of Class A certificates; and
(3) the aggregate certificate principal balance of that class of Class A
certificates outstanding on the immediately preceding distribution date, after
taking into account all distributions made on that distribution date.
CLASS A CERTIFICATE INTEREST: Means, for any distribution date and any class
of Class A certificates, the sum of the Class A Current Certificate Interest for
that class of Class A certificates and the Class A Overdue Certificate Interest
for that class of Class A certificates.
CLASS A CERTIFICATE RATE: ______% per annum.
CLASS A DEFAULT INTEREST: Means, for any distribution date and each class of
Class A certificates, the product of:
(1) the sum of clauses (1) and (2) of the definition of Class A Overdue
Interest with respect to that class;
(2) (A) for the Class A certificates, the actual number of days elapsed in
the Interest Accrual Period divided by 360 days and (B) for each other class of
Class A certificates, one-twelfth; and
(3) __%.
CLASS A OVERDUE INTEREST: With respect to any distribution date and each
class of Class A certificates, the difference between (x) the sum of:
(1) the excess, if any, of that portion of any Class A Certificate Interest
due on the immediately preceding distribution date for that class of Class A
certificates over that portion of the Class A Certificate Interest paid on the
immediately preceding distribution date for that class of Class A certificates;
(2) without duplication of the amount described in clause (1), the amount of
the Class A Overdue Interest due and unpaid as of the immediately preceding
distribution date attributable to that class of Class A certificates; and
(3) the product of:
(a) the sum of clauses (1) and (2);
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(b) (1) for the Class A certificates, the actual number of days elapsed
in the Interest Accrual Period divided by 360 days and (2) for each other
class of Class A certificates, one-twelfth; and
(c) the Class A Certificate Rate; and
(d) any Class A Overdue Interest attributable to that class of Class A
certificates paid on that distribution date.
CLASS A OVERDUE PRINCIPAL: With respect to any distribution date, the
difference, if any, equal to (a) the aggregate of the Class A Base Principal
Distribution Amounts due on all prior distribution dates and (b) the aggregate
amount of the principal, from whatever source, actually distributed to Class A
certificateholders on all prior distribution dates.
CLASS A PERCENTAGE: ____%.
CLASS A TERMINATION DATE: The distribution date on which the certificate
principal balance of each class of Class A certificates is reduced to zero.
CLASS B ACCELERATED PERCENTAGE: _____%.
CLASS B ADDITIONAL PRINCIPAL DISTRIBUTION AMOUNT: Means:
(1) with respect to any distribution date prior to the Class A Termination
Date, zero;
(2) with respect to the Class A Termination Date, the excess, if any, of
(A) any Unscheduled Payments with respect to the related collection period,
over (B) the amount of that sum necessary to reduce the certificate principal
balance of each class of Class A certificates to zero; and
(3) with respect to any period following the Class A Termination Date, the
amount described in clause (2)(A) above, to the extent necessary to reduce
the Class B certificate principal balance to zero.
CLASS B BASE PRINCIPAL DISTRIBUTION AMOUNT: Means:
(x) with respect to any distribution date prior to the Class A Termination
Date, the sum of:
(1) the product of (A) the Class B Percentage and (B) the Base Principal
Amount for that distribution date;
(2) the Class B Additional Principal Distribution Amount; and
(3) the product of (A) the Class B Accelerated Percentage and (B) the
amount of any funds released from the pre-funding account as a prepayment of
principal; and
(y) with respect to the Class A Termination Date, the amount described in
clause (x) above plus the portion of the Class A Base Principal Distribution
Amount, not applied as a reduction of the note principal balance of the Class A
notes, on that date.
CLASS B CERTIFICATE INTEREST: With respect to any distribution date, the
interest accrued during the related Interest Accrual Period, equal to the
product of:
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(1) one-twelfth of the Class B Certificate Rate; and
(2) the aggregate Class B Certificate Principal Balance outstanding
immediately prior to the distribution date.
CLASS B CERTIFICATE CURRENT PRIORITY INTEREST: With respect to any payment
date, the interest accrued during the related Interest Accrual Period, equal to
the product of:
(1) one-twelfth of the Class B Certificate Rate; and
(2) the aggregate Class B Collateralized Balance outstanding on the
immediately preceding payment date.
CLASS B CERTIFICATE JUNIOR INTEREST: With respect to any distribution date,
the Class B Certificate Current Junior Interest and the Class B Overdue Junior
Interest.
CLASS B CERTIFICATE PRIORITY INTEREST: With respect to any distribution date,
the Class B Certificate Current Priority Interest and the Class B Overdue
Priority Interest.
CLASS B CERTIFICATE PRINCIPAL BALANCE: At any time, the Initial Class B
Certificate Principal Amount minus all payments previously received by the Class
B certificateholders on account of principal.
CLASS B CERTIFICATE RATE: _____% per annum.
CLASS B COLLATERALIZED BALANCE: The positive difference, if any, of the Class
B certificate principal balance over the Class B Uncollateralized Balance.
CLASS B OVERDUE INTEREST: With respect to any distribution date, the sum of
(x) the sum of:
(1) the excess, if any, equal to (a) the aggregate amount of Class B
Certificate Interest due on all prior distribution dates over (b) the
aggregate amount of Class B Certificate Interest, from whatever source,
actually distributed to Class B certificateholders on all prior distribution
dates; and
(2) the amount, if any, described in clause (y) as of the immediately
preceding distribution date; and
(y) the product of (a) one-twelfth of the Class B Certificate Rate and (b)
the amount described in clause (x) above as of that distribution date.
CLASS B OVERDUE PRINCIPAL: With respect to any distribution date, the
difference, if any, equal to (a) the aggregate of the Class B Base Principal
Distribution Amounts due on all prior distribution dates and (b) the aggregate
amount of the principal, from whatever source, actually distributed to Class B
Certificateholders on all prior distribution dates.
CLASS B OVERDUE PRIORITY INTEREST: With respect to any distribution date, the
difference between (x) the sum of:
(1) the excess, if any, of any Class B Certificate Priority Interest due
on the immediately preceding distribution date over the Class B Certificate
Priority Interest paid on the immediately preceding distribution date;
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(2) without duplication of the amount described in clause (1), the amount
of the Class B Overdue Priority Interest due and unpaid as of the immediately
preceding distribution date; and
(3) the product of (a) the sum of clauses (1) and (2), (b) one-twelfth and
(c) the sum of the Class B Certificate Rate plus _____%; and
(y) any Class B Overdue Priority Interest paid on that distribution date.
CLASS B PERCENTAGE: ____%.
CLASS B UNCOLLATERALIZED BALANCE: The positive difference, if any, of:
(1) the sum of (A) the Class A certificate principal balance and (B) the
Class B certificate principal balance; over
(2) the sum of (A) the Aggregate Discounted Contract Principal Balance of
all of the Contracts and (B) the Pre-Funded Collateral Amount.
CODE: means the Internal Revenue Code of 1986, as amended.
CONTRACT: Means any combination of finance leases or installment sale or loan
contracts relating to Equipment or participation interests in those leases or
contracts, together with all related monies.
CONTROLLING PARTY: Means the majority of the holders of the certificates.
CPR: means the conditional prepayment rate which is the prepayment model used
in this prospectus supplement and which represents an assumed annualized rate of
prepayment relative to the then outstanding balance on a pool of Contracts.
CUMULATIVE LOSS EVENT: Means that the sum of the Defaulted Contract Amounts,
as of the first distribution date for which the Contract is classified as a
Defaulted Contract, of all Contracts which have become Defaulted Contracts, on a
cumulative basis since the closing date, less any Defaulted Contract Recoveries,
exceeds an amount equal to ____% of the Initial Aggregate Collateral Balance.
CUT-OFF DATE: Means (x) with respect to the initial Contracts, the close of
business on ___________, 200_, and (y) with respect to any subsequent Contracts
or substitute Contracts, the close of business on the last day of the month
preceding the month in which the Contract was transferred to the transferors.
DEFAULTED CONTRACT: A Contract becomes a "Defaulted Contract" at the earliest
of the date on which:
o the servicer has determined in its sole discretion, in accordance with the
servicing standard and its customary servicing procedures, that the
Contract is not collectible;
o all or part of a scheduled payment thereunder is more than 120 days
delinquent;
o the servicer elected not to make a servicer advance or for which the
servicer has determined that a prior servicer advance is not recoverable;
or
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o a bankruptcy proceeding has been instituted by or against the obligor, and
the obligor has failed to make a scheduled payment or Final Scheduled
Payment.
DEFAULTED CONTRACT AMOUNTS: Means, with respect to any distribution date, the
sum of:
(1) the present value of all of the remaining scheduled payments and any
Final Scheduled Payment due or to become due under each Contract which became
a Defaulted Contract during the related collection period, discounted monthly
at the actual discount rate; and
(2) any scheduled payments previously due and not paid by the obligor.
DEFAULTED CONTRACT RECOVERIES: All proceeds of the sale or re-lease of
Equipment related to Defaulted Contracts and any amounts collected as judgments
against an obligor or others related to the failure of the obligor to pay any
required amounts under the related Contract or to return the Equipment, in each
case as reduced by (1) any unreimbursed servicer advances with respect to the
Contract and (2) any reasonably incurred out-of-pocket expenses incurred by the
servicer in enforcing the Contract or in liquidating the Equipment.
DELINQUENCY TRIGGER EVENT: Exists on any distribution date on which the
average of the Delinquency Trigger Ratios for the distribution date and the two
immediately preceding distribution dates exceeds _%. Once a Delinquency Trigger
Event occurs, then the condition will be deemed to continue until the
distribution date which is the third consecutive distribution date for which the
average of the Delinquency Trigger Ratio for the distribution date and the two
immediately preceding distribution dates is less than _%.
DELINQUENCY TRIGGER RATIO: With respect to any distribution date, the
quotient, expressed as a percentage of (a) the Aggregate Discounted Contract
Principal Balance of all Contracts as to which all or a portion of a scheduled
payment remained unpaid for more than 60 days from its due date, determined as
of the end of the immediately preceding calendar month, divided by (b) the
Aggregate Discounted Contract Principal Balance of all Contracts as of the last
day of the immediately preceding calendar month.
DELINQUENT CONTRACT: As of any determination date, any Contract, other than a
Contract which became a Defaulted Contract prior to the determination date, with
respect to which all or a portion of any scheduled payment was not received by
the servicer as of 30 days from its due date.
DISCOUNTED CONTRACT PRINCIPAL BALANCE: With respect to any Contract, on any
determination date, the sum of the present value of all of the remaining
scheduled payments and any Final Scheduled Payment becoming due under the
Contract after the end of the prior collection period, discounted monthly at the
actual discount rate in the manner described below. However, except to the
extent expressly provided in the Pooling and Servicing Agreement, the Discounted
Contract Principal Balance of any Defaulted Contract, Early Termination
Contract, Expired Contract or Contract reacquired by the originator pursuant to
the Pooling and Servicing Agreement, will be equal to zero.
In connection with all calculations required to be made pursuant to the
Transfer Agreements with respect to the determination of Discounted Contract
Principal Balances, for any date of determination the "Discounted Contract
Principal Balance" for each Contract will be calculated assuming:
o scheduled payments are due on the last day of each collection period;
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o scheduled payments are discounted on a monthly basis using a 30-day month
and a 360-day year; and
o scheduled payments are discounted to the last day of the collection period
prior to the determination date.
EARLY TERMINATION CONTRACT: Any Contract that has terminated pursuant to the
terms of the Contract prior to its scheduled expiration date, other than a
Defaulted Contract.
EQUIPMENT: The equipment and related property that is being financed or
leased under a Contract, together with the related proceeds.
EVENT OF SERVICING TERMINATION: Has the meaning given in "Description of the
Certificates--Events of Servicing Termination" in this prospectus supplement.
EXCLUDED PLAN: Means, for purposes of the Class A certificates, a Plan
sponsored by (1) PaineWebber Incorporated, (2) the originators, (3) the
servicer, (4) the trustee, (5) the transferors, (6) the depositor, (7) any
obligor with respect to Receivables constituting more than 5 percent of the
aggregate unamortized principal balance of the Receivables as of the date of
initial issuance, and (8) any affiliate or successor of a person described in
(1) to (7).
EXPIRED CONTRACT: Any Contract that has terminated on its scheduled
expiration date.
FINAL SCHEDULED PAYMENT: With respect to any Contract, any payment set forth
in the Contract other than the regular scheduled payment which is required to be
paid by the related obligor at the maturity of the Contract.
INITIAL AGGREGATE COLLATERAL BALANCE: The sum of:
(1) the Aggregate Discounted Contract Principal Balance of the Contracts
as of the Cut-Off Date; and
(2) the Pre-Funded Collateral Amount on the closing date.
INITIAL CLASS B PRINCIPAL BALANCE: $__________.
INITIAL UNPAID AMOUNT: With respect to a Contract, the excess of:
(1) the aggregate amount of all scheduled payments due prior to the
Cut-Off Date; over
(2) the aggregate of all scheduled payments made prior to the Cut-Off Date
with respect to the Contract.
INTEREST ACCRUAL PERIOD: With respect to any distribution date, the period
from and including the prior distribution date to but excluding that
distribution date and with respect to the initial distribution date, (1) for the
Class A certificates, the period from and including the closing date up to but
excluding that distribution date, and (2) for each other class of certificates,
the period from and including __________, 200_ up to but excluding that
distribution date.
NET CHARGE-OFF EVENT: Exists on any distribution date on which the weighted
average of the Net Charge-Off Ratio for the distribution date and the two
immediately preceding distribution dates exceeds ___%. Once a Net Charge-Off
Event occurs, then the condition will be deemed to continue until the
distribution date which is the fourth consecutive distribution date for which
the
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weighted average of the Net Charge-Off Ratio for the distribution dates and the
two immediately preceding distribution dates is less than ___%.
NET CHARGE-OFF RATIO: With respect to any distribution date, twelve times the
quotient, expressed as a percentage, of:
(1) the sum of the Discounted Contract Principal Balance of all Contracts
that become Defaulted Contracts during the immediately preceding calendar
month, regardless of whether a substitute Contract was provided for them,
less all recoveries received during the immediately preceding calendar month,
including, but not limited to, liquidation proceeds; divided by
(2) the Aggregate Discounted Contract Principal Balance of all Contracts
as of the end of the immediately preceding calendar month.
For the purposes of the calculation of the Net Charge-Off Ratio, the
Discounted Contract Principal Balance of any Contract which is a Defaulted
Contract will not be zero, but will instead be calculated as provided in the
definition of Discounted Contract Principal Balance without reference to the
last proviso in that definition.
PLAN: Means any:
(1) employee benefit plan as defined in Section 3(3) of ERISA;
(2) plan described in Section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans; or
(3) entity whose underlying assets include plan assets by reason of a
plan's investment in entities specified in clauses (1) and (2) above.
POOLING AND SERVICING AGREEMENT: Means the Pooling and Servicing Agreement
among the depositor, the servicer and the trustee.
PRE-FUNDED COLLATERAL AMOUNT: As of any date of determination, is the amount
on deposit in the pre-funding account, divided by ____%.
PREMIUM AMOUNT: With respect to any distribution date, the product of (1)
one-twelfth, (2) the Premium Rate and (3) the outstanding Class A certificate
principal balance as of the end of the immediately preceding collection period.
PREPAYMENT: With respect to a collection period and a Contract other than a
Defaulted Contract, the amount received by the servicer during the collection
period from or on behalf of an obligor with respect to the Contract in excess of
the sum of:
(1) any scheduled payment and any Final Scheduled Payment due during the
collection period; plus
(2) the aggregate of any overdue scheduled payments, Initial Unpaid
Amounts and unpaid Servicing Charges for the Contract, so long as the amount
is designated by the obligor as a prepayment and the servicer has consented
to the prepayment.
Neither Residual Receipts nor Defaulted Contract Recoveries are Prepayments.
PREPAYMENT AMOUNT: With respect to a distribution date and a Contract, an
amount, without duplication, equal to the sum of:
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o the Discounted Contract Principal Balance as of the beginning of the
immediately preceding collection period--without any deduction for any
security deposit paid by an obligor, unless the security deposit has been
deposited in the collection account under the Pooling and Servicing
Agreement;
o the product of (x) the Discounted Contract Principal Balance of the
Contract as of the beginning of the immediately preceding collection
period and (y) one-twelfth of the actual discount rate; and
o any scheduled payments theretofore due and not paid by an obligor.
PURCHASE AMOUNT: Means, with respect to a Receivable, the principal balance
and accrued interest on the Receivable, including one month's interest on the
Receivable, in the month of payment, at the annual percentage rate less the
servicing fee, after giving effect to the receipt of any moneys collected, from
whatever source, on the Receivable, if any.
PURCHASE OPTION PAYMENT: With respect to a Contract, any payment set forth in
the Contract payable by the obligor. This payment includes any security deposit
applied in respect of that payment, upon the exercise of a purchase option for
the Equipment relating to the Contract at the end of the term of the Contract,
whether or not the obligor actually exercises the purchase option. With respect
to any Contract which does not set forth a purchase option, any payment made by
an obligor to purchase the Equipment relating to the Contract at the end of the
term of the Contract.
REACQUISITION AMOUNT: With respect to a distribution date and a Contract, the
sum, without duplication, of:
o the Discounted Contract Principal Balance as of the beginning of the
immediately preceding collection period, without any deduction for any
security deposit paid by an obligor, unless the security deposit has been
deposited in the collection account pursuant to the Pooling and Servicing
Agreement;
o the product of (x) Discounted Contract Principal Balance of the Contract
as of the beginning of the immediately preceding collection period and (y)
one-twelfth of the actual discount rate; and
o any scheduled payments previously due and not paid by an obligor.
RECEIVABLES: Means the Contracts and all related monies received after the
Cut-Off Date and the underlying Equipment.
RECEIVABLES TRANSFER AGREEMENT: Means the receivables transfer agreement,
dated as of _______________, 200_, among the depositor, the originator and the
transferors.
RESIDUAL BALANCE: As of any distribution date, the difference, if any,
between:
(1) the sum of (a) the Aggregate Discounted Contract Principal Balance of
all Contracts as of the end of the immediately preceding collection period
and (b) the amount on deposit in the pre-funding account; and
(2) the sum of (a) the outstanding Class A certificate principal balance
and (b) the outstanding Class B certificate principal balance, each, without
taking into account any previous distributions on them attributable to
Residual Receipts, after taking into account any distributions on the
distribution date.
S-49
<PAGE>
RESIDUAL RECEIPTS: All Purchase Option Payments or other proceeds of the
sale, re-lease or re-marketing of the underlying Equipment, to the extent the
proceeds exceed any scheduled payments and any Final Scheduled Payments
remaining unpaid, but limited to the originator's booked residual value for the
Contract.
RESTRICTED GROUP: Means any affiliate of a person described in (1) to (7) of
the definition of Excluded Plan.
RESTRICTING EVENT: An event which will occur on a distribution date on which:
o an Event of Servicing Termination has occurred under the Pooling and
Servicing Agreement and is not cured within the grace period set forth in
the Pooling and Servicing Agreement;
o a Net Charge-Off Event exists;
o a Delinquency Trigger Event exists;
o a Subordination Deficiency Event exists; or
o a Cumulative Loss Event exists.
SUBORDINATION DEFICIENCY EVENT: Exists on any distribution date on which:
(1) the excess of:
(x) the sum of (A) the Aggregate Discounted Contract Principal Balance
of the Contracts as of the end of the immediately preceding collection
period and (B) the Pre-Funded Collateral Amount as of the end of the
immediately preceding collection period; over
(y) the outstanding Class A certificate principal balance on the
distribution date, after taking into account distributions which would
have been made on the distribution date; is less than
(2) _____% of the Initial Aggregate Collateral Balance.
TRANSFER AGREEMENTS: Means the Receivables Transfer Agreement and the Pooling
and Servicing Agreement.
TRUST OPERATING EXPENSES: With respect to any distribution date, an amount
equal to the amounts owing to the servicer and the trustee pursuant to the
Pooling and Servicing Agreement and payable out of Available Funds in priority
to the Class A Certificate Interest then owing to the Class A
certificateholders.
TRUSTEE EXPENSES: Means the sum of the reimbursement to the trustee for its
reasonable expenses in its capacity as trustee, including, without limitation,
amounts payable to the trustee, in respect of a transfer of servicing.
UNSCHEDULED PAYMENTS: With respect to any distribution date, any Prepayment
Amount, Residual Receipts and Reacquisition Amounts received on account of a
Contract during the preceding calendar month and Defaulted Contract Amounts on
Contracts which became Defaulted Contracts during the preceding calendar month.
S-50
<PAGE>
"U.S. PERSON" means a citizen or resident of the United States, a
corporation, partnership (except as provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States,
any state or the District of Columbia, including an entity treated as a
corporation or partnership for U.S. federal income tax purposes, an estate that
is subject to U.S. federal income tax regardless of the source of its income or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more of those U.S.
Persons have the authority to control all substantial decisions of the trust
(or, to the extent provided in applicable Treasury regulations, certain trusts
in existence on August 20, 1996, which are eligible to elect to be treated as
U.S. Persons).
S-51
<PAGE>
========================================= =====================================
YOU SHOULD RELY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE
ATTACHED PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. $___________ (APPROXIMATE)
WE ARE NOT OFFERING THESE CERTIFICATES _______________________
IN ANY STATE WHERE THE OFFER IS NOT TRUST 200_-_
PERMITTED. ISSUER
TABLE OF CONTENTS ________________-BACKED CERTIFICATES,
SERIES 200_-_
PROSPECTUS SUPPLEMENT _________________________
Summary...........................S-4 SERVICER
Risk Factors......................S-9
Forward-Looking Statements.......S-10 PAINEWEBBER ASSET
Defined Terms....................S-11 ACCEPTANCE CORPORATION
The Contract Pool................S-11 DEPOSITOR
Description of Originator and its
Originating Practices..........S-23
Description of Servicer and its $___________
Servicing Standards............S-23 CLASS A CERTIFICATES
Formation of the Trust...........S-23 PROSPECTUS SUPPLEMENT
Description of the Certificates..S-24
The Trustee......................S-31 PAINEWEBBER INCORPORATED
Prepayment and Yield
Considerations..................S-32
Federal Income Tax ConsiderationsS-34
ERISA Considerations.............S-35 _________, 200_
Legal Investment.................S-38
Underwriting.....................S-38
Additional Information...........S-39
Legal Matters....................S-40
Ratings..........................S-40
Glossary of Terms................S-41
PROSPECTUS
Summary of Terms.................
Risk Factors.....................
Defined Terms....................
The Trust Funds..................
The Issuers......................
The Receivables..................
Pool Factors.....................
Use of Proceeds..................
The Depositor....................
The Trustee......................
Description of the Securities....
Description of the Trust
Agreements......................
Legal Aspects of the Receivables.
Federal Income Tax Considerations
Tax Considerations...............
ERISA Considerations.............
Methods of Distribution .........
Incorporation of Information by
Reference......................
Legal Matters....................
Financial Information............
Additional Information...........
Ratings..........................
Glossary of Terms................
DEALERS WILL BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS OF THESE
SECURITIES AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN
ADDITION, ALL DEALERS SELLING THESE
SECURITIES WILL DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS UNTIL
____________, 200_.
=========================================== ===================================
S-52
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer of sale is not permitted.
--------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED __________, 200_
PROSPECTUS SUPPLEMENT DATED __________, 200_
(TO PROSPECTUS DATED __________, 200_)
$____________ (APPROXIMATE)
________ EQUIPMENT CONTRACT TRUST 200_-_
EQUIPMENT CONTRACT-BACKED NOTES, SERIES 200_-_
$__________ ______% CLASS A-1 NOTES
$___________ ______% CLASS A-2 NOTES
$___________ ______% CLASS A-3 NOTES
$___________ ______% CLASS A-4 NOTES
$___________ ______% CLASS B NOTES
[_____________________ LOGO]
PAINEWEBBER ASSET ACCEPTANCE CORPORATION
DEPOSITOR
THE TRUST FUND--
o The trust fund consists primarily of a pool of receivables consisting of
direct finance leases and commercial loans and the security interests in the
underlying equipment, including [describe types of equipment].
THE OFFERED NOTES--
o The trust will issue 5 classes of notes.
CREDIT ENHANCEMENT--
o [The Class A notes will be unconditionally and irrevocably guaranteed as to
the payment of scheduled interest and to specified payments of principal
pursuant to the terms of a financial guaranty insurance policy to be issued
by _______________]
[____ LOGO]
o The Class A notes are senior to the Class B notes. The Class B notes are
senior to the residual ownership interests in the trust.
PRICE TO THE UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT DEPOSITOR
------------ ------------ ---------------
% % $
The price to public, underwriting discount and proceeds to depositor shown
are for the Class A-1, Class A-2, Class A-3, Class A-4 and Class B notes in the
aggregate. This information is shown for each individual class on page S-[ ].
See "Underwriting" in this prospectus supplement.
The proceeds to depositor are less expenses, estimated at $[ ]. See
"Underwriting" in this prospectus supplement.
--------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ OF THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
The notes will not represent obligations of the depositor, originator or any
other person or entity. No governmental agency will insure the notes or the
underlying contracts securing the notes.
You should consult with your own advisors to determine if the notes are
appropriate investments for you and to determine the applicable legal, tax,
regulatory and accounting treatment of the notes.
--------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE OFFERED
NOTES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PAINEWEBBER INCORPORATED
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information about the notes in two separate documents that
progressively include more detail:
(1) the accompanying prospectus dated ___________, 200_. The accompanying
prospectus provides general information, some of which may not apply to your
series of notes.
(2) this prospectus supplement, which describes the specific terms of your
series of notes. Sales of the notes may not be completed unless you have
received both this prospectus supplement and the prospectus. You are urged to
read both this prospectus supplement and the prospectus in full.
IF THE TERMS OF THE NOTES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, THEN YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.
Cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials are included to assist in locating
further related discussions. The following table of contents and the table of
contents in the accompanying prospectus provide the pages on which these
captions are located.
ii
<PAGE>
TABLE OF CONTENTS
PAGE
Summary......................................................................S-1
Risk Factors.................................................................S-8
Concentrations of the obligors and the equipment underlying the
contracts in particular geographic jurisdictions may result in
losses on your notes....................................................S-8
Prepayments of principal may adversely affect the yield on your
note....................................................................S-8
Payments on the notes are primarily funded by collections on the
contract pool; if credit enhancement is exhausted for your class
of notes, losses on the contracts will lead to losses on your
notes...................................................................S-9
The bankruptcy of the originator could lead to delays in payments
or losses on your notes.................................................S-9
[Because the ratings of the Class A notes are dependent upon the
creditworthiness of the note insurer, a downgrade of the note
insurer could cause a downgrade of the Class A notes.]..................S-9
Forward-Looking Statements..................................................S-10
Defined Terms...............................................................S-10
Transaction Overview........................................................S-10
The Transaction..........................................................S-10
The Contract Pool...........................................................S-11
The Contracts............................................................S-11
The Equipment Subject to the Contracts...................................S-13
Subsequent Contracts.....................................................S-13
Substitutions and Modifications..........................................S-13
The Originator And The Servicer.............................................S-24
Description Of Originator And Its Originating Practices.....................S-24
Description Of Servicer And Its Servicing Standards.........................S-24
Description Of Servicer's Delinquency and Loss Experience...................S-24
Formation of the Trust......................................................S-24
The Owner Trustee........................................................S-24
Description of the Notes....................................................S-24
The Offered Notes........................................................S-25
The Security for the Notes...............................................S-25
Conveyance of Receivables................................................S-26
Representations and Warranties of the Originator.........................S-27
Indemnification..........................................................S-27
Servicer Advances........................................................S-28
Flow of Funds............................................................S-29
Withholding..............................................................S-31
Reports to Noteholders...................................................S-31
Optional Redemption......................................................S-32
Servicing................................................................S-32
The Servicer Not to Resign...............................................S-33
Events of Servicing Termination..........................................S-33
Rights Upon an Event of Servicing Termination............................S-34
Events of Default........................................................S-35
Amendment................................................................S-36
The Indenture Trustee and the Back-up Servicer..............................S-37
Duties and Immunities of the Indenture Trustee...........................S-37
Duties of the Back-up Servicer...........................................S-38
Prepayment and Yield Considerations.........................................S-38
Weighted Average Lives of the Offered Notes..............................S-39
[The Note Insurance Policy].................................................S-43
The Note Insurer............................................................S-46
[Description of the Note Insurer]...........................................S-46
Federal Income Tax Considerations...........................................S-46
Classification of Investment Arrangement.................................S-47
Taxation of Holders......................................................S-47
iii
<PAGE>
Backup Withholding and Information Reporting................................S-49
ERISA Considerations........................................................S-49
Legal Investment............................................................S-50
Underwriting................................................................S-50
Additional Information......................................................S-52
Experts.....................................................................S-52
Legal Matters...............................................................S-52
Ratings.....................................................................S-52
Glossary of Terms...........................................................S-53
iv
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that you need to consider in making an investment
decision. To understand all of the terms of the offering of the notes, you
should read carefully this entire document and the accompanying prospectus.
RELEVANT PARTIES
The Trust.................... _______ Equipment Contract Trust 200_-_, a
__________ statutory business trust. The
principal executive office of the trust is in
____________________, in care of the owner
trustee, at the address of the owner trustee
specified below.
The Depositor................ PaineWebber Asset Acceptance Corporation, a
Delaware corporation. The principal executive
office of the depositor is located at 1285
Avenue of the Americas, New York, New York
10019, and its telephone number is (212)
713-2000.
The Transferors.............. _____________________ and
______________________, each of which is owned
by the originator. The principal executive
office of the each of the transferors is at
______________________________________________,
and their telephone number is
__________________.
The Originator............... _________________________________, a
_______________________, originated or
purchased the contracts. For a description of
the business of the originator, see "The
Originator and the Servicer" in this prospectus
supplement.
The Servicer................. ______________________________ will act as
servicer of the contracts. For a description
of the business of the servicer, see "The
Originator and the Servicer" in this prospectus
supplement. The address of the servicer is
_______________________________________________
and its telephone number if ________________.
The Indenture Trustee and the
Back-up Servicer........... The ____________________, a ___________________.
The corporate trust office of the indenture
trustee is located at __________________________
________________________________________________,
and its telephone number is ___________________.
For a description of the indenture trustee and its
responsibilities
S-1
<PAGE>
with respect to the notes, see "The Indenture
Trustee and the Back-up Servicer" in this
prospectus supplement.
The Owner Trustee............ ________________________________________________,
a ______________________________. The
corporate trust office of the owner trustee is
located at _____________________________________
_____________________________________________,
and its telephone number is
______________________. For a description of the
owner trustee and its responsibilities with
respect to the notes, see "Formation of the
Trust--The Owner Trustee" in this prospectus
supplement.
The Collateral Agent......... _______________________________________________,
a _________________________. The corporate
trust office of the collateral agent is located
at _____________________________________________
_______________________________________________,
and its telephone number is __________________.
[The Note Insurer............ _______________________________________________,
a ___________________________________. The note
insurer will issue a financial guaranty insurance
policy for the benefit of the holders of the Class
A notes. For a description of the business and
selected financial information of the note
insurer, see "The Note Insurance Policy" and
"Description of the Note Insurer" in this
prospectus supplement.]
The Rating Agencies.......... ________________________________________________
and __________________________________ will issue
ratings with respect to the Class A and Class B
notes.
THE NOTES AND THE
RESIDUAL INTERESTS......... The ___________ Equipment Contract Trust 200_-_
will issue 5 classes of its equipment contract-
backed notes, series 200_-_ the Class A-1 notes,
the Class A-2 notes, the Class A-3 notes, the
Class A-4 notes and the Class B notes. The notes
are being offered to you by this prospectus
supplement.
Each class of notes will be secured primarily by a
pool of receivables consisting of direct finance
leases and commercial loans and the security
interests in the underlying equipment.
S-2
<PAGE>
Each class of notes will accrue interest at an
interest rate, have an original principal balance
and have a final stated maturity date as specified
below:
Initial Final Stated
Interest Rate Balance Maturity
------------- ------- ------------
%
The trust will also issue residual interests. The
residual interests will represent the entire
beneficial ownership interest in the trust
remaining after payments on the notes have been
made. The residual interest holders will be
entitled to receive specified payments on each
payment date, but only to the extent that all
payments due under the notes have been made to the
noteholders on that payment date. The residual
interests are not offered by this prospectus
supplement.
PAYMENTS..................... Payments on the notes will be made on each
payment date to the holders of record on the
record date. Payments to a holder will be made
in an amount equal to the holder's percentage
interest of the total amount distributed to the
holder's class of notes on that distribution
date.
o Payment Dates. Payments will be made on
the 15th day of each month, or, if the
15th is not a business day, on the next
business day, beginning on ________, 200_.
o Record Dates. The record date for the
notes will be the last calendar day of
the month preceding a payment date, or,
in the case of the first payment date,
the closing date.
PAYMENTS OF
INTEREST................... On each payment date, each class of notes is
entitled to receive its current interest.
o Current Interest. The current interest
for a payment date is the interest which
accrues on a class of notes at that
class's note rate on the outstanding
principal balance of the class during the
accrual period.
o Accrual Period. The accrual period for a
payment date is the period from the
preceding payment date up to, but excluding,
the current payment date.
S-3
<PAGE>
All computations of interest accrued on the Class
A-1 notes will be made on the basis of the actual
number of days in the accrual period and a 360-day
year. All computations of interest accrued on the
other classes of notes will be made on the basis
of a 360-day year consisting of twelve 30-day
months.
PAYMENTS OF
PRINCIPAL.................. The holders of the notes and the residual
interests are generally entitled to receive
payments of principal on each payment date in
an aggregate amount equal to the sum of the
scheduled payments, final scheduled payments
and any recoveries on defaulted contracts
received on the contract pool during the
preceding calendar month. The holders of the
most senior class of notes outstanding are also
entitled to receive additional principal
payments on each payment date in an aggregate
amount equal to the aggregate amount of
prepayments, repurchases of contracts and
amounts received at the end of a contract's
term--up to the originator's booked residual
value for the contract-from the sale or
re-lease of the underlying equipment during the
preceding calendar month and the unpaid amount
of any contract which became a defaulted
contract during the preceding calendar month.
However, in accordance with the subordination
provisions of the transaction, principal payments
will be made first, to the Class A notes, second,
to the Class B notes and third, to the residual
interests. Moreover, all principal payments on the
Class A notes will be made sequentially, so that
100% of the principal payments made to the Class A
notes will be made to the outstanding class of
Class A notes with the lowest numerical
designation-i.e. the Class A-1 notes-until that
class is reduced to zero.
However, if certain restricting events relating to
loss or delinquency levels on the pool occur,
principal payments to the Class B noteholders and
the residual holders may be suspended and those
payments paid to the Class A noteholders or, after
all of the Class A notes have been retired, to the
Class B noteholders, as an additional payment of
principal. This reallocation of payments will
continue until the restricting event is cured,
waived or the Class A notes or Class B notes, as
applicable, are retired.
This general description of distributions of
principal and interest on the notes is subject to
floors and restricting events which may result in
the reallocation of payments.
S-4
<PAGE>
We refer you to "Description of the Notes--Flow of
Funds" in this prospectus supplement for further
information regarding the payment of interest and
principal on the notes.
CREDIT ENHANCEMENT........... Credit enhancement is provided by means of the
subordination [and, for the Class A notes, the
note insurance policy.]
SUBORDINATION................ The Class A notes are senior to the Class B
notes, which are senior to the residual
interests. More senior classes are entitled to
principal payments prior to the subordinate
classes or interests, which provides credit
enhancement for the senior classes. Losses
resulting from defaults on the underlying
contracts will be absorbed first, by the
residual interest holders, second, by the Class
B noteholders, and third, by the Class A
noteholders.
[THE NOTE INSURANCE
POLICY].................... [_____________________ will issue a financial
guaranty insurance policy for the benefit of
the holders of the Class A notes.
Under the note insurance policy, the note insurer
will be obligated to pay:
o on any payment date, any shortfall in the
amount of interest due to the Class A
noteholders,
o on any payment date, the amount, if any,
by which the outstanding principal
balance of the Class A notes, after
giving effect to all other distributions
on such payment date, exceeds the
outstanding aggregate discounted
principal balance of the pool and the
collateral value of the amount on deposit
in the pre-funding account, and
o on the final scheduled maturity date for
a Class of Class A notes, any shortfall
in the funds available to pay the
outstanding principal balance of that
class.]
TRUST ASSETS
THE CONTRACTS................ The principal source of payment for the notes
will be the payments received from the pool of
contracts.
The contracts have the following characteristics:
S-5
<PAGE>
o The contracts are small-ticket equipment
leases and commercial loans, with an
initial aggregate discounted principal
balance expected to be approximately
$__________ on the closing date.
o The discounted principal balance of a
contract at any time will be calculated
by discounting the remaining scheduled
payments and any final scheduled payment
on the contract at a discount rate equal
to ______%.
o [The contracts are triple-net leases,
which means that the obligor is required
to pay all taxes, maintenance and
insurance associated with the leased
equipment.]
o The contracts are noncancellable by the
obligors.
o A contract cannot be prepaid unless the
obligor pays at least the outstanding
discounted contract principal balance of
the contract and any other delinquent
scheduled payments due under the contract.
o All payments under the contracts are
absolute, unconditional obligations of the
obligors.
o The contracts provide that the payments
are not subject to set-off or reduction
without the lessor's consent.
Underlying equipment type concentration:
---------------------------------------------------
PRINCIPAL BALANCE
EQUIPMENT TYPE CONCENTRATION
-------------- -------------
---------------------------------------------------
[information technology
equipment, including:]
---------------------------------------------------
[computer work stations,] %
---------------------------------------------------
[personal computers,] %
---------------------------------------------------
[data storage devices,] %
---------------------------------------------------
[mainframe and %
mini-computers]
---------------------------------------------------
[computer related %
peripheral equipment,]
---------------------------------------------------
[communications equipment, %
including telephone
switching and networking
systems,]
---------------------------------------------------
[commercial business and %
industrial equipment,
including:]
---------------------------------------------------
[printing presses,] %
---------------------------------------------------
[machine tools and other %
manufacturing equipment,]
---------------------------------------------------
[photocopiers, facsimile %
machines and other office
equipment,]
---------------------------------------------------
[energy savings and control %
equipment,]
---------------------------------------------------
[automotive diagnostic %
equipment]
---------------------------------------------------
[automated testing %
equipment,]
---------------------------------------------------
[medical equipment, %
including diagnostic and
therapeutic examination
equipment for radiology,
nuclear medicine and
ultrasound and laboratory
analysis equipment,]
---------------------------------------------------
[resources equipment, %
including feller-bunchers
and grapplers,]
---------------------------------------------------
[transportation and %
construction equipment,
including:]
---------------------------------------------------
[bulldozers,] %
---------------------------------------------------
[loaders,] %
---------------------------------------------------
[graders,] %
---------------------------------------------------
[excavators,] %
---------------------------------------------------
---------------------------------------------------
[forklifts,] %
---------------------------------------------------
[other materials handling %
equipment,]
---------------------------------------------------
[golf carts,] %
---------------------------------------------------
[other road and off-road %
machinery and electronics
manufacturing equipment.]
---------------------------------------------------
The assets of the trust will also include a
security interest in the equipment subject to
each related contract or lease. The assets of
the trust will not initially include an
ownership interest in the equipment.
PRE-FUNDING
Pre-funding Account.......... On the closing date, approximately $__________
will be deposited into a pre-funding account.
These funds will be used from time to time, on or
before ____________, 200_, to fund the acquisition
of subsequent contracts for addition to the pool.
To the extent that any amounts on deposit in the
pre-funding account are not used to purchase
subsequent contracts by ____________, 200_, the
trust will apply these amounts as a pro rata
prepayment of the principal balance of the notes
on the payment date immediately succeeding the end
of the pre-funding period.
SERVICING OF
THE CONTRACTS.............. ________________________ will act as servicer
and will be obligated to service and administer
the contracts.
S-6
<PAGE>
OPTIONAL REDEMPTION.......... The servicer may redeem the notes on any payment
date after the aggregate outstanding principal
balance of the notes is less than or equal to ___%
of the original aggregate principal balance of the
notes.
If a redemption occurs, you will receive a final
distribution equaling the entire unpaid principal
balance of your note, plus any accrued and unpaid
interest on your note.
FEDERAL INCOME
TAX CONSIDERATIONS......... Cadwalader, Wickersham & Taft, special tax
counsel to the trust, is of the opinion that,
for federal income tax purposes,
o the notes will be treated as debt, and
o the trust will not be treated as an
association, or publicly traded
partnership, taxable as a corporation.
By your acceptance of a note, you agree to treat
the notes as debt.
ERISA CONSIDERATIONS......... Subject to the considerations and conditions
described under "ERISA Considerations" in the
prospectus and in this prospectus supplement,
pension, profit-sharing or other employee benefit
plans, as well as individual retirement accounts
and types of Keogh Plans, may purchase the notes.
Investors should consult with their counsel
regarding the applicability of ERISA before
purchasing a note.
RATINGS...................... The trust will not issue the notes unless they
have been assigned the following ratings:
CLASS
----------- ----------- ----------- -----------
A-1
A-2
A-3
A-4
B
These ratings may be lowered, qualified or
withdrawn by the rating agencies.
S-7
<PAGE>
RISK FACTORS
Before making an investment decision, you should carefully consider the
following risks in addition to the risk factors discussed in the prospectus
which we believe describe the principal factors that make an investment in the
notes speculative or risky. In particular, payments on your notes will depend on
payments received on and other recoveries with respect to the equipment
contracts. Therefore, you should carefully consider the risk factors relating to
the loans. Unless otherwise noted, all statistical percentages are based upon
the contract pool that existed on a statistical calculation date of
_____________, 200_.
CONCENTRATIONS OF THE OBLIGORS AND THE EQUIPMENT UNDERLYING THE CONTRACTS IN
PARTICULAR GEOGRAPHIC JURISDICTIONS MAY RESULT IN LOSSES ON YOUR NOTES.
As of the statistical calculation date, the obligors and underlying equipment
with respect to approximately _____% and _____% of the contracts were located in
the states of ____________ and ______________, respectively. To the extent
adverse events or economic conditions are particularly severe in these
jurisdictions or in the event an obligor or group of obligors in these
jurisdictions were to experience financial difficulties due to the economic
conditions specific to these jurisdictions, the delinquency and loss experience
of the contract pool could be adversely impacted and you could experience delays
in receiving payments or suffer losses on your note.
PREPAYMENTS OF PRINCIPAL MAY ADVERSELY AFFECT THE YIELD ON YOUR NOTE.
Payments on the contracts may include several types of prepayments. These
prepayments include partial and full prepayments by the obligor, payments upon
the liquidation of defaulted contracts and payments by the originator or the
servicer on account of breaches of representations and warranties concerning the
receivables. These prepayments will be paid to the noteholders in reduction of
the principal balance of the notes. The risk of reinvesting these early payments
of the principal will be borne by you and we cannot assure you that you will be
able to reinvest them at a yield equaling or exceeding the yield on your note.
The yield to maturity on notes purchased at premiums or discounts to par will
be extremely sensitive to the rate of prepayments. You should consider, in the
case of notes purchased at a discount, the risk that a slower than anticipated
rate of prepayments on the contracts could result in an actual yield that is
less than the anticipated yield and, in the case of any notes purchased at a
premium, the risk that a faster than anticipated rate of prepayments on the
contracts could result in an actual yield that is less than the anticipated
yield.
In addition, if the funds on deposit in the pre-funding account are not fully
applied to the purchase of subsequent contracts during the pre-funding period,
the remaining funds will be used to make a principal prepayment on the notes
following the end of the pre-funding period. The purchase of subsequent
contracts is dependent on the ability of the originator to originate sufficient
subsequent contracts that meet the eligibility criteria described in this
prospectus supplement. The ability of the originator to originate subsequent
contracts may be affected by a variety of social and economic factors,
including:
o interest rates;
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o unemployment levels;
o the rate of inflation; and
o consumer perception of economic conditions generally.
If the originator does not originate sufficient subsequent contracts, there
will be a prepayment on the notes. The risk of reinvesting a prepayment of the
principal will be borne by you and there can be no assurance that you will be
able to reinvest them at a yield equaling or exceeding the yield on your note.
PAYMENTS ON THE NOTES ARE PRIMARILY FUNDED BY COLLECTIONS ON THE CONTRACT POOL;
IF CREDIT ENHANCEMENT IS EXHAUSTED FOR YOUR CLASS OF NOTES, LOSSES ON THE
CONTRACTS WILL LEAD TO LOSSES ON YOUR NOTES.
The principal source of funds for the repayment of the notes are the
collections on the contract pool. Thus, losses on the contract pool may cause
losses on your note. The structure of the transaction provides for a limited
level of credit enhancement for the notes by means of subordination. The
residual interests are in a first-loss position. Losses on the contract pool
will be allocated to the residual interests prior to any losses being allocated
to the notes. The Class B notes are in a second-loss position, which means that
investors in the Class B notes are likely to suffer losses if the residual
interests are exhausted.
In addition, high losses or delinquencies on the contract pool may trigger a
restricting event. If a restricting event occurs, principal payments on the
Class B notes will be suspended and reallocated to the Class A noteholders. This
allocation will continue until the restricting event is cured or the Class A
notes are retired. This allocation would change the expected weighted average
life of the notes and could adversely affect the yield on your note.
THE BANKRUPTCY OF THE ORIGINATOR COULD LEAD TO DELAYS IN PAYMENTS OR LOSSES ON
YOUR NOTES.
If the originator, or the third-party companies from which the originator
purchased the contracts, were to file for bankruptcy, the bankruptcy trustee
might seek to repudiate the contracts and/or claim an interest in the contract
pool. This attempt, even if unsuccessful, could result in delays in payments on
your note. If these attempts were successful, the recovery on the contracts
would be limited to the then current value of the contracts. Thus, the
noteholders would lose the right to future payments and could possibly incur
reinvestment losses on amounts recovered.
[BECAUSE THE RATINGS OF THE CLASS A NOTES ARE DEPENDENT UPON THE
CREDITWORTHINESS OF THE NOTE INSURER, A DOWNGRADE OF THE NOTE INSURER COULD
CAUSE A DOWNGRADE OF THE CLASS A NOTES.]
The ratings of the Class A notes will depend primarily on the
creditworthiness of the note insurer as the provider of the note insurance
policy relating to the Class A notes. Any reduction in the note insurer's
insurance financial strength or claims-paying ability ratings could result in a
reduction of the ratings on the Class A notes.]
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FORWARD-LOOKING STATEMENTS
In this prospectus supplement and the accompanying prospectus, we use certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These forward-looking statements are
found in the material, including each of the tables, set forth under "Risk
Factors" and "Prepayment and Yield Considerations" in this prospectus
supplement. Forward-looking statements are also found elsewhere in this
prospectus supplement and prospectus and include words like "expects,"
"intends," "anticipates," "estimates" and other similar words. These statements
are intended to convey our projections or expectations as of the date of this
prospectus supplement. These statements are inherently subject to a variety of
risks and uncertainties. Actual results could differ materially from those we
anticipate due to changes in, among other things:
(1) economic conditions and industry competition,
(2) political and/or social conditions, and
(3) the law and government regulatory initiatives.
We will not update or revise any forward-looking statement to reflect changes
in our expectations or changes in the conditions or circumstances on which these
statements were originally based.
DEFINED TERMS
We define and use capitalized terms in this prospectus supplement and the
prospectus to assist you in understanding the terms of the offered notes and
this offering. We define the capitalized terms we used in this prospectus
supplement under the caption "Glossary of Terms" beginning on page S-[__] in
this prospectus supplement.
TRANSACTION OVERVIEW
THE TRANSACTION
Formation of the Trust and Issuance of the Residual Interests. The trust will
be formed pursuant to the terms of a Trust Agreement, dated as of _____________,
200_, between the owner trustee, the depositor and the transferors. Under the
Trust Agreement, the trust will also issue the residual interests to the
transferors, together evidencing the entire beneficial ownership interest in the
trust.
Sale of the Receivables. The receivables have been originated or purchased by
the originator pursuant to its underwriting guidelines, as described under "The
Originator and the Servicer" in this prospectus supplement. The originator will
sell the receivables to the transferors pursuant to the terms of a Receivables
Sale Agreement, dated as of _______________, 200_, among the originator and the
transferors. The Receivables Sale Agreement provides that one of the
transferors, ______________________, will acquire that portion of the
receivables which are characterized as "financial assets" under U.S. GAAP-which
consist of, among other things, the contracts, other than the contracts, if any,
which are "true" or "operating" leases-while the other transferor,
______________________, will acquire that portion of the receivables which are
not
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characterized as "financial assets" under U.S. GAAP-which consist of, among
other things, the contracts, if any, which are "true" or "operating" leases, the
ownership interest or security interest of the originator in each item of
equipment and any Residual Receipts. The transferors will sell the receivables
to the depositor pursuant to a Receivables Sale Agreement, dated as of
_____________, among the transferors and the depositor.
Servicing of the Contracts. The servicer will service the receivables
pursuant to the terms of a Sale and Servicing Agreement, dated as of
_______________, 200_, among the depositor, the servicer, the originator, the
transferors, the trust, the indenture trustee and the back-up servicer.
Sale of Contracts to the Trust. The depositor will transfer the receivables
to the trust pursuant to the Sale and Servicing Agreement.
Issuance of the Notes. Pursuant to the terms of an indenture, dated as of
_______________, 200_, between the trust, the servicer, the back-up servicer and
the indenture trustee, the trust will pledge the trust fund to the indenture
trustee, for the benefit of the holders of the notes and the note insurer, and
issue the notes.
[Issuance of the Note Insurance Policy. The note insurer will issue the note
insurance policy pursuant to the terms of an insurance and indemnity agreement,
dated as of _______________, 200_, among the note insurer, the trust, the
depositor, the transferors, the originator and the servicer.]
THE CONTRACT POOL
THE CONTRACTS
The contracts consist of small-ticket leases and commercial loans acquired by
the originator from third parties or originated directly by the originator or
its affiliates. The receivables consist of the contracts and certain interests
in the related equipment or other property. See "The Originator and the
Servicer" in this prospectus supplement.
The statistical information concerning the pool of contracts set forth in
this prospectus supplement is based upon the contract pool that existed on a
statistical calculation date of _______________, 200_. As of the statistical
calculation date, the contracts had an Aggregate Discounted Contract Principal
Balance of $_____________, which was calculated using a statistical discount
rate ____%. The Aggregate Discounted Contract Principal Balance of the actual
contract pool will be calculated using an actual discount rate of _____%, which
is equal to the sum of the servicing fee rate, the back-up servicing fee rate,
the indenture trustee fee rate and the Class B note rate. The Aggregate
Discounted Contract Principal Balance of the contracts in the actual contract
pool on the closing date is expected to be greater than the Aggregate Discounted
Contract Principal Balance of the contracts in the statistical contract pool as
set forth in this prospectus supplement. The additional contracts will represent
contracts acquired by the transferors on or prior to the closing date.
Between the statistical calculation date and the closing date, some
amortization of the pool is expected to occur. In addition, certain contracts
included in the pool as of the statistical calculation date may be determined
not to meet the eligibility requirements for the final contract
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pool, and may not be included in the final contract pool. While the statistical
distribution of the characteristics as of the closing date for the final
contract pool and calculated at the discount rate will vary somewhat from the
statistical distribution of those characteristics as of the statistical
calculation date and calculated at the statistical discount rate as presented in
this prospectus supplement, we do not expect that variance to be material.
In the event that the transferors do not, as of the closing date, have the
full amount of contracts which they expected, the pre-funding account will be
increased accordingly. However, the Pre-Funded Collateral Amount will in no
event exceed 25% of the Initial Aggregate Collateral Balance. Unless otherwise
noted, all statistical percentages in this prospectus supplement are measured by
the Aggregate Discounted Contract Principal Balance of the statistical contract
pool.
The contracts generally require the periodic, scheduled payment of rent or
other payments on a monthly basis, in arrears. In connection with all
calculations required to be made under the transaction documents with respect to
the determination of Discounted Contract Principal Balances, on any
determination date the Discounted Contract Principal Balance for each contract
will be calculated assuming:
(1) scheduled payments are due on the last day of each collection period;
(2) scheduled payments are discounted on a monthly basis using a 30-day month
and a 360-day year; and
(3) scheduled payments are discounted to the last day of the collection
period prior to the determination date.
The contracts have the characteristics specified in the Transfer Agreements
and the Sale and Servicing Agreement and described in this prospectus
supplement. The contracts eligible to be designated as substitute contracts or
subsequent contracts will conform to the characteristics specified in the
Transfer Agreements or subsequent Transfer Agreements, as applicable, and in
this prospectus supplement.
References in this prospectus supplement to percentages refer in each case to
the percentage of the Aggregate Discounted Contract Principal Balance of the
statistical contract pool as of the statistical calculation date.
As of the statistical calculation date, the contracts in the statistical
contract pool had the following characteristics:
o the contracts had original terms to maturity of __ to __ months, with a
weighted average original term to maturity of approximately __ months;
o the contracts had remaining terms to maturity of __ to __ months, with a
weighted average remaining term to maturity of approximately __ months;
o the Discounted Contract Principal Balances of the contracts ranged from
$________ to $__________;
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o the contracts relating to the largest obligor are equal to ____% of the
Aggregate Discounted Contract Principal Balance of the statistical
contract pool; and
o the average Discounted Contract Principal Balance is $_________.
THE EQUIPMENT SUBJECT TO THE CONTRACTS
The equipment underlying the contracts consists of:
o [information technology equipment, including:]
o [computer work stations,]
o [personal computers,]
o [data storage devices,]
o [mainframe and mini-computers, and]
o [computer related peripheral equipment,]
o [communications equipment, including telephone switching and networking
systems,]
o [commercial business and industrial equipment, including:]
o [printing presses,]
o [machine tools and other manufacturing equipment,]
o [photocopiers, facsimile machines and other office equipment,]
o [energy savings and control equipment,]
o [automotive diagnostic equipment, and]
o [automated testing equipment,]
o [medical equipment, including diagnostic and therapeutic examination
equipment for radiology, nuclear medicine and ultrasound and laboratory
analysis equipment,]
o [resources equipment, such as feller-bunchers and grapplers,]
o [transportation and construction equipment, including:]
o [bulldozers,]
o [loaders,]
o [graders,]
o [excavators,]
o [forklifts,]
o [other materials handling equipment,]
o [golf carts,]
o [other road and off-road machinery and electronics manufacturing
equipment.]
The trust fund will also include a security interest in the equipment
subject to each related contract. The trust fund will not initially include
any ownership interests in the equipment.
SUBSEQUENT CONTRACTS
Subject to the conditions set forth below, prior to the end of the
pre-funding period, all or a portion of the balance of funds in the pre-funding
account may be released for the purchase by the trust of subsequent receivables
consisting of subsequent contracts and the related equipment.
Each subsequent contract will satisfy certain representations and warranties
set forth in the Sale and Servicing Agreement, including the following:
o No selection process materially adverse to the interest of the noteholders
[or the note insurer] was used in selecting the subsequent contracts;
o [The note insurer will have approved the acceptance by the trust of the
pledge of the subsequent contracts;]
o The indenture trustee will have released from the pre-funding account, an
amount up to ____% of the Aggregate Discounted Contract Principal Balance
of all subsequent contracts, calculated as of the date of acquisition, to
be pledged to the indenture trustee, on behalf of the trust, on the
acquisition date;
o None of the subsequent contracts then being pledged will have a final
scheduled payment date later than twelve months before the Class A-4
Maturity Date; and
o The pledge will not occur after the end of the pre-funding period.
SUBSTITUTIONS AND MODIFICATIONS
Under the Sale and Servicing Agreement, [with the consent of the note
insurer,] one or more substitute contracts and the related equipment may be
substituted for a contract and the related equipment that:
o becomes a Defaulted Contract, a Prepayment or an Early Termination
Contract or
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<PAGE>
o is required to be reacquired by the originator pursuant to the Sale and
Servicing Agreement.
Each substitute contract will be a contract which satisfies certain
representations and warranties set forth in this prospectus supplement and in
the Sale and Servicing Agreement as of the Cut-Off Date for that substitute
contract. In addition, the following conditions must be satisfied:
o With respect to contracts substituted for Defaulted Contracts, Prepayments
or Early Termination Contracts, on a cumulative basis from the initial
Cut-Off Date, the sum of the Discounted Contract Principal Balance of such
substitute contracts, as of the Cut-Off Date for the substitute contract,
would not exceed __% of the Initial Aggregate Collateral Balance;
o As of the Cut-Off Date for the substitute contract, the substitute
contracts then being pledged have an Aggregate Discounted Contract
Principal Balance that is not less than the Discounted Contract Principal
Balance of the contracts being replaced;
o As of the Cut-Off Date for the substitute contract, none of the substitute
contracts then being pledged have a final scheduled maturity date later
than _____ months before the Class A-4 Maturity Date;
o The servicer makes a good faith determination, in accordance with its
underwriting guidelines, that the credit quality of the substitute
contract is not worse than that of the contract being replaced; and
o No substitution will be permitted if, as a result of the substitution, the
sum of the scheduled payments and any Final Scheduled Payments on all
contracts, after giving effect to the substitutions, due in any collection
period thereafter would be less than the sum of the scheduled payments and
any Final Scheduled Payments which would otherwise be due in that
collection period, prior to giving effect to the substitution.
Under the Sale and Servicing Agreement, the servicer is permitted to allow an
obligor to prepay a contract in an amount not less than the Prepayment Amount.
In addition, in the event that an obligor requests an upgrade or trade-in of
equipment, the servicer may remove the equipment and related contract from the
pool, but only upon payment of an amount equal to the Reacquisition Amount.
The servicer may waive, modify or vary any term of a contract if the
servicer, in its reasonable and prudent judgment, determines that it will not be
materially adverse to the noteholders [or the note insurer]. However, the
servicer will covenant in the Sale and Servicing Agreement that,
o it will not forgive any payment of rent or principal,
o unless an obligor is in default, it will not permit any modification with
respect to a contract which would defer the payment of any scheduled
payment or Final Scheduled Payment or change the final maturity date on
any contract. However, no change in the final maturity date of any
contract will be permitted under any circumstances if the new
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<PAGE>
maturity date for the contract is later than the maturity date of the
latest maturing contract then pledged to the trust, and
o the servicer may accept Prepayment in part or in full;
provided, however, that,
o in the event of Prepayment in full, the servicer may consent to the
Prepayment only in an amount not less than the Prepayment Amount, and
o in the event of a partial Prepayment, the servicer may consent to the
partial Prepayment only if:
(1) following the partial Prepayment, all delinquent scheduled payments
then due under the contract have been paid,
(2) the partial Prepayment is paid along with an amount equal to the
product of (x) one-twelfth, (y) the discount rate and (z) the
Discounted Contract Principal Balance of the contract prior to the
partial Prepayment and
(3) such partial Prepayment will not reduce the Discounted Contract
Principal Balance by more than the amount of the partial Prepayment.
In the case of a partial Prepayment, the servicer is required to
accurately recalculate the Discounted Contract Principal Balance of the
contract, and the allocation of scheduled payments to principal and
interest.
Under the Sale and Servicing Agreement, the servicer will manage, administer,
service and make collections on the contracts, in accordance with a servicing
standard which satisfies the terms of the Sale and Servicing Agreement, the
contracts, the servicer's current credit and collection policies and applicable
law. To the extent consistent with those terms, the Servicer will service and
administer in the same manner in which, and with the same care, skill, prudence
and diligence with which, it services and administers leases of similar credit
quality for itself or others, if any, giving due consideration to customary and
usual standards of practice of prudent institutional small-ticket equipment
finance lease servicers and, in each case, taking into account its other
obligations under the Sale and Servicing Agreement. The servicer will use
commercially reasonable best efforts consistent with the servicing standard and
its customary servicing procedures, to repossess or otherwise comparably convert
the ownership of any equipment that it has reasonably determined should be
repossessed or otherwise converted following a default under the contract and
remarket, either through sale or re-lease, the equipment and act as sales and
processing agent for equipment which it repossesses. The servicer will follow
the practices and procedures as are consistent with the servicing standard and
as it deems necessary or advisable and as is customary and usual in its
servicing of equipment leases and other actions by the servicer in order to
realize recoveries upon the contract, which may include reasonable efforts to
enforce any recourse obligations of obligors and repossessing and selling the
equipment at a public or private sale. The foregoing is subject to the provision
that, in any case in which the equipment has suffered damage, the servicer will
not be required to pay for any repair or towards the repossession of the
equipment unless it determines in its
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discretion that the repair and/or repossession will increase the proceeds and
recoveries on the equipment by an amount greater than the amount of the
expenses.
The following tables set forth certain statistical information relating to
the contract pool that existed on the statistical calculation date of
__________, 200_ and are calculated using a statistical discount rate of ____%.
Certain columns may not total 100% due to rounding.
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<PAGE>
DISTRIBUTION OF THE CONTRACTS BY
CURRENT DISCOUNTED CONTRACT PRINCIPAL BALANCE
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
RANGE OF CONTRACT CONTRACT
DISCOUNTED CONTRACT NUMBER OF PRINCIPAL PRINCIPAL
PRINCIPAL BALANCE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
-------------- --------------
$ $ $
%
----------- ---------- -------
Total...................... $ 100.00%
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
ORIGINAL EQUIPMENT COST
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
ORIGINAL EQUIPMENT COST CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
$ $ $
%
----------- ---------- -------
Total...................... $ 100.00%
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
TOP 10 INDUSTRIES
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
INDUSTRY CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
%
$
----------- ---------- -------
Total...................... $ 100.00%
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
EQUIPMENT TYPE
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
EQUIPMENT TYPE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
$ %
----------- ---------- -------
Total......................
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS BY
OBLIGOR BILLING ADDRESS
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
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PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
Rhode Island
South Carolina
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total......................
DISTRIBUTION OF THE CONTRACTS BY
REMAINING TERM TO MATURITY
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
RANGE OF REMAINING TERM (IN NUMBER OF PRINCIPAL PRINCIPAL
MONTHS) CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
----------- ---------- -------
Total......................
=========== ========== =======
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DISTRIBUTION OF THE CONTRACTS
BY ORIGINAL TERM TO MATURITY
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
RANGE OF ORIGINAL TERM (IN NUMBER OF PRINCIPAL PRINCIPAL
MONTHS) CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
----------- ---------- -------
Total......................
=========== ========== =======
DISTRIBUTION OF THE CONTRACTS
BY AGE OF CONTRACTS
PERCENTAGE
STATISTICAL OF STATISTICAL
DISCOUNTED DISCOUNTED
CONTRACT CONTRACT
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF AGE OF CONTRACTS CONTRACTS BALANCE BALANCE
------------------------------- --------- ----------- --------------
GREATER LESS THAN OR
THAN EQUAL TO
------------- --------------
----------- ---------- -------
Total......................
=========== ========== =======
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<PAGE>
[DESCRIPTION OF ORIGINATOR AND ITS ORIGINATING PRACTICES]
[TO BE PROVIDED]
[DESCRIPTION OF SERVICER AND ITS SERVICING STANDARDS]
[TO BE PROVIDED]
[DESCRIPTION OF SERVICER'S DELINQUENCY AND LOSS EXPERIENCE]
[TO BE PROVIDED]
FORMATION OF THE TRUST
The trust, _____________ Equipment Contract Trust 200_-_, is a statutory
business trust formed in accordance with the laws of the State of
________________, pursuant to the Trust Agreement, solely for the purpose of
effectuating the transactions described in this prospectus supplement. Prior to
formation, the trust will have had no assets or obligations and no operating
history. Upon formation, the trust will not engage in any business activity
other than acquiring, holding and pledging the property pledged to secure the
notes, issuing the notes and distributing payments on the notes. As described
under "Description of the Notes--Flow of Funds," a portion of the monthly
collections with respect to the contracts will be paid to the servicer as
servicing compensation and to [the note insurer,] the back-up servicer, and the
indenture trustee, as fees. All other expenses of the trust will be paid as
provided in the Trust Agreement.
THE OWNER TRUSTEE
_______________________________________________ is the owner trustee under
the Trust Agreement. _______________________________________________, is a
____________________________, the corporate trust offices of which are located
at _________________________________________________________________________.
The owner trustee's duties in connection with the trust are limited solely to
its express obligations under the Trust Agreement.
DESCRIPTION OF THE NOTES
The notes will be issued pursuant to the indenture to be entered into by the
servicer, the trust, the back-up servicer and the indenture trustee. The
servicer will provide a copy of the indenture to subsequent noteholders without
charge on written request addressed to it at ________________________________
_______________________________________________________________.
The following summary describes certain terms of the Transfer Agreements, the
Sale and Servicing Agreement and the indenture, does not purport to be complete,
and is subject to and qualified in its entirety by reference to the Transfer
Agreements, the Sale and Servicing Agreements and the indenture. Wherever
provisions of the Transfer Agreements, the Sale and Servicing Agreements and the
indenture are referred to, those provisions are incorporated in this prospectus
supplement by reference.
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THE OFFERED NOTES
The obligations evidenced by the offered notes are recourse to the assets of
the trust only and are not recourse to the originator, the servicer, the owner
trustee, the indenture trustee, or any other person.
The trust will agree in the indenture and in the respective offered notes to
pay, in each case, at the times, from the sources and on the terms and
conditions set forth in the indenture and in the respective offered notes,
o to the holders of each Class A notes (a) an amount of principal equal to
the initial note principal balance of their class and (b) Class A Note
Interest for their class, and
o to the Class B noteholders (a) an amount of principal equal to the initial
Class B note principal balance and (b) Class B Note Interest.
The indenture trustee is required to make payments on the offered notes on
each payment date.
In the aggregate, the Class A notes and the Class B notes to be issued under
this prospectus supplement will equal the sum of (x) approximately ____% of the
initial Aggregate Discounted Contract Principal Balance of the contracts as of
the initial Cut-Off Date and (y) 100% of the initial amount on deposit in the
pre-funding account. Each class of offered notes will initially be issued in
book-entry form only through DTC in minimum denominations of $________ and
$________ increments above $________ up to the initial note principal balance of
each class.
[The Class A Insured Distribution Amount due to the Class A noteholders on
each payment date is insured by the note insurer pursuant to the note insurance
policy. See "The Note Insurance Policy" and "Description of the Note Insurer" in
this prospectus supplement.]
THE SECURITY FOR THE NOTES
The notes will be secured by:
o the contract pool and recoveries on account of the equipment securing the
contracts;
o any guaranties of an obligor's obligations under a contract, including any
guaranties of third-party originators;
o with respect to any contract, an original, executed counterpart of the
contract, any UCC financing statement filed in accordance with the
originator's policies and procedures, as described below, and other
original documents related to the contract, the application of the related
obligor, documentation evidencing the information with respect to the
contract input into the computerized electronic contract management system
maintained by the servicer for all contracts and other agreements similar
to the contracts, and any other information required by the servicer
pursuant to its customary policies and procedures;
o the insurance policies maintained by the obligors with respect to the
equipment and the proceeds of those insurance policies;
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o any rights against the originator including the right to instruct the
originator to exercise any unassignable rights of enforcement under the
contracts and any related guaranties;
o funds from time to time deposited in the collection account; and
o and any and all income and proceeds of the foregoing.
The servicer will be required to take the actions required to perfect the
trust's interest in the receivables except as discussed below with respect to
the equipment. If the originator, the transferors, the servicer, the collateral
agent or the indenture trustee, while in possession of an item of receivables,
sells or pledges and delivers the receivables to another party, in violation of
the Transfer Agreements, the indenture and the Sale and Servicing Agreement,
there is a risk that the purchaser could acquire an interest in the receivables
having priority over the trust's interest.
The originator, the transferors and the trust will file financing statements
in accordance with the UCC evidencing the pledge of the trust assets to the
indenture trustee as follows:
o a UCC-1 financing statement against the equipment, naming the obligor as
debtor and either (x) the originator as secured party or (y) the
third-party originator, as secured party, in which case the originator has
an assignment of such security interest;
o a UCC-1 financing statement with respect to the assignment of all
contracts and the related security interest in the equipment to the
transferors pursuant to the related Receivables Sale Agreement;
o a UCC-1 financing statement with respect to the pledge of all contracts
and the related security interest in the equipment to the indenture
trustee, on behalf of the trust, pursuant to the indenture; and
o UCC-1 financing statements in a majority of the 50 states against the
equipment, (x) naming the originator as debtor, [____________], as secured
party, and the indenture trustee, as assignee, and (y) naming
[____________], as debtor, and the indenture trustee, as secured party.
Except as described in the immediately preceding paragraph, because of the
administrative burden and expense that would be entailed in so doing, none of
the originator, the depositor, the transferors, or the servicer has filed or
will be required to file UCC financing statements against the obligor,
identifying the equipment being leased which had an original cost of less than
$[25,000] as collateral pledged to the indenture trustee, on behalf of the
trust. In the absence of these filings, any security interest in the related
equipment will not be perfected in favor of the indenture trustee and the
indenture trustee shall have no liability with respect to such lack of
perfection. [Upon request of the note insurer, the servicer will be required to
make such filings with respect to Defaulted Contracts.]
CONVEYANCE OF RECEIVABLES
The contracts have been originated or purchased by the originator or its
affiliates. On the closing date, the originator will transfer the initial
receivables under the Receivables Sale Agreement to two transferors which are
both special-purpose finance subsidiaries created by the
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originator. The transferors will transfer the initial receivables under the
Depositor Receivables Sale Agreement to the depositor. The depositor will pledge
its interests in the receivables to the indenture trustee, on behalf of the
trust, to secure the notes for the benefit of the noteholders [and the note
insurer].
The indenture provides that the transferors may, but will not be obligated
to, designate from time to time prior to the end of the pre-funding period,
subsequent receivables to be included as part of the trust fund securing the
notes. The pre-funding period is the period beginning on the closing date and
ending on the earliest of,
o the date on which an Event of Default or a Restricting Event occurs,
o the close of business on _____________, 200_, and
o the date on which the amount on deposit in the pre-funding account falls
below $________.
The originator, in its capacity as originator, will make certain
representations and warranties with respect to, among other things, the
contracts and the underlying equipment, which representations and warranties
will be collaterally assigned to the indenture trustee under the transaction
documents.
The collateral agent, on behalf of the indenture trustee, will have
possession of the contracts and the contract files, and the servicer will retain
copies of any other documents which relate to the receivables, any related
evidence of insurance and payment, any delinquency and any related reports as
maintained by the servicer in the ordinary course of business with respect to
each receivable. Prior to the transfer of the receivables to the transferors,
the originator will cause its electronic ledger to be marked to show that the
receivables have been transferred to the transferors and then pledged to the
trust. The transferors will then file UCC financing statements in favor of the
Indenture Trustee reflecting the pledge of the receivables in certain
jurisdictions, as required by the Transfer Agreements and the Sale and Servicing
Agreement.
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR
The originator will make certain warranties in the Sale and Servicing
Agreement with respect to the contracts, the benefits of which will be assigned
to the indenture trustee. These warranties relate to the quality and
characteristics of the contracts and the equipment.
Under the terms of the Sale and Servicing Agreement, following its discovery
or receipt of notice of a breach of a warranty that materially adversely affects
any receivable, which breach has not been cured or waived in all material
respects, the originator will be obligated to reacquire that receivable and
deposit the Reacquisition Amount in the collection account on or before the
earlier of (x) two weeks after discovery or receipt of notice of such breach or
(y) the end of the calendar month.
INDEMNIFICATION
The Sale and Servicing Agreement will provide that the originator will defend
and indemnify the trust, the indenture trustee, the owner trustee, [the note
insurer] and the noteholders against
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any and all losses, claims, damages and liabilities to the extent, but only to
the extent, that the same have been suffered by any such party by virtue of:
(x) a breach by the originator of its obligations under the Servicing
Agreement, other than breach of the originator's representations and
warranties, with respect to which the sole remedy is expressly limited to the
originator's reacquisition of the affected receivables and the remittance of
the Reacquisition Amount by the originator or
(y) in the case of (a) the indenture trustee, its performance of its
duties, except to the extent that the loss, claim, damage or liability
resulted from the indenture trustee's breach of the terms of the indenture,
negligence or willful misconduct or (b) the owner trustee, its performance of
its duties, except to the extent that the loss, claim, damage or liability
resulted from the owner trustee's breach of the terms of the Trust Agreement,
gross negligence or willful misconduct.
The Sale and Servicing Agreement will provide that the servicer will defend
and indemnify the trust, the owner trustee, [the note insurer] and the
noteholders against any and all costs, expenses, losses, damages, claims and
liabilities, arising out of or resulting from the use, repossession or operation
by the servicer or any affiliate of the servicer of any equipment, as well as
from the failure of the servicer to perform its duties under the Sale and
Servicing Agreement. The servicer's obligations to indemnify the trust, [the
note insurer,] and the noteholders for acts or omissions of the servicer will
survive the removal of the servicer but will not apply to any acts or omissions
of a successor servicer. This indemnification does not extend to indirect,
incidental, special or consequential damages.
SERVICER ADVANCES
In the event that any obligor fails to remit the full scheduled payment or
Final Scheduled Payment due from it with respect to a collection period by the
determination date related to the collection period, the servicer is required to
make a servicer advance from its own funds of an amount equal to the unpaid
portion of a scheduled payment or Final Scheduled Payment if the servicer, in
its sole discretion, determines that eventual recovery of the servicer advance
is likely from collections from or on behalf of the related obligor. The
Servicing Agreement provides for the reimbursement of the servicer for these
servicer advances from funds available for distribution in the collection
account on each subsequent payment date before the required payments to
noteholders have been made as set forth in "Flow of Funds" below in this
prospectus supplement. If a contract becomes a Delinquent Contract, and the
servicer determines that recovery of further servicer advances is unlikely, the
servicer will not be required to make a servicer advance or partial servicer
advance, but will be required to enforce its remedies, including acceleration,
under that contract. In addition, if at any time the originator or an affiliate
is no longer the servicer, servicer advances will be permitted but will not be
required. The Sale and Servicing Agreement will provide that, in the event that
the servicer determines that any servicer advances previously made are not
recoverable from the related obligor, or any Delinquent Contracts for which the
servicer has made a servicer advance then become Defaulted Contracts, the
indenture trustee will draw on the collection account to repay the servicer
advances as set forth in "Flow of Funds" below in this prospectus supplement.
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FLOW OF FUNDS
On each determination date, the servicer is required to deliver to the
indenture trustee, [the note insurer] and each rating agency a servicer's
certificate setting forth the information needed to make payments on the
upcoming payment date.
On each payment date, the indenture trustee will be required to apply the
Available Funds then on deposit in the collection account to make the following
payments in the following order of priority, to the extent funds are available
for the payments:
(1) to the servicer, an amount equal to any unreimbursed servicer advances,
to the extent not previously reimbursed, other than servicer advances to be made
on the payment date for the related collection period;
(2) to the servicer, an amount equal to the servicer fee then due, together
with any accrued and unpaid servicer fees from prior collection periods;
(3) to the servicer, the servicing charges, if any, deposited in the
collection account;
(4) to the back-up servicer, an amount equal to the back-up servicer fee then
due, together with any accrued and unpaid back-up servicer fees from prior
collection periods;
(5) [to the note insurer, an amount equal to the Premium Amount then due,
together with any accrued and unpaid Premium Amounts from prior collection
periods;]
(6) to the indenture trustee, the indenture trustee fees then due, together
with any indenture trustee fees from prior collection periods;
(7) to the indenture trustee, the Indenture Trustee Expenses then due,
together with any Indenture Trustee Expenses from prior collection periods, in
an amount not to exceed in the aggregate $______ over the life of the
transaction;
(8) to the Class A noteholders, the sum of the Class A Note Interest for each
class of Class A notes for that payment date, the amount being applied to each
of these classes pari passu based on the Class A Note Interest due on each of
these classes;
(9) as long as no Cumulative Loss Event has occurred, to the Class B
noteholders, the Class B Note Priority Interest for the related collection
period, to the extent the disbursement of the Class B Note Priority Interest
will not result in or cause:
(a) an Available Funds Shortfall or
(b) any unpaid Reimbursement Amount on the payment date;
(10) until the note principal balance of each class of Class A notes has been
reduced to zero, to the Class A noteholders, the sum of:
(a) the Class A Base Principal Distribution Amount for that payment date,
and
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(b) any Class A Overdue Principal,
the amount to be applied sequentially, with 100% of the amount being applied to
reduce the note principal balance of the outstanding class of Class A notes
having the lowest numerical designation to zero before applying any principal
payment to the next class;
(11) [to the note insurer, the unpaid Reimbursement Amount, if any;]
(12) if a Cumulative Loss Event has occurred, to the Class B noteholders, the
Class B Note Priority Interest for the related collection period;
(13) to the Class B noteholders, the Class B Note Junior Interest for the
related collection period;
(14) until the Class B note principal balance has been reduced to zero, to
the Class B noteholders, the sum of (a) the Class B Base Principal Distribution
Amount for the payment date, and (b) any Class B Overdue Principal, allocated,
first, to the Class B Collateralized Balance, and, second, to the Class B
Uncollateralized Balance; provided, however, that if a Restricting Event exists
on the payment date and the outstanding Class A note principal balance on the
payment date-after giving effect to all payments of principal to the Class A
noteholders made on the payment date pursuant to clause 10-exceeds zero, the
amount otherwise required to be paid to the Class B noteholders under this
clause 14, will instead be paid to the Class A noteholders pursuant to this
clause 14 during such time as a Restricting Event is continuing as an additional
reduction of the Class A note principal balance up to the amount necessary to
reduce the Class A note principal balance to zero, the amount being paid in the
sequential-pay fashion described in clause 10 above;
(15) to the indenture trustee, the Indenture Trustee Expenses then due,
together with any Indenture Trustee Expenses from prior collection periods, in
excess of the $______ limitation set forth in clause 7, in an amount not to
exceed in the aggregate $______ over the life of the transaction;
(16) to the servicer, any other amounts due the servicer as expressly
provided in the Sale and Servicing Agreement; and
(17) to the residual interest holders, any remaining Available Funds;
provided, however, that:
(A) if a Restricting Event does not exist on the payment date, but
if any payment of funds to the residual interest holders on the payment
date would result in the Residual Balance being less than _% of the
Initial Aggregate Collateral Balance, the amount will not be paid to
the residual interest holders but will instead be paid to the most
senior class of notes outstanding, and, in the case of the Class A
notes, such amount being paid in the sequential-pay fashion described
in clause 10 above, and
(B) if a Restricting Event exists on the payment date, the amount
otherwise required to be paid to the residual interest holders under
this clause 17 will instead be
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paid to the most senior class of notes outstanding, and, in the case of
the Class A notes, the amount being paid in the sequential-pay fashion
described in clause 10 above.
WITHHOLDING
The indenture trustee is required to comply with all applicable federal
income tax withholding requirements respecting payments to noteholders of
interest with respect to the offered notes. The consent of the noteholders is
not required for this withholding. In the event the noteholder is other than
DTC, then in the event that the indenture trustee does withhold or causes to be
withheld any amount from interest payments or advances of interest payments to
any noteholders under federal income tax withholding requirements, the indenture
trustee will indicate the amount withheld annually to those noteholders.
REPORTS TO NOTEHOLDERS
On each payment date, the indenture trustee will furnish or cause to be
furnished with each payment to noteholders, a statement prepared by the servicer
setting forth the following information:
(1) With respect to a statement to a Class A noteholder or a Class B
noteholder, the amount of the payment allocable to the payment of the Class A
Base Principal Distribution Amount or Class B Base Principal Distribution Amount
and Class A Overdue Principal or Class B Overdue Principal, as applicable;
(2) With respect to a statement to a Class A noteholder or a Class B
noteholder, the amount of the payment allocable to Class A Note Current Interest
or Class B Note Current Junior Interest or Class B Note Current Priority
Interest and Class A Overdue Interest or Class B Overdue Junior Interest or
Class B Overdue Priority Interest, as applicable, for the noteholder's class;
(3) The aggregate amount of fees and compensation received by the servicer
pursuant to the Sale and Servicing Agreement for the collection period;
(4) The outstanding aggregate principal balance of each class of notes and
the ratio of the outstanding aggregate principal balance of each class of notes
to the initial aggregate principal balance of that class, after taking into
account all payments made on the payment date;
(5) The Aggregate Discounted Contract Principal Balance and the ratio of the
Aggregate Discounted Contract Principal Balance to the Initial Aggregate
Collateral Balance, after taking into account all payments made on that payment
date;
(6) The total unreimbursed servicer advances with respect to the related
collection period;
(7) The amount of Defaulted Contract Recoveries for the related collection
period and the Aggregate Discounted Contract Principal Balances for all
contracts that became Defaulted Contracts during the related collection period,
calculated immediately prior to the time the contracts became Defaulted
Contracts;
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(8) The total number of contracts and the Aggregate Discounted Contract
Principal Balances of those contracts, together with the number and Aggregate
Discounted Contract Principal Balances of all contracts as to which the obligors
were one, two, three or four scheduled payments delinquent, and Delinquent
Contracts reconveyed; and
(9) During the pre-funding period only, the amount on deposit in the
pre-funding account and the capitalized interest account after giving effect to
the withdrawals from those accounts on the payment date.
In addition, by January 31 of each calendar year following any year during
which the notes are outstanding, commencing January 31, 200__, the indenture
trustee will furnish to each noteholder of record at any time during the
preceding calendar year, information as to the aggregate of amounts reported
pursuant to items (1) and (2) above for the calendar year to enable noteholders
to prepare their federal income tax returns.
OPTIONAL REDEMPTION
The indenture provides that, following the determination date on which the
aggregate outstanding note principal balance of the notes is less than __% of
the aggregate initial note principal balance of the notes, the servicer will
have the option to cause the early retirement of the notes. In the event of a
redemption, the entire outstanding Class A note principal balance and Class B
note principal balance, together with accrued interest thereon at the related
note rate, will be required to be paid to the Class A noteholders and the Class
B noteholders, respectively, on the payment date[, and all amounts owed to the
note insurer will be required to be paid to the note insurer, on the payment
date].
SERVICING
The servicer, as an independent contractor on behalf of the trust and for the
benefit of the noteholders [and the note insurer,] as their interests may
appear, will be responsible for managing, servicing and administering the
receivables and enforcing and making collections on the contracts and any
insurance policies and for the enforcing of any security interest in any item of
equipment, all as set forth in the Sale and Servicing Agreement. The servicer's
responsibilities will include collecting and posting of all payments, responding
to inquiries of obligors, investigating delinquencies, accounting for
collections, furnishing monthly and annual statements to the indenture trustee
[and the note insurer] with respect to distributions, making servicer advances,
providing appropriate federal income tax information to noteholders, collecting
and remitting sales and property taxes on behalf of taxing authorities and
maintaining the perfected security interest of the trust in the equipment and
the contracts.
The servicer has agreed to manage, administer and service the receivables and
to enforce and make collections on the receivables and any insurance policies,
exercising the degree of skill and care consistent with that which the servicer
customarily exercises with respect to similar property owned, managed or
serviced by it.
For its servicing of the contracts, the servicer will receive servicing
compensation including the monthly servicer fee for each collection period,
which is payable on the next succeeding
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payment date, and servicing charges consisting of certain fees paid by obligors,
including late payment fees.
The servicing compensation will compensate the servicer for customary
contract servicing activities to be performed by the servicer for the trust,
additional administrative services performed by the servicer on behalf of the
trust and expenses paid by the servicer on behalf of the trust.
THE SERVICER NOT TO RESIGN
The Servicing Agreement will provide that the servicer may not resign from
its obligations and duties as servicer under the Sale and Servicing Agreement,
except upon [consent of the note insurer or] a determination that the servicer's
performance of its duties is no longer permissible under applicable law.
EVENTS OF SERVICING TERMINATION
An "Event of Servicing Termination" under the Sale and Servicing Agreement
includes the following:
(1) a change of "control" of the servicer-"control" having the meaning
ascribed to it in the Rules and Regulations under the Securities Exchange Act of
1934, as amended [unless the note insurer has determined that such change in
control does not have a material adverse effect on the interests of the note
insurer];
(2) if the servicer fails to make:
(x) any servicer advance within two business days of the related
determination date, or
(y) any other payment or deposit required under the Sale and Servicing
Agreement within three business days of the date the payment or
deposit is required to be made, but not more than once in any
collection period;
(3) if the servicer fails to submit a servicer's certificate within two
business days following knowledge or notice of non-receipt;
(4) (x) if the servicer fails to observe or perform in any material respect
any other covenant or agreement in the Sale and Servicing Agreement or the notes
or
(y) if any representation or warranty of the servicer in the Sale and
Servicing Agreement is incorrect, and the failure or breach
materially and adversely affects the rights of the indenture
trustee, the note insurer or the noteholders and continues
unremedied for 30 days after the earlier to occur of
(A) written notice to the servicer by the indenture trustee or to
the indenture trustee or the servicer by any noteholder or the
note insurer or
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(B) the date on which any servicing officer or authorized officer
of the indenture trustee knows, or reasonably should have
known, of the failure or of the breach;
(5) upon the filing of an involuntary petition in bankruptcy or the decree or
order of a court, agency or supervisory authority having jurisdiction over the
servicer for the appointment of a conservator, receiver, trustee in bankruptcy
or liquidator in any bankruptcy, insolvency or similar proceedings, and the
continuance of any such petition, decree or order undismissed or unstayed and in
effect for a period of 60 consecutive days;
(6) upon the voluntary filing of a bankruptcy petition or assignment for the
benefit of creditors, the consent by the servicer to that appointment, the
admission in writing by the servicer of its inability to pay its debts as they
become due or the determination by a court that the servicer is generally not
paying its debts as they come due;
(7) in the event that the servicer assigns or attempts to assign its rights
and duties under the Sale and Servicing Agreement except as specifically
permitted in the Sale and Servicing Agreement;
(8) a final judgment or order shall be rendered against the servicer for
payment in excess of $_________ and continues for 90 days without a stay;
(9) [upon the occurrence of any other event of servicer default specified
in the insurance agreement;]
(10) ____________________________________ shall fail to have a U.S. GAAP
net worth, excluding goodwill, of at least $__________;
(11) (x) the average Delinquency Trigger Ratio for any payment date and
the two immediately preceding payment dates exceeds ___%, or
(y) the average Net Charge-Off Ratio for any payment date and the
immediately preceding two payment dates exceeds ___%; or
(12) [any other events concerning the performance of the contract pool
required by the note insurer.]
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
If an Event of Servicing Termination has occurred and is continuing, either:
(A) the indenture trustee (1) will, at the direction of the note insurer, or
(2) may with the consent of the note insurer or
(B) the majority of the holders of the notes may [with the consent of the
note insurer], terminate all, but not less than all, of the servicer's rights
and obligations under the Servicing Agreement.
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Upon the termination, a successor servicer shall be appointed by the note
insurer or, if none has been so appointed, the back-up servicer will succeed to
all the responsibilities, duties and liabilities of the servicer under the Sale
and Servicing Agreement. However, that the back-up servicer will not:
o assume any obligation to reacquire receivables by reason of
misrepresentations or breaches of warranties,
o be required to make any servicer advance if the servicer advance would be
prohibited by applicable law or if the back-up servicer determines that
the servicer advance would not be reimbursed, or
o be liable for acts, omissions or breaches of representations or warranties
by the servicer occurring prior to transfer of the servicing functions.
Regardless of the termination, the servicer will be entitled to payment of
amounts payable to it prior to the termination for services rendered prior to
the termination. The back-up servicer also may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor servicer acceptable
to the note insurer in accordance with the procedures set forth in the Sale and
Servicing Agreement.
EVENTS OF DEFAULT
Upon the occurrence of an Event of Default, the indenture trustee, upon the
direction of the Controlling Party, will declare the unpaid principal amount of
all the notes to be due and payable together with all accrued and unpaid
interest on the notes without presentment, demand, protest or other notice of
any kind, all of which are waived by the trust. An "Event of Default" includes
the following events:
(1) failure to distribute or cause to be distributed to the indenture
trustee, for the benefit of the noteholders, all or part of any payment of
interest required to be made on each payment date under the terms of such notes
or the indenture when due and payable; or
(2) failure to distribute or cause to be distributed:
(x) to the indenture trustee, for the benefit of the noteholders, on
any payment date an amount equal to the principal due on the
outstanding notes as of that payment date to the extent that
sufficient Available Funds are on deposit in the collection account
or
(y) on the Class A Maturity Date or Class B Maturity Date, as the case
may be, any remaining principal owed on the outstanding Class A
notes or Class B notes, as the case may be; or
(3) default in the performance, or breach, of any other covenant of the trust
in the indenture, and continuance of such default or breach for a period of 30
days after the earliest of:
o any officer of the trust first acquiring the knowledge thereof,
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o the indenture trustee's giving written notice thereof to the trust, or
o [the note insurer or] the holders of a majority of the then aggregate
outstanding note principal balance of the notes giving written notice
thereof to the trust and the indenture trustee; or
(4) any representation or warranty of the trust made in the indenture or any
other writing provided to the holders of the notes proves to be incorrect in any
material respect as of the time when the same has been made; provided, however,
that the breach of any representation or warranty made by the trust will be
deemed to be "material" only if it negatively affects [the note insurer or] the
noteholders, the enforceability of the indenture or the notes; or
(5) insolvency or bankruptcy events relating to the trust; or
(6) [an event of default under the insurance agreement].
[If payments on the Class A notes are accelerated, the accelerated payments
will not be covered by the note insurer under the note insurance policy and
Insured Payments on the Class A notes will remain due and payable by the note
insurer in accordance with the original terms of the note insurance policy
regardless of the acceleration of the Class A notes.]
AMENDMENT
The transaction documents may be amended by the respective parties to them at
any time, without consent of the noteholders, [but with the prior written
consent of the note insurer,] to cure any ambiguity, upon receipt of an opinion
of counsel to the servicer that the amendment will not adversely affect in any
respect the interests of any noteholder.
The transaction documents may also be amended from time to time by the
respective parties to them and the majority of the holders of the notes, [with
the prior written consent of the note insurer,] for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the transaction documents or of modifying in any manner the rights of the
noteholders. However, this amendment may not:
(a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the receivables or payments which are
required to be made on any note without the consent of the holder of the note
and written confirmation from each rating agency that the amendment will not
result in the reduction or removal of the rating then assigned to the notes or
(b) reduce the percentage of noteholders required to consent to any
amendment, without unanimous consent of the noteholders and written confirmation
from each rating agency that the amendment will not result in the reduction or
removal of the rating then assigned to the notes.
The indenture trustee is required under the indenture to furnish the
noteholders and the rating agencies with written notice of the substance of any
amendment to the indenture promptly upon execution of the amendment.
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THE INDENTURE TRUSTEE AND THE BACK-UP SERVICER
The indenture trustee and the back-up servicer, ___________________________,
a [banking corporation], has a trust office at ________________________. The
indenture trustee's duties in connection with the notes are limited solely to
its express obligations under the indenture and the Sale and Servicing
Agreement.
The indenture trustee may resign, subject to the conditions set forth below,
at any time upon written notice to the transferors, [the note insurer] and the
servicer, in which event the servicer will be obligated to appoint a successor
indenture trustee. If no successor indenture trustee is appointed and accepted
the appointment within 30 days after the giving of a notice of resignation, the
resigning indenture trustee may petition a court of competent jurisdiction for
the appointment of a successor indenture trustee. Any successor indenture
trustee [will be acceptable to the note insurer and] will meet the financial and
other standards for qualifying as a successor indenture trustee under the
indenture. The servicer may, [with the consent of the note insurer,] and will,
at the direction of [the note insurer, or] the noteholders of any class
evidencing more than 25% of the percentage interests of such class may, [subject
to consent of the note insurer], also remove the indenture trustee if the
indenture trustee ceases to be eligible to continue as the indenture trustee
under the indenture and fails to resign after written request for resignation,
or is legally unable to act, or if the indenture trustee is adjudicated to be
insolvent. [In these circumstances, the servicer or the noteholders will also be
obligated to appoint a successor indenture trustee which is acceptable to the
note insurer. The note insurer will also have the right to remove the indenture
trustee for "cause".] Any resignation or removal of the indenture trustee and
appointment of a successor indenture trustee will not become effective until
acceptance of the appointment by the successor indenture trustee.
DUTIES AND IMMUNITIES OF THE INDENTURE TRUSTEE
The indenture trustee will make no representations as to the validity or
sufficiency of the Servicing Agreement, the notes, other than the authentication
of the notes, or of any receivable or related document. In addition, the
indenture trustee will not be accountable for the use or application by the
originator or the transferors of any funds paid to the transferors in
consideration of the sale of any notes. If no Event of Servicing Termination has
occurred, the indenture trustee will be required to perform only those duties
specifically required of it under the Sale and Servicing Agreement. However,
upon receipt of the various resolutions, certificates, statements, opinions,
reports, documents, orders or other instruments required to be furnished to it,
the indenture trustee will be required to examine them to determine whether they
conform to the requirements of the Sale and Servicing Agreement.
No recourse is available based on any provision of the Sale and Servicing
Agreement, the notes or any receivable or assignment of a receivable against
__________________________, in its individual capacity. ________________________
will not have any personal obligation, liability or duty whatsoever to any
noteholder or any other person with respect to these claims and the claim will
be asserted solely against the trust assets or any indemnitor, except for any
liability as is determined to have resulted from the indenture trustee's own
negligence or willful misconduct.
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The indenture trustee will be entitled to receive, pursuant to the priority
set forth in the indenture, a reasonable indenture trustee fee as compensation
for its services as indenture trustee, and reimbursement for the Indenture
Trustee Expenses.
DUTIES OF THE BACK-UP SERVICER
The back-up servicer will make no representations as to the validity or
sufficiency of the Sale and Servicing Agreement or of any receivable or related
document. Under the Sale and Servicing Agreement, the back-up servicer agrees to
reconcile the monthly servicer reports. In addition, following the resignation
or removal of the servicer, the back-up servicer will assume the duties of the
servicer as the successor servicer under the Sale and Servicing Agreement. The
back-up servicer will be required to exercise the degree of skill and care in
performing these functions that it customarily exercises with respect to similar
property owned or serviced by the back-up servicer.
The back-up servicer will be entitled to receive a monthly back-up servicer
fee equal to the product of (x) one-twelfth of the back-up servicing fee rate,
and (y) the Aggregate Discounted Contract Principal Balance of all contracts as
of the beginning of the previous collection period, payable out of the
collection account, as compensation for acting as back-up servicer.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on, and the weighted average life of, the
offered notes will be directly related to the rate of payments on the underlying
contracts. If purchased at a price other than par, the yield to maturity will
also be affected by the rate of the principal payments. Payments on the
contracts may be in the form of scheduled payments, prepayments, early
terminations or liquidations due to default, casualty, repurchases for breach
and the like. These payments will result in payments to noteholders of amounts
which would otherwise have been paid over the remaining term of the contracts.
In general, the rate of these payments may be influenced by a number of factors,
including general economic conditions.
The contracts generally do not provide for the right of the obligor to
prepay. Under the Sale and Servicing Agreement, the servicer will be permitted
to allow such Prepayments in full or in part, provided that no Prepayment of a
contract will be allowed in an amount less than the Prepayment Amount.
The expected final payment date for the Class A-1 notes is __________, 200_,
for the Class A-2 notes is __________, 200_, for the Class A-3 notes is
__________, 200_, for the Class A-4 notes is __________, 200_ and for the Class
B notes is __________, 200_. These dates are the dates on which the note
principal balance of the related class of notes would be reduced to zero,
assuming, among other things:
(x) Prepayments with respect to the contracts are received at a rate of _%
CPR and
(y) the modeling assumptions apply.
The weighted average life of the offered notes could be shorter than would be
the case if payments actually made on the contracts conformed to the foregoing
assumptions. The final
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payment dates with respect to the offered notes could occur significantly
earlier than such final scheduled payment dates due to defaults, and because the
originator is obligated to reacquire contracts in the event of breaches of
representations and warranties.
"Weighted average life" refers to the average amount of time from the date of
issuance of a note until each dollar of principal of such note will be repaid to
the investor. The weighted average lives of the offered notes will be influenced
by the rate at which payments on the contracts are made. Payments on contracts
may be in the form of scheduled payments or prepayments. For this purpose, the
term "prepayment" includes prepayments and liquidations due to defaults or other
dispositions of the contracts. The weighted average lives of the offered notes
will also be influenced by delays associated with realizing on Defaulted
Contracts. The prepayment model used in this prospectus supplement, the CPR,
represents an assumed annualized rate of prepayment relative to the then
outstanding balance on a pool of contracts. The CPR assumes that a fraction of
the outstanding contract pool is prepaid on each payment date, which implies
that each contract in the contract pool is equally likely to prepay. This
fraction, expressed as a percentage, is annualized to arrive at the CPR for the
contract pool. The CPR measures prepayments based on the outstanding principal
on the previous payment date. The CPR further assumes that all contracts are the
same size and make scheduled payments at the same rate and that each contract
will be either paid as scheduled or prepaid in full.
WEIGHTED AVERAGE LIVES OF THE OFFERED NOTES
The tables below were prepared assuming, among other things, that the
following modeling assumptions apply:
(1) the closing date for the notes occurs on __________, 200_,
(2) payments on the notes are made on the __ day of each month regardless of
the day on which the payment date actually occurs, commencing in __________,
200_ in accordance with the priorities described in this prospectus supplement,
(3) no delinquencies or defaults in the payment of scheduled payments on the
contracts are experienced and the payments are timely received,
(4) no contract is reacquired for breach of a representation and warranty or
otherwise,
(5) the actual discount rate is _____% per annum,
(6) Prepayments with respect to the contracts are received on the last day of
each calendar month, commencing on __________, 200_,
(7) no Restricting Event occurs,
(8) the Class A-1 note rate is ______% per annum, the Class A-2 note rate is
_____% per annum, the Class A-3 note rate is _____% per annum, the Class A-4
note rate is _____% per annum and the Class B note rate is _____% per annum,
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(9) the contract pool consists of a pool of contracts with an Aggregate
Discounted Contract Principal Balance equal to approximately $__________
available on the closing date that make their first payment in __________, 200_,
and
(10) the contract pool consists of a pre-funded pool of contracts with an
Aggregate Discounted Contract Principal Balance equal to approximately
$__________ available on __________, 200_, that make their first payment in
__________, 200_.
Since the tables were prepared on the basis of the modeling assumptions,
there are discrepancies between the characteristics of the actual contracts and
the characteristics of the contracts assumed in preparing the tables. These
discrepancies may have an effect upon the percentages of the note principal
balances outstanding and weighted average lives of the offered notes set forth
in the tables. In addition, since the actual contracts in the trust have
characteristics which differ from those assumed in preparing the tables set
forth below, the related weighted average life may be longer or shorter than as
indicated in the tables.
The following tables set forth the percentages of the initial principal
amount of the Class A-1 notes, the Class A-2 notes, the Class A-3 notes, the
Class A-4 notes and the Class B notes that would be outstanding after each of
the dates shown, assuming a CPR of _%, _%, _%, _%, _% and _%, respectively.
PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-1 CERTIFICATES
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
------------ -- -- -- -- -- --
Closing Date
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
Weighted Average Life
(years)
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PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-2 CERTIFICATES
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
------------ -- -- -- -- -- --
Closing Date
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
Weighted Average Life
(years)
PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-3 CERTIFICATES
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
------------ -- -- -- -- -- --
Closing Date
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
Weighted Average Life
(years)
PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-4 CERTIFICATES
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
------------ -- -- -- -- -- --
Closing Date
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
Weighted Average Life
(years)
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PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL BALANCE OUTSTANDING
CLASS B CERTIFICATES
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
------------ -- -- -- -- -- --
Closing Date
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
_______________, 200_
Weighted Average Life
(years)
The contracts will not have the characteristics assumed above, and there can
be no assurance that the contracts will prepay at any of the rates shown in the
tables or at any other particular rate or will prepay proportionately or the
weighted average lives of the offered notes will be as calculated above. Because
the rate of distributions of principal of the offered notes will be a result of
the actual payments, including prepayments, of the contracts, which will include
contracts that have remaining terms to stated maturity shorter or longer than
those assumed, the weighted average lives of the offered notes will differ from
those set forth above, even if all of the contracts prepay at the indicated
constant prepayment rates.
The effective yield to noteholders will depend upon, among other things, the
price at which the offered notes are purchased, and the amount of and rate at
which principal, including both scheduled and unscheduled payments of principal,
is paid to the noteholders.
Due to the subordination provisions applicable to the offered notes, it is
likely that the note principal balance of the notes will amortize more rapidly
than will the initial Aggregate Discounted Contract Principal Balance of the
contract pool. See "Summary of Terms--Subordination Provisions" and "Description
of Notes--Flow of Funds" in this prospectus supplement.
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[THE NOTE INSURANCE POLICY]
[The following summary of the terms of the note insurance policy does not
purport to be complete and is qualified in its entirety by reference to the note
insurance policy. A form of the note insurance policy may be obtained, upon
request, from the transferors.
Simultaneously with the issuance of the notes, the note insurer will deliver
the note insurance policy to the indenture trustee for the benefit of the Class
A noteholders. Under the note insurance policy, the note insurer irrevocably and
unconditionally guarantees payment to the indenture trustee for the benefit of
the Class A noteholders, of:
(1) the Class A Insured Distribution Amount on each payment date and
(2) the amount of any payment of Class A Note Interest on the note principal
balance of any class of Class A notes which is subsequently avoided in whole or
in part as a preference payment. The Class A Insured Distribution Amount will be
calculated in accordance with the original terms of the Class A notes when
issued and without regard to any amendment or modification of the Class A notes
or the indenture except amendments or modifications to which the note insurer
has given its prior written consent. Payments under the Class A notes which
become due on an accelerated basis as a result of the occurrence of an Event of
Default, an election by the trust to pay principal on an accelerated basis, or
any other cause, do not constitute a "Class A Insured Distribution Amount",
unless the note insurer elects, in its sole discretion, to pay such principal
due upon acceleration, together with accrued interest to the date of
acceleration.
Payment of claims on the note insurance policy will be made by the note
insurer following receipt by the note insurer of the appropriate notice for
payment on the later of (a) 12:00 noon, New York City time, [on the _______
business day following receipt of the notice for payment,] and (b) 12:00 noon,
New York City time, [on the relevant payment date].
If any payment of an amount guaranteed by the note insurer pursuant to the
note insurance policy is avoided as a preference under applicable bankruptcy,
insolvency, receivership or similar law, the note insurer will cause the payment
to be made on the later of:
o the date when due to be paid pursuant to the order referred to below or
o the first to occur of
(1) the ______ business day following receipt by the note insurer from
the indenture trustee of
(A) a certified copy of the order of the court or other governmental
body which exercised jurisdiction to the effect that a Class A
noteholder is required to return principal or interest paid with
respect to a Class A note during the term of the note insurance
policy because the payments were avoidable as preference payments
under applicable bankruptcy law,
(B) a certificate of the Class A noteholder(s) that the order has
been entered and is not subject to any stay, and
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(C) an assignment duly executed and delivered by the Class A
noteholder(s), in a form as is reasonably required by the note
insurer and provided to the Class A noteholder(s) by the note
insurer, irrevocably assigning to the note insurer all rights and
claims of the Class A noteholder(s) relating to or arising under the
Class A notes against the debtor which made the preference payment
or otherwise with respect to the preference payment, or
(2) the date of receipt by the note insurer from the indenture trustee of
the items referred to in clauses (A), (B) and (C) above if, at least
____ business days prior to the date of receipt, the note insurer shall
have received written notice from the indenture trustee that such items
were to be delivered on that date and that date was specified in the
written notice.
The payment will be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the order and not to the
indenture trustee or any Class A noteholder directly. However, if a Class A
noteholder has previously paid the amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the order, the payment
will be disbursed to the indenture trustee for distribution to the Class A
noteholder upon proof of the payment reasonably satisfactory to the note
insurer.
The terms "receipt" and "received," with respect to the note insurance
policy, means actual delivery to the note insurer and to its fiscal agent, if
any, prior to 12:00 p.m., New York City time, on a business day. Delivery either
on a day that is not a business day or after 12:00 p.m., New York City time,
will be deemed to be receipt on the next succeeding business day. If any notice
or certificate given under the note insurance policy is not in proper form or is
not properly completed, executed or delivered, it will be deemed not to have
been received, and the note insurer or the fiscal agent will promptly so advise
the indenture trustee and the indenture trustee may submit an amended notice.
Under the note insurance policy, "business day" means any day other than a
Saturday or Sunday or a day on which banking institutions in the City of New
York, New York or the State of New York, are authorized or obligated by law or
executive order to be closed. The note insurer's obligations under the note
insurance policy to make Insured Payments will be discharged to the extent funds
are transferred to the indenture trustee as provided in the note insurance
policy, whether or not those funds are properly applied by the indenture
trustee.
The note insurer will be subrogated to the rights of each Class A noteholder
to receive payments of principal and interest, as applicable, with respect to
distributions on the Class A notes to the extent of any payment by the note
insurer under the note insurance policy. To the extent the note insurer makes an
insured payment under the note insurance policy, either directly or indirectly,
as by paying through the indenture trustee, to the Class A noteholders, the note
insurer will be subrogated to the rights of the Class A noteholders, with
respect to the insured payment and will be deemed to the extent of the payments
so made to be a registered Class A noteholder for purposes of payment.
To the fullest extent permitted by applicable law, the note insurer agrees
under the note insurance policy not to assert, and waives, for the benefit of
each Class A noteholder, all its rights, whether by counterclaim, setoff or
otherwise, and defense, including, without limitation,
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the defense of fraud, whether acquired by subrogation, assignment or otherwise,
to the extent that those rights and defenses may be available to the note
insurer to avoid payment of its obligations under the note insurance policy in
accordance with the express provisions of the note insurance policy.
Claims under the note insurance policy constitute direct, unsecured and
unsubordinated obligations of the note insurer ranking not less than pari passu
with other unsecured and unsubordinated indebtedness of the note insurer for
borrowed money. Claims against the note insurer under the note insurance policy
and claims against the note insurer under each other financial guaranty
insurance policy issued by the insurer constitute pari passu claims against the
general assets of the note insurer. The terms of the note insurance policy
cannot be modified or altered by any other agreement or instrument, or by the
merger, consolidation or dissolution of the trust. The note insurance policy may
not be cancelled or revoked prior to payment in full of the Class A notes. The
note insurance policy is not covered by the property/casualty insurance security
fund specified in Article 76 of the New York Insurance Law. The note insurance
policy is governed by the laws of the State of New York.
Under the terms of the indenture, unless a note insurer default exists, the
note insurer will be deemed to be the Class A noteholder for all purposes, other
than with respect to payment on the notes. The note insurer will be entitled to
exercise all rights of the Class A noteholders under the indenture, without the
consent of the noteholders, and the Class A noteholders may exercise those
rights only with the prior written consent of the note insurer. In addition, the
note insurer will, as a third party beneficiary to the indenture and the
Transfer Agreements, have, among others, the following rights:
o the right to give notices of breach or to terminate the rights and
obligations of the servicer under the indenture in the event of an Event
of Default by the servicer and to institute proceedings against the
servicer;
o the right to consent to or direct any waivers of defaults by the servicer;
o the right to remove the indenture trustee pursuant to the indenture;
o the right to direct the actions of the indenture trustee during the
continuation of a servicer default;
o the right to require the originator to reacquire contracts for breach of
representation and warranty or defect in documentation;
o the right to direct foreclosures upon the failure of the servicer to do so
in accordance with the indenture;
o the right to direct all matters relating to a bankruptcy or other
insolvency proceeding involving the transferors; and
o the right to direct the indenture trustee to investigate certain matters.
The note insurer's consent will be required prior to, among other things,
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o the removal of the indenture trustee or the servicer,
o the appointment of any successor indenture trustee or servicer, or
o any amendment to the indenture.
The transferors, the originator, the servicer, the depositor, the trust and
the note insurer will enter into the insurance agreement pursuant to which the
servicer will agree to reimburse, with interest, the note insurer for amounts
paid pursuant to claims under the note insurance policy. The servicer will
further agree to pay the note insurer all reasonable charges and expenses which
the note insurer may pay or incur relative to any amounts paid under the note
insurance policy or otherwise in connection with the transaction and to
indemnify the note insurer against certain liabilities. Except to the extent
provided in the insurance agreement, amounts owing under the insurance agreement
will be payable solely from the trust fund. An "event of default" under the
insurance agreement will constitute an event of default under the indenture and
allow the note insurer, among other things, to direct the indenture trustee to
terminate the servicer. An "event of default" under the insurance agreement
includes:
(1) the originator's, the transferors' or the servicer's failure to pay when
due any amount owed under the insurance agreement or certain other documents,
(2) the inaccuracy or incompleteness in any material respect of any
representation or warranty of the originator, the trust, the transferors or the
servicer in the insurance agreement, the indenture or certain other documents,
(3) the originator's, the transferors' or the servicer's failure to perform
or to comply with any covenant or agreement in the insurance agreement, the
indenture and certain other documents,
(4) a finding or ruling by a governmental authority or agency that the
insurance agreement, the indenture or certain other documents are not binding on
the originator, the trust, the transferors or the servicer,
(5) the originator's, the trust's, the transferors' or the servicer's failure
to pay its debts in general or the occurrence of certain events of insolvency or
bankruptcy with respect to the transferors or the servicer, and
(6) the occurrence of certain "performance test violations" designed to
measure the performance of the contracts.]
THE NOTE INSURER
[DESCRIPTION OF THE NOTE INSURER]
FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a summary of certain United States federal income tax
considerations relevant to the beneficial owner of a note that holds the note as
a capital asset and, unless
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otherwise indicated below, is a U. S. Person. This summary does not address
special tax rules that may apply to certain types of investors, such as banks,
insurance companies and securities dealers, and investors that hold notes as
part of an integrated investment. This summary supplements the discussion
contained in the accompanying prospectus under the heading "Federal Income Tax
Considerations," and supersedes that discussion to the extent that it is
inconsistent therewith. The authorities on which this discussion is based are
subject to change or differing interpretations, and that change or
interpretation could apply retroactively. This discussion reflects the
applicable provisions of the Code, as well as regulations promulgated by the
U.S. Department of the Treasury. Investors should consult their own tax advisors
in determining the federal, state, local and any other tax consequences to them
of the purchase, ownership and disposition of the notes.
CLASSIFICATION OF INVESTMENT ARRANGEMENT
In the opinion of Cadwalader, Wickersham & Taft, special counsel to the
depositor, the issuer will not be treated as an association or a publicly traded
partnership taxable as a corporation or a taxable mortgage pool for federal
income tax purposes, but rather the issuer will be ignored and treated as a mere
security device when there is a single beneficial owner of the issuer, or will
be treated as a domestic partnership when there are two or more beneficial
owners of the issuer.
TAXATION OF HOLDERS
Characterization of the Notes. There are no regulations, published rulings or
judicial decisions addressing the characterization for federal income tax
purposes of securities with terms that are substantially the same as those of
the notes. A basic premise of United States federal income tax law is that the
economic substance of a transaction generally will determine the United States
federal income tax consequences of the transaction. The determination of whether
the economic substance of a loan secured by an interest in property is instead a
sale of a beneficial ownership interest in the property has been made by the
Internal Revenue Service and the courts on the basis of numerous factors
designed to determine whether the issuer has relinquished, and the investor has
obtained, substantial incidents of ownership in the property. Among those
factors, the primary factors examined are whether the investor has the
opportunity to gain if the property increases in value, and has the risk of loss
if the property decreases in value. Based on an assessment of these factors, in
the opinion of Cadwalader, Wickersham & Taft, special counsel to the depositor,
the notes will be treated as indebtedness for federal income tax purposes and
not as an ownership interest in the pledged notes or the receivables or an
equity interest in the issuer.
Interest and Original Issue Discount. Interest on the notes will be treated
as income to beneficial owners as those amounts are paid or accrue in accordance
with the holder's method of accounting. It is anticipated that the notes will
not be issued with original issue discount for federal income tax purposes. Any
premium or de minimis original issue discount with respect to the notes will be
determined in the same manner as described under "Federal Income Tax
Considerations" in the accompanying prospectus. The prepayment assumption that
will be used for accruing original issue discount, for determining if original
issue discount is de minimis or for amortizing premium for federal income tax
purposes is 100% of the prepayment assumption, in
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the case of [Class A-1 notes and % CPR, in the case of the Class A-2, Class A-3
and Class A-4 Notes and % CPR, in the case of the Class B Notes].
Sale, Exchange, Retirement or Other Disposition. Upon the sale, exchange,
retirement or other disposition of a note, a beneficial owner who holds the note
as a capital asset generally will recognize capital gain or loss equal to the
difference, if any, between the amount realized (adjusted for accrued stated
interest) on the sale or other disposition of the owner's note and the owner's
cost for that note, increased by any original issue discount or accrued market
discount reported as income or decreased by any amortized bond premium.
Long-term capital gains of non-corporate investors, generally, gains on notes
held for more than one year, would be subject to a lower maximum tax rate than
ordinary income or short-term capital gains of those holders. Corporations are
subject to the same tax rate on ordinary income and capital gains.
Taxation of Certain Foreign Investors. Interest, including original issue
discount, payable to beneficial owners of notes who are nonresident aliens,
foreign corporations, or other Non-U.S. Persons, i.e., any person who is not a
U.S. Person, will be considered "portfolio interest" and, therefore, generally
will not be subject to 30% United States withholding tax, provided that this
Non-U.S. Person: (1) is not a "10-percent shareholder" within the meaning of
Code Section 871(h)(3)(B) or a controlled foreign corporation described in Code
Section 881(c)(3)(C) with respect to the depositor or the issuer and (2)
provides the Owner Trustee, or the person who would otherwise be required to
withhold tax from those distributions under Code Section 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the note is a Non-U.S. Person. If that statement, or any other required
statement, is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty or unless the interest on the
note is effectively connected with the conduct of a trade or business within the
United States by that Non-U.S. Person. In the latter case, the Non-U.S. Person
will be subject to United States federal income tax at regular rates. Investors
who are Non-U.S. Persons should consult their own tax advisors regarding the
specific tax consequences to them of owning a note.
The IRS recently issued final regulations which provide alternative methods
of satisfying the beneficial ownership certification requirement described
above. These new regulations will be effective January 1, 2001. Current
withholding certificates will remain valid until the earlier of December 31,
2000 or the date of expiration of the certificate under the rules as currently
in effect. These new regulations will require, in the case of notes held by a
foreign partnership, that:
(a) the certification described above be provided by the partners rather than
by the foreign partnership; and
(b) the partnership provide certain information, including a United States
taxpayer identification number.
A look-through rule would apply in the case of tiered partnerships. Non-U.S.
Persons should consult their own tax advisors concerning the application of the
certification requirements in these new regulations.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments made on the notes and proceeds from the sale of notes to or through
certain brokers may be subject to a "backup" withholding tax of 31% of
"reportable payments," including interest accruals, original issue discount,
and, under certain circumstances, payments in respect of principal amount,
unless, in general, the beneficial owner complies with certain procedures or is
an exempt recipient. Any amounts so withheld from payments on the notes would be
refunded by the Internal Revenue Service or allowed as a credit against the
beneficial owner's federal income tax. The new regulations will change certain
of the rules relating to certain presumptions currently available relating to
information reporting and backup withholding. Non-U.S. Persons are urged to
contact their own tax advisors regarding the application to them of backup
withholding and information reporting.
Reports of interest, original issue discount and certain information needed
to compute accrued market discount will be made annually to the Internal Revenue
Service and to beneficial owners that are not excepted from the reporting
requirements.
See "Federal Income Tax Considerations--Trusts Treated as Partnerships--Tax
Characterization of the Trust as a Partnership" in the accompanying prospects.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing, or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to the plan. ERISA also
imposes certain duties on persons who are fiduciaries of plans subject to ERISA
and prohibits certain transactions between a plan and parties in interest with
respect to those plans. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a plan is
considered to be a fiduciary of that plan, subject to certain exceptions not
relevant here. A violation of these "prohibited transaction" rules may generate
excise tax and other liabilities under ERISA and the Code for those persons.
In addition to the matters described below, purchasers of offered notes that
are insurance companies should consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility rules
of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank, 114 S.Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets
held in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Prospective purchasers should
determine whether the decision affects their ability to make purchases of the
offered notes.
Certain transactions involving the trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the trust were
deemed to be "plan assets" of an employee benefit plan subject to ERISA or the
Code, or an "individual retirement account" or "IRA", or any entity whose
underlying assets are deemed to be assets of an employee benefit plan or an IRA
by reason of such employee benefit plan's or such IRA's investment in such
entity. Under a regulation issued by the United States Department of Labor, the
assets of the trust would be treated as plan assets of a benefit plan for the
purposes of ERISA and the Code only if the benefit
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plan acquires an "equity interest" in the trust and none of the exceptions
contained in this plan assets regulation is applicable. An equity interest is
defined under the plan assets regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. The notes should be treated as indebtedness without
substantial equity features for purposes of the plan assets regulation. This
determination is based in part upon the traditional debt features of the notes,
including the reasonable expectation of purchasers of notes that the notes will
be repaid when due, as well as the absence of conversion rights, warrants and
other typical equity features. The debt treatment of the notes for ERISA
purposes could change if the trust incurred losses. However, without regard to
whether the notes are treated as an equity interest for such purposes, the
acquisition or holding of the notes by or on behalf of a benefit plan could be
considered to give rise to a prohibited transaction if the trust or any of its
affiliates is or becomes, a party in interest or disqualified person with
respect to such benefit plan. In such case, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a note.
Included among these exemptions are: Prohibited Transaction Class Exemption or
"PTCE" 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions by in-house asset managers; and
PTCE 84-14, regarding transactions by "qualified professional asset managers."
Each investor using the assets of a benefit plan which acquires the notes, or to
whom the notes are transferred, will be deemed to have represented that the
acquisition and continued holding of the notes will be covered by an appropriate
Department of Labor class exemption.
Employee plans that are government 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; however, such plans may be subject to comparable state law
restrictions.
Any benefit plan fiduciary considering the purchase of a note should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each benefit plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the notes is appropriate for the benefit plan,
taking into account the overall investment policy of the benefit plan and the
composition of the benefit plan's investment portfolio.
LEGAL INVESTMENT
The Class A-1 notes will be eligible securities for purchase by money market
funds under the Investment Company Act of 1940.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
the depositor has agreed to cause the issuer to sell to each of the underwriters
listed below, and each of the underwriters has agreed to purchase, the principal
amount of each class of the notes set forth opposite its name below. Under the
terms and conditions of the underwriting agreement, each of the underwriters is
obligated to take and pay for all of the notes if any are taken.
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<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B
UNDERWRITERS NOTES NOTES NOTES NOTES NOTES
------------ --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
PaineWebber Incorporated.............. $ $ $ $ $
[--------------------].................
Total..................................
</TABLE>
The depositor has been advised by the underwriters that they propose
initially to offer the notes to the public at the prices set forth below, and to
selling group members at those prices less a selling concession not in excess of
the percentage set forth below for each class of notes. The underwriters may
allow, and the selling group members may also allow, a subsequent concession not
in excess of the percentage set forth below for each class of notes. After the
initial public offering, the public offering price and such concessions may be
changed.
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT CONCESSION REALLOWANCE
-------- ------------ ---------- -----------
Class A-1 Notes % % % %
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
Class B Notes
The depositor does not intend to apply for listing of the notes on a national
securities exchange, but has been advised by the underwriters that they may make
a market in the notes. The underwriters are not obligated, however, to make a
market in the notes and may discontinue market making at any time without
notice. We cannot assure you as to the liquidity of the trading market for the
notes.
The depositor, the transferor and the servicer have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, each underwriter and
its affiliates have engaged and may in the future engage in commercial banking
and investment banking transactions with the depositor, the transferor and the
servicer.
After the initial distribution of the notes by the underwriters, this
prospectus supplement may be used by the underwriters or its successors, in
connection with offers and sales relating to market making transactions in the
notes. The underwriters may act as principal or agent in these transactions. The
transactions will be at prices related to prevailing market prices at the time
of sale. Each underwriter is a member of the New York Stock Exchange, Inc.
The underwriter is an affiliate of the depositor.
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ADDITIONAL INFORMATION
PaineWebber Asset Acceptance Corporation has filed with the SEC a
registration statement (Registration No. 333-37164) under the Securities Act of
1933, as amended, with respect to the notes offered under this prospectus
supplement. This prospectus supplement and the accompanying prospectus, which
form a part of the registration statement, omit certain information contained in
the registration statement under the rules and regulations of the SEC. You may
read and copy the registration statement at the Public Reference Room at the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at the SEC's
regional offices at Seven World Trade Center, 13th Floor, New York, New York,
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Rooms. In addition, the SEC maintains a site
on the World Wide Web containing reports, proxy materials, information
statements and other items. The address is http://www.sec.gov.
EXPERTS
The consolidated balance sheets of _________________________________, the
note insurer, and subsidiaries as of December 31, ____ and ____ and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, ____,
incorporated by reference in this prospectus supplement, have been incorporated
in this prospectus supplement in reliance on the report of _____________________
___________, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the offered notes and certain federal income tax matters will
be passed upon by Cadwalader, Wickersham & Taft, New York, New York. [Certain
legal matters will be passed upon for the insurer by __________, __________ to
the insurer.]
RATINGS
As a condition to the issuance of the Class A notes, the Class A-1 notes must
be rated "____" by __________________________________ and "___" by
_____________________________, and the Class A-2 notes, the Class A-3 notes and
the Class A-4 notes must be rated "___" by __________________________________
and "___" by ______________________________. As a condition to the issuance of
the Class B notes, the Class B notes must be rated at least "___" by __________
________________________________.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time. The ratings assigned to
the offered notes address the likelihood of the receipt by noteholders of all
distributions to which such noteholders are entitled. The ratings assigned to
the offered notes do not represent any assessment of the likelihood that
principal prepayments might differ from those originally anticipated or address
the possibility that noteholders might suffer a lower than anticipated yield.
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GLOSSARY OF TERMS
As used in this prospectus supplement, the following terms have the following
meanings:
ADVANCE PAYMENT: With respect to a contract and a collection period, any
scheduled payment, Final Scheduled Payment, Purchase Option Payment or portion
of either made by or on behalf of an obligor and received by the servicer during
the collection period, which scheduled payment, Final Scheduled Payment,
Purchase Option Payment or portion of them does not become due until a
subsequent collection period. However, Advance Payments do not include
Prepayment Amounts.
AGGREGATE DISCOUNTED CONTRACT PRINCIPAL BALANCE: Means, at any time of
determination and with respect to any contracts, any amount equal to the sum of
the Discounted Contract Principal Balances of the contracts.
AVAILABLE DISTRIBUTION AMOUNT: With respect to a payment date, the excess of:
(a) the Available Funds with respect to the related collection period,
over
(b) the Trust Operating Expenses.
AVAILABLE FUNDS: With respect to a payment date, all amounts held in the
collection account on the related determination date, after taking into account
all deposits required to be made on that determination date, other than any
Advance Payment.
AVAILABLE FUNDS SHORTFALL: An event which occurs on a payment date if either:
(a) amounts are then or would otherwise be payable under the note
insurance policy or
(b) the Class A Insured Distribution Amount for such payment date exceeds
the Available Distribution Amount for that payment date.
BASE PRINCIPAL AMOUNT: With respect to any payment date, an amount equal to
the excess of:
(a) the sum of:
(1) the Aggregate Discounted Contract Principal Balance of the
contracts, as of the close of business on the last day of the second
preceding collection period, and
(2) the Pre-Funded Collateral Amount, as of the close of business on
the last day of the second preceding collection period, over
(b) the sum of
(1) the Aggregate Discounted Contract Principal Balance of the
contracts, as of the close of business on the last day of the
immediately preceding collection period,
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(2) the Pre-Funded Collateral Amount, as of the close of business on
the last day of the immediately preceding collection period,
(3) the aggregate Prepayment Amounts received by the servicer during
the related collection period,
(4) any Defaulted Contract Amounts relating to the related
collection period and
(5) the amount of any funds released from the pre-funding account as
a prepayment of principal on the offered notes, divided by ____%.
CLASS A ACCELERATED PERCENTAGE: _____%.
CLASS A ADDITIONAL PRINCIPAL DISTRIBUTION AMOUNT: Means:
(a) with respect to any payment date prior to the Class A Termination
Date, any Unscheduled Payments with respect to the related collection period;
and
(b) with respect to the Class A Termination Date, the amount described in
clause (a) above, to the extent necessary to reduce the note principal
balance of each class of Class A notes to zero.
CLASS A BASE PRINCIPAL DISTRIBUTION AMOUNT: Means (a) with respect to any
payment date prior to the Class A Termination Date, the sum of:
(x) the product of (1) the Class A Percentage and (2) the Base
Principal Amount for such payment date,
(y) the Class A Additional Principal Distribution Amount, and
(z) the product of (1) the Class A Accelerated Percentage and (2) the
amount of any funds released from the pre-funding account as a prepayment
of principal; and
(b) with respect to the Class A Termination Date, the amount described in
clause (a) above, to the extent necessary to reduce the note principal
balance of each class of Class A notes to zero.
CLASS A DEFAULT INTEREST: Means, for any payment date and each class of Class
A notes, the product of:
(x) the sum of clauses (1) and (2) of the definition of Class A Overdue
Interest with respect to such class,
(y) (1) for the Class A-1 notes, the actual number of days elapsed in the
Interest Accrual Period divided by 360 days and (2) for each other class of
Class A notes, one-twelfth, and
(z) __%.
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CLASS A INSURED DISTRIBUTION AMOUNT: Means, with respect to any payment date,
the sum of the Class A Insured Distribution Amounts for each class of Class A
notes. The "Class A Insured Distribution Amount" for each class of Class A notes
is:
(a) with respect to any payment date-other than any payment date which is
the Class A Maturity Date for the class-the sum of (1) Class A Note Interest
for the class less the amount of any Class A Default Interest for the class,
and (2) the class's pro rata portion of the excess, if any, of (A) the note
principal balance of the Class A notes over (B) the sum of the Aggregate
Discounted Contract Principal Balance of the contracts and the Pre-Funded
Collateral Amount, and
(b) with respect to the payment date which is the Class A Maturity Date
for the class, the sum of (1) Class A Note Interest for the class less the
amount of any Class A Default Interest for the class and (2) the
then-outstanding note principal balance for the class.
CLASS A MATURITY DATE: Means the final stated maturity date for each class of
Class A notes, as set forth below,
o for the Class A-1 notes, ___________, 200_,
o for the Class A-2 notes, ___________, 200_,
o for the Class A-3 notes, ___________, 200_, and
o for the Class A-4 notes, ___________, 200_.
CLASS A NOTE CURRENT INTEREST: With respect to any payment date and each
class of Class A notes, the interest accrued during the related Interest Accrual
Period, equal to the product of:
(x) (1) for the Class A-1 notes, the actual number of days elapsed in the
Interest Accrual Period divided by 360 days and (2) for each other class of
Class A notes, one-twelfth,
(y) the note rate for that class of Class A notes and
(z) the aggregate note principal balance of that class of Class A notes
outstanding on the immediately preceding payment date, after taking into
account all distributions made on such payment date.
CLASS A NOTE INTEREST: Means, for any payment date and any class of Class A
notes, the sum of the Class A Current Note Interest for that class of Class A
notes and the Class A Overdue Note Interest for that class of Class A notes.
CLASS A OVERDUE INTEREST: With respect to any payment date and each class of
Class A notes, the difference between (x) the sum of:
(1) the excess, if any, of that portion of any Class A Note Interest due
on the immediately preceding payment date for that class of Class A notes
over that portion of the Class A Note Interest paid on such immediately
preceding payment date for that class of Class A notes,
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(2) without duplication of the amount described in clause (1), the amount
of the Class A Overdue Interest due and unpaid as of the immediately
preceding payment date attributable to that class of Class A notes, and
(3) the product of (x) the sum of clauses (1) and (2), (y) (1) for the
Class A-1 notes, the actual number of days elapsed in the Interest Accrual
Period divided by 360 days and (2) for each other class of Class A notes,
one-twelfth, and
(z) the note rate for that class of Class A notes, and
(y) any Class A Overdue Interest attributable to that class of Class A
notes paid on that payment date.
CLASS A OVERDUE PRINCIPAL: With respect to any payment date, the difference,
if any, equal to (a) the aggregate of the Class A Base Principal Distribution
Amounts due on all prior payment dates and (b) the aggregate amount of the
principal, from whatever source, actually distributed to Class A noteholders on
all prior payment dates.
CLASS A PERCENTAGE: ____%.
CLASS A TERMINATION DATE: The payment date on which the note principal
balance of each class of Class A notes is reduced to zero.
CLASS B ACCELERATED PERCENTAGE: ____%.
CLASS B ADDITIONAL PRINCIPAL DISTRIBUTION AMOUNT: Means:
(a) with respect to any payment date prior to the Class A Termination
Date, zero;
(b) with respect to the Class A Termination Date, the excess, if any, of
(x) any Unscheduled Payments with respect to the related collection period,
over (y) the amount of such sum necessary to reduce the note principal
balance of each class of Class A notes to zero; and
(c) with respect to any period following the Class A Termination Date, the
amount described in clause (b)(x) above, to the extent necessary to reduce
the Class B note principal balance to zero.
CLASS B BASE PRINCIPAL DISTRIBUTION AMOUNT: Means:
(a) with respect to any payment date prior to the Class A Termination
Date, the sum of (x) the product of (1) the Class B Percentage and (2) the
Base Principal Amount for that payment date, (y) the Class B Additional
Principal Distribution Amount and (z) the product of (1) the Class B
Accelerated Percentage and (2) the amount of any funds released from the
pre-funding account as a prepayment of principal; and
(b) with respect to the Class A Termination Date, the amount described in
clause (a) above plus the portion of the Class A Base Principal Distribution
Amount, not applied as a reduction of the note principal balance of the Class
A notes, on that date.
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CLASS B COLLATERALIZED BALANCE: The positive difference, if any, of the Class
B note principal balance over the Class B Uncollateralized Balance.
CLASS B MATURITY DATE: Means the final stated maturity date for each class of
Class B notes, which is ___________, 200_.
CLASS B NOTE CURRENT JUNIOR INTEREST: With respect to any payment date, the
interest accrued during the related Interest Accrual Period, equal to the
product of:
(x) one-twelfth of the Class B note rate and
(y) the aggregate Class B Uncollateralized Balance outstanding on the
immediately preceding payment date.
CLASS B NOTE CURRENT PRIORITY INTEREST: With respect to any payment date, the
interest accrued during the related Interest Accrual Period, equal to the
product of:
(x) one-twelfth of the Class B note rate and
(y) the aggregate Class B Collateralized Balance outstanding on the
immediately preceding payment date.
CLASS B NOTE INTEREST: Means, for any payment date and any class of Class B
notes, the sum of __________ and the _________.
CLASS B NOTE JUNIOR INTEREST: With respect to any payment date, the Class B
Note Current Junior Interest and the Class B Overdue Junior Interest.
CLASS B NOTE PRIORITY INTEREST: With respect to any payment date, the Class B
Note Current Priority Interest and the Class B Overdue Priority Interest.
CLASS B OVERDUE JUNIOR INTEREST: With respect to any payment date, the
difference between (x) the sum of:
(1) the excess, if any, of any Class B Note Junior Interest due on the
immediately preceding payment date over the Class B Note Junior Interest paid
on the immediately preceding payment date,
(2) without duplication of the amount described in clause (1), the amount
of the Class B Overdue Junior Interest due and unpaid as of the immediately
preceding payment date and
(3) the product of (x) the sum of clauses (1) and (2), (y) one-twelfth and
(z) the sum of the Class B note rate plus 1%, and (y) any Class B Overdue
Junior Interest paid on that payment date.
CLASS B OVERDUE PRINCIPAL: With respect to any payment date, the difference,
if any, equal to:
(a) the aggregate of the Class B Base Principal Distribution Amounts due
on all prior payment dates and
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(b) the aggregate amount of the principal, from whatever source, actually
distributed to Class B noteholders on all prior payment dates.
CLASS B OVERDUE PRIORITY INTEREST: With respect to any payment date, the
difference between (x) the sum of:
(1) the excess, if any, of any Class B Note Priority Interest due on the
immediately preceding payment date over the Class B Note Priority Interest
paid on such immediately preceding payment date,
(2) without duplication of the amount described in clause (1), the amount
of the Class B Overdue Priority Interest due and unpaid as of the immediately
preceding payment date and
(3) the product of (x) the sum of clauses (1) and (2), (y) one-twelfth and
(z) the sum of the Class B note rate plus 1%, and
(y) any Class B Overdue Priority Interest paid on that payment date.
CLASS B PERCENTAGE: ___%.
CLASS B TERMINATION DATE: The payment date on which the Class B note
principal balance is reduced to zero.
CLASS B UNCOLLATERALIZED BALANCE: The positive difference, if any, of:
(x) the sum of (a) the Class A note principal balance and (b) the Class B
note principal balance, over
(y) the sum of (a) the Aggregate Discounted Contract Principal Balance of
all of the contracts and (b) the Pre-Funding Collateral Amount.
CONDITIONAL PREPAYMENT RATE: Means an assumed annualized rate of prepayment
relative to the then outstanding balance on a pool of contracts.
CONTROLLING PARTY: [Means the note insurer, but if the note insurer has
defaulted on its obligations under the note insurance policy and the default is
continuing,] the Controlling Party will mean the majority of the holders of the
notes.
CUMULATIVE LOSS EVENT: Means that the sum of the Defaulted Contract Amounts,
as of the first payment date for which the contract is classified as a Defaulted
Contract, of all contracts which have become Defaulted Contracts, on a
cumulative basis since the closing date, less any Defaulted Contract Recoveries,
exceeds an amount equal to ____% of the Initial Aggregate Collateral Balance.
CUT-OFF DATE: Means:
(x) with respect to the initial contracts, the close of business on
___________, 200_, and
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(y) with respect to any subsequent contracts or substitute contracts, the
close of business on the last day of the month preceding the month in which
the contract was transferred to the transferors.
DEFAULTED CONTRACT: A contract becomes a "Defaulted Contract" at the earliest
of the date on which:
o the servicer has determined in its sole discretion, in accordance with the
servicing standard and its customary servicing procedures, that such
contract is not collectible,
o all or part of a scheduled payment thereunder is more than 120 days
delinquent,
o the servicer elected not to make a servicer advance or for which the
servicer has determined that a prior servicer advance is not recoverable
or
o a bankruptcy proceeding has been instituted by or against the obligor, and
the obligor has failed to make a scheduled payment or Final Scheduled
Payment.
DEFAULTED CONTRACT AMOUNTS: Means, with respect to any payment date, the sum
of:
(x) the present value of all of the remaining scheduled payments and any
Final Scheduled Payment due or to become due under each contract which became
a Defaulted Contract during the related collection period, discounted monthly
at the actual discount rate and
(y) any scheduled payments previously due and not paid by the obligor.
DEFAULTED CONTRACT RECOVERIES: All proceeds of the sale or re-lease of
equipment related to Defaulted Contracts and any amounts collected as judgments
against an obligor or others related to the failure of the obligor to pay any
required amounts under the related contract or to return the equipment, in each
case as reduced by (x) any unreimbursed servicer advances with respect to the
contract and (y) any reasonably incurred out-of-pocket expenses incurred by the
servicer in enforcing the contract or in liquidating such equipment.
DELINQUENCY TRIGGER EVENT: Exists on any payment date on which the average of
the Delinquency Trigger Ratios for such payment date and the two immediately
preceding payment dates exceeds _%. Once a Delinquency Trigger Event occurs,
then the condition will be deemed to continue until the payment date which is
the third consecutive payment date for which the average of the Delinquency
Trigger Ratio for such payment date and the two immediately preceding payment
dates is less than _%.
DELINQUENCY TRIGGER RATIO: With respect to any payment date, the quotient,
expressed as a percentage of:
(a) the Aggregate Discounted Contract Principal Balance of all contracts
as to which all or a portion of a scheduled payment remained unpaid for more
than 60 days from its due date, determined as of the end of the immediately
preceding calendar month, divided by
(b) the Aggregate Discounted Contract Principal Balance of all contracts
as of the last day of the immediately preceding calendar month.
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DELINQUENT CONTRACT: As of any determination date, any contract, other than a
contract which became a Defaulted Contract prior to the determination date, with
respect to which all or a portion of any scheduled payment was not received by
the servicer as of 30 days from its due date.
DEPOSITOR RECEIVABLES SALE AGREEMENT: Means the Receivables Sale Agreement,
dated as of _______________, 200__, among the transferors and the depositor.
DISCOUNTED CONTRACT PRINCIPAL BALANCE: With respect to any contract, on any
determination date, the sum of the present value of all of the remaining
scheduled payments and any Final Scheduled Payment becoming due under the
contract after the end of the prior collection period, discounted monthly at the
actual discount rate in the manner described below. However, except to the
extent expressly provided in the Sale and Servicing Agreement, the Discounted
Contract Principal Balance of any Defaulted Contract, Early Termination
Contract, Expired Contract or contract reacquired by the originator pursuant to
the Sale and Servicing Agreement, will be equal to zero.
In connection with all calculations required to be made pursuant to the
transaction documents with respect to the determination of Discounted Contract
Principal Balances, for any date of determination the "Discounted Contract
Principal Balance" for each contract will be calculated assuming:
o scheduled payments are due on the last day of each collection
period;
o scheduled payments are discounted on a monthly basis using a 30-day month
and a 360-day year; and
o scheduled payments are discounted to the last day of the collection period
prior to the determination date.
EARLY TERMINATION CONTRACT: Any contract that has terminated pursuant to the
terms of the contract prior to its scheduled expiration date, other than a
Defaulted Contract.
EXPIRED CONTRACT: Any contract that has terminated on its scheduled
expiration date.
EVENT OF DEFAULT: Has the meaning given in "Description of the Notes--Events
of Default" in this prospectus supplement.
EVENT OF SERVICING TERMINATION: Has the meaning given in "Description of the
Notes--Events of Servicing Termination" in this prospectus supplement.
FINAL SCHEDULED PAYMENT: With respect to any contract, any payment set forth
in the contract other than the regular scheduled payment which is required to be
paid by the related obligor at the maturity of the contract.
INDENTURE TRUSTEE EXPENSES: Means the sum of the reimbursement to the
indenture trustee for its reasonable expenses in its capacity as indenture
trustee. These expenses include, without limitation, amounts payable to the
indenture trustee, in its capacity as back-up servicer, in respect of a transfer
of servicing from the servicer to the back-up servicer, and indemnification for
loss,
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liability or expense incurred without negligence or bad faith on its part,
arising out of performance of its duties in connection with the transfer of
servicing.
INITIAL AGGREGATE COLLATERAL BALANCE: The sum of (x) the Aggregate Discounted
Contract Principal Balance of the contracts as of the Cut-Off Date, and (y) the
Pre-Funded Collateral Amount on the closing date.
INITIAL UNPAID AMOUNT: With respect to a contract, the excess of (x) the
aggregate amount of all scheduled payments due prior to the Cut-Off Date over
(y) the aggregate of all scheduled payments made prior to the Cut-Off Date with
respect to the contract.
INTEREST ACCRUAL PERIOD: With respect to any payment date, the period from
and including the prior payment date to but excluding that payment date and with
respect to the initial payment date,
(x) for the Class A-1 notes, the period from and including the closing
date up to but excluding that payment date, and
(y) for each other class of notes, the period from and including
__________, 200_ up to but excluding that payment date.
NET CHARGE-OFF EVENT: Exists on any payment date on which the weighted
average of the Net Charge-Off Ratio for such payment date and the two
immediately preceding payment dates exceeds ___%. Once a Net Charge-Off Event
occurs, then the condition will be deemed to continue until the payment date
which is the fourth consecutive payment date for which the weighted average of
the Net Charge-Off Ratio for such payment dates and the two immediately
preceding payment dates is less than ___%.
NET CHARGE-OFF RATIO: With respect to any payment date, twelve times the
quotient, expressed as a percentage, of:
(a) the sum of the Discounted Contract Principal Balance of all contracts
that become Defaulted Contracts during the immediately preceding calendar
month-regardless of whether a substitute contract was provided for them-less
all recoveries received during the immediately preceding calendar month,
including, but not limited to, liquidation proceeds, divided by
(b) the Aggregate Discounted Contract Principal Balance of all contracts
as of the end of the immediately preceding calendar month.
For the purposes of the calculation of the Net Charge-Off Ratio, the Discounted
Contract Principal Balance of any contract which is a Defaulted Contract will
not be zero, but will instead be calculated as provided in the definition of
Discounted Contract Principal Balance without reference to the last proviso in
that definition.
"NON-U.S. PERSON" is a person who is not a U.S. Person.
PRE-FUNDED COLLATERAL AMOUNT: As of any date of determination, is the amount
on deposit in the pre-funding account, divided by ____%.
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[PREMIUM AMOUNT: With respect to any payment date, the product of:
(a) one-twelfth,
(b) the Premium Rate and
(c) the outstanding Class A note principal balance as of the end of the
immediately preceding collection period.]
[PREMIUM RATE: Has the meaning given in the Premium Letter, dated as of
___________, 200_, between the originator and the note insurer.]
PREPAYMENT: With respect to a collection period and a contract other than a
Defaulted Contract, the amount received by the servicer during such collection
period from or on behalf of an obligor with respect to the contract in excess of
the sum of (x) any scheduled payment and any Final Scheduled Payment due during
the collection period, plus (y) the aggregate of any overdue Scheduled Payments,
Initial Unpaid Amounts and unpaid Servicing Charges for the contract, so long as
the amount is designated by the obligor as a prepayment and the servicer has
consented to the prepayment. Neither Residual Receipts nor Defaulted Contract
Recoveries are Prepayments.
PREPAYMENT AMOUNT: With respect to a payment date and a contract, an amount,
without duplication, equal to the sum of:
o the Discounted Contract Principal Balance as of the beginning of the
immediately preceding collection period, without any deduction for any
security deposit paid by an obligor, unless the security deposit has been
deposited in the collection account under the indenture,
o the product of (x) the Discounted Contract Principal Balance of the
contract as of the beginning of the immediately preceding collection
period and (y) one-twelfth of the actual discount rate, and
o any scheduled payments theretofore due and not paid by an obligor.
PURCHASE OPTION PAYMENT: With respect to a contract, any payment set forth in
the contract payable by the obligor, including any security deposit applied in
respect of that payment, upon the exercise of a purchase option for the
equipment relating to the contract at the end of the term of the contract,
whether or not the obligor actually exercises the purchase option, or with
respect to any contract which does not set forth a purchase option, any payment
made by an obligor to purchase the equipment relating to the contract at the end
of the term of the contract.
REACQUISITION AMOUNT: With respect to a payment date and a contract, the
sum, without duplication, of,
o the Discounted Contract Principal Balance as of the beginning of the
immediately preceding collection period, without any deduction for any
security deposit paid by an obligor, unless such security deposit has been
deposited in the collection account pursuant to the indenture,
S-62
<PAGE>
o the product of (x) Discounted Contract Principal Balance of the contract
as of the beginning of the immediately preceding collection period and (y)
one-twelfth of the actual discount rate, and
o any scheduled payments previously due and not paid by an obligor.
RECEIVABLES SALE AGREEMENT: Means the receivables sale agreement, dated as of
_______________, 200_, among the originator and the transferors.
[REIMBURSEMENT AMOUNT: As of any payment date, the sum of:
(x)(a) all insured payments under the note insurance policy previously
received by the indenture trustee from the note insurer and not previously
repaid to the note insurer pursuant to the indenture plus (b) interest
accrued on each of the insured payments, at the late payment rate specified
in the insurance agreement, not previously repaid to the note insurer from
the date the indenture trustee received the related insured payment to, but
not including, that payment date and
(y)(a) any amounts then due and owing to the note insurer under the
insurance agreement plus (b) interest on the amounts at the late payment rate
specified in the insurance agreement.]
RESIDUAL BALANCE: As of any payment date, the difference, if any, between:
(a) the sum of (x) the Aggregate Discounted Contract Principal Balance of
all contracts as of the end of the immediately preceding collection period
and (y) the amount on deposit in the pre-funding account, and
(b) the sum of (x) the outstanding Class A note principal balance and (y)
the outstanding Class B note principal balance, each, without taking into
account any previous distributions on them attributable to Residual Receipts,
after taking into account any distributions on the payment date.
RESIDUAL RECEIPTS: All Purchase Option Payments or other proceeds of the
sale, re-lease or re-marketing of the underlying equipment, to the extent such
proceeds exceed any scheduled payments and any Final Scheduled Payments
remaining unpaid, but limited to the originator's booked residual value for the
contract.
RESTRICTING EVENT: An event which will occur on a payment date on which,
o an Event of Servicing Termination has occurred under the Sale and
Servicing Agreement and is not cured within the grace period set forth in
the Sale and Servicing Agreement,
o [the note insurer makes an insured payment under the note insurance
policy,]
o a Net Charge-Off Event exists,
o a Delinquency Trigger Event exists,
o a Subordination Deficiency Event exists, or
S-63
<PAGE>
o a Cumulative Loss Event exists.
SALE AND SERVICING AGREEMENT: Means the Sale and Servicing Agreement, dated
as of ____________, 200__, among the depositor, the trust, the originator, the
transferors, the servicers and the indenture trustee.
SUBORDINATION DEFICIENCY EVENT: Exists on any payment date on which:
(x) the excess of (1) the sum of (A) the Aggregate Discounted Contract
Principal Balance of the contracts as of the end of the immediately preceding
collection period and (B) the Pre-Funded Collateral Amount as of the end of
the immediately preceding collection period, over (2) the outstanding Class A
note principal balance on the payment date, after taking into account
distributions which would have been made on the payment date, is less than
(y) __% of the Initial Aggregate Collateral Balance.
TRANSFER AGREEMENTS: Means the Depositor Receivables Sale Agreement and the
Receivables Sale Agreement.
TRUST AGREEMENT: Means the trust agreement relating to the establishment of
the trust described in this prospectus supplement, dated as of ________________,
200__, between the owner trustee, the depositor and the transferors.
TRUST OPERATING EXPENSES: With respect to any payment date, an amount equal
to the amounts owing to the servicer, the back-up servicer, the note insurer and
the indenture trustee pursuant to the indenture and payable out of Available
Funds in priority to the Class A Note Interest then owing to the Class A
noteholders.
UNSCHEDULED PAYMENTS: With respect to any payment date, any Prepayment
Amount, Residual Receipts and Reacquisition Amounts received on account of a
contract during the preceding calendar month and Defaulted Contract Amounts on
contracts which became Defaulted Contracts during the preceding calendar month.
"U.S. PERSON" means a citizen or resident of the United States, a
corporation, partnership (except as provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States,
any state or the District of Columbia, including an entity treated as a
corporation or partnership for U.S. federal income tax purposes, an estate that
is subject to U.S. federal income tax regardless of the source of its income or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more of those U.S.
Persons have the authority to control all substantial decisions of the trust
(or, to the extent provided in applicable Treasury regulations, certain trusts
in existence on August 20, 1996, which are eligible to elect to be treated as
U.S. Persons).
S-64
<PAGE>
=========================================== ===================================
YOU SHOULD RELY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED
PROSPECTUS. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION.
WE ARE NOT OFFERING THESE NOTES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED.
------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary.................................S-1
Risk Factors............................S-8
Forward-Looking Statements.............S-10
Defined Terms..........................S-10
Transaction Overview...................S-10
The Contract Pool......................S-11 $___________ (APPROXIMATE)
The Originator And The Servicer........S-24
[Description Of Originator And Its _______ EQUIPMENT CONTRACT
Originating Practices]...............S-24 TRUST 200_-_
[Description Of Servicer And Its ISSUER
Servicing Standards].................S-24
[Description Of Servicer's EQUIPMENT CONTRACT-BACKED NOTES,
Delinquency Experience]..............S-24 SERIES 200_-_
Formation of the Trust.................S-24 _________________________
Description of the Notes...............S-24 SERVICER
The Indenture Trustee and the
Back-up Servicer.....................S-37 PAINEWEBBER ASSET
Prepayment and Yield Considerations....S-38 ACCEPTANCE CORPORATION
[The Note Insurance Policy]............S-43 DEPOSITOR
The Note Insurer.......................S-46
[Description of the Note Insurer]......S-46
Federal Income Tax Considerations......S-46 $___________
ERISA Considerations...................S-49 CLASS A-1 NOTES
Legal Investment.......................S-50 $___________
Underwriting...........................S-50 CLASS A-2 NOTES
Additional Information.................S-52 $___________
Experts................................S-52 CLASS A-3 NOTES
Legal Matters..........................S-52 $___________
Ratings................................S-52 CLASS A-4 NOTES
Glossary of Terms......................S-53 $___________
CLASS B NOTES
PROSPECTUS
Summary of Terms.......................
Risk Factors...........................
Defined Terms.......................... -----------------------------------
The Trust Funds........................ PROSPECTUS SUPPLEMENT
The Issuers............................ -----------------------------------
The Receivables........................
Pool Factors...........................
Use of Proceeds........................
The Depositor.......................... PAINEWEBBER INCORPORATED
The Trustee............................
Description of the Securities..........
Description of the Trust Agreements....
Certain Legal Aspects of the
Receivables.......................... _________, 200_
Federal Income Tax Considerations......
ERISA Considerations...................
Methods of Distribution ...............
Incorporation of Information by
Reference............................
Legal Matters..........................
Financial Information..................
Additional Information.................
Ratings................................
Glossary of Terms......................
DEALERS WILL BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS OF THESE SECURITIES
AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION,
ALL DEALERS SELLING THESE SECURITIES
WILL DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS UNTIL ____________, 200_.
=========================================== ===================================
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer is not permitted.
--------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED __________, 200_
PROSPECTUS SUPPLEMENT DATED __________, 200_
(TO PROSPECTUS DATED ___________, 200_)
$______________ (APPROXIMATE)
____________________ TRUST 200_-_
(ISSUER)
____________________ ASSET-BACKED CERTIFICATES, SERIES 200_-_
$__________ ______% CLASS A CERTIFICATES
____________________
(ORIGINATOR AND SERVICER)
PAINEWEBBER ASSET ACCEPTANCE CORPORATION
(DEPOSITOR)
THE TRUST FUND--
o The trust fund consists primarily of a pool of receivables consisting of
[auto] [recreational vehicle] [motorcycle] [light duty truck] [loans]
[leases] and security interests in the underlying assets.
THE OFFERED CERTIFICATES--
o The trust will issue 1 class of certificates.
CREDIT ENHANCEMENT--
o [The Class A certificates will be unconditionally and irrevocably
guaranteed as to the distribution of scheduled interest and to specified
distributions of principal pursuant to the terms of a financial guaranty
insurance policy to be issued by _______________]
[____ LOGO]
____________________ Trust 200_-_ is issuing certificates in 1 class
UNDERWRITING PROCEEDS TO THE
PRICE TO THE PUBLIC DISCOUNT DEPOSITOR
------------------- ------------ ---------------
% % $
The proceeds to depositor are less expenses, estimated at $[ ]. See
"Underwriting" in this prospectus supplement.
--------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-___ OF
THIS PROSPECTUS SUPPLEMENT AND PAGE ___ IN THE PROSPECTUS.
The certificates will not represent obligations of the depositor, originator,
the issuer or any other person or entity. No governmental agency will insure the
certificates or the collateral securing the certificates.
You should consult with your own advisors to determine if the offered
certificates are appropriate investments for you and to determine the applicable
legal, tax, regulatory and accounting treatment of the offered certificates.
--------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE OFFERED
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PAINEWEBBER INCORPORATED
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information about the offered certificates for the series 200_-_
in two separate documents that progressively include more detail:
(1) the accompanying prospectus dated ___________, 200_. The accompanying
prospectus provides general information, some of which may not apply to the
offered certificates for the series 200_-_.
(2) this prospectus supplement. This prospectus supplement describes the
specific terms of the certificates for the series 200_-_. Sales of the
offered certificates may not be completed unless you have received both this
prospectus supplement and the prospectus. You are urged to read both this
prospectus supplement and the prospectus in full.
IF THE TERMS OF THE OFFERED CERTIFICATES VARY BETWEEN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THEN YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
Cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials are included to assist in locating
further related discussions. The following table of contents and the table of
contents in the accompanying prospectus provide the pages on which these
captions are located.
S-2
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY......................................................................S-5
RISK FACTORS................................................................S-12
Limited Liquidity May Adversely Affect Market Value Of Securities......S-12
Prepayments On The Receivables Will Cause Prepayments On The
Certificates Resulting In Reinvestment Risk To You...................S-12
Prepayments On The Receivables May Affect Your Yield On Your
Certificates.........................................................S-12
Potential Prepayments On Certificates Due To Failure To Transfer A
Sufficient Number Of Additional Receivables To The Trust.............S-12
Risk Of Potential Prepayments on Certificates Due To Failure
To Obtain Release Of Existing Lien...................................S-13
You May Experience A Loss On Your Certificates Because The Issuer
Has Limited Asset....................................................S-13
[Originator Has A Limited Operating History............................S-14
[The Originator's Internet-Based Origination Programs May Give
Rise To Risks That Are Not Customary.................................S-15
[You May Experience A Loss In Connection With An Event Of Default......S-15
[Potential Losses On Your Certificates Due To Geographic
Concentration Of Receivables.........................................S-15
FORWARD LOOKING STATEMENTS..................................................S-16
DEFINED TERMS...............................................................S-16
THE TRUST...................................................................S-16
General................................................................S-16
The Trustee............................................................S-17
THE TRUST FUND..............................................................S-17
THE RECEIVABLES POOL........................................................S-17
Eligibility Criteria...................................................S-17
Subsequent Receivables.................................................S-18
Pool Composition.......................................................S-19
THE TRANSFEROR..............................................................S-23
THE DEPOSITOR...............................................................S-24
THE ORIGINATOR And The Servicer.............................................S-24
General................................................................S-24
Origination Process and Credit Evaluation Procedures...................S-24
Contract Processing, Purchase, Servicing and Administration............S-24
Delinquency Control and Collection Strategy............................S-24
Delinquency and Loss Experience........................................S-24
WEIGHTED AVERAGE LIFE OF THE SECURITIES.....................................S-25
DESCRIPTION OF CERTIFICATES.................................................S-28
General................................................................S-28
Distributions..........................................................S-29
The Accounts...........................................................S-29
Collections............................................................S-30
Flow of Funds..........................................................S-30
Withholding............................................................S-31
[THE INSURER]...............................................................S-31
General................................................................S-31
Reinsurance............................................................S-32
Rating of Claims-Paying Ability........................................S-32
Capitalization.........................................................S-32
Insurance Regulation...................................................S-33
[THE POLICY]................................................................S-34
[Other Provisions of the Policy].......................................S-36
S-3
<PAGE>
THE POOLING AND SERVICING AGREEMENT AND THE TRANSFER AGREEMENTS.............S-37
Conveyance of Receivables..............................................S-37
Servicing..............................................................S-37
Certain Reports........................................................S-40
Termination............................................................S-41
Amendment..............................................................S-41
FEDERAL INCOME TAX CONSIDERATIONS...........................................S-42
Tax Status of the Trust................................................S-42
Taxation of Certificateholders.........................................S-42
Discount and Premium...................................................S-44
Sale of a Class A Certificate..........................................S-45
Foreign Class A Certificateholders.....................................S-45
Backup Withholding.....................................................S-45
ERISA CONSIDERATIONS........................................................S-45
LEGAL INVESTMENT............................................................S-48
UNDERWRITING................................................................S-49
ADDITIONAL INFORMATION......................................................S-50
EXPERTS.....................................................................S-50
LEGAL MATTERS...............................................................S-50
RATINGS.....................................................................S-50
GLOSSARY OF TERMS...........................................................S-52
S-4
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE
OFFERED CERTIFICATES, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
ACCOMPANYING PROSPECTUS.
RELEVANT PARTIES
ISSUER.................................... [__________] Trust 200_-_.
DEPOSITOR................................. PaineWebber Asset Acceptance
Corporation will assign the
receivables to the issuer.
PaineWebber Asset Acceptance
Corporation is a Delaware
corporation. The depositor's
principal executive offices are
located at 1285 Avenue of the
Americas, New York, New York 10019,
telephone number (212) 713-2000.
ORIGINATORS AND
SUB-SERVICERS.......................... ___________ originates the
receivables consisting of [auto]
[recreational vehicle] [motorcycle]
[light duty truck] [loans] [leases]
and will sell and contribute the
receivables to the transferor and
will act as sub-servicer of the
receivables. _______ is a
___________ [company], whose
executive offices are located at
_____________.
SERVICER.................................. ______________ will service the
receivables assigned to the issuer.
The servicer is a _________ with its
principal place of business in
__________. The servicer is a wholly
owned subsidiary of __________, a
________ corporation. The
servicer's address is ____________,
telephone number (___) _____._____.
TRUSTEE AND BACKUP SERVICER............... _______________ will serve as the
trustee and backup servicer under
the pooling and servicing agreement.
The trustee and backup servicer's
address is ____________, telephone
number (___) ____.____.
RELEVANT DATES
CUT-OFF DATE.............................. ________, 200_.
CLOSING DATE.............................. On or about ________, 200_.
DISTRIBUTION DATES........................ The __________ day of each month or
if the __________ day is not a
business day, the next succeeding
business day, commencing __________.
S-5
<PAGE>
CERTIFICATES OFFERED...................... The certificates consist of a senior
class offered by this prospectus
supplement, the ______% ___________
Class A, and ___________ classes of
subordinate certificates not offered
by this prospectus supplement. Each
certificate will represent a
fractional undivided interest in the
trust. The Class A certificates
will be issued in fully registered
form in minimum denominations of
$1,000,000 and integral multiples of
$1,000 in excess thereof. However,
one Class A certificate may be
issued in another denomination
representing any remaining portion
of the initial Class A certificate
balance. The Class A certificates
will evidence in the aggregate an
undivided ownership interest of
____% of the trust, with the
subordinate certificates
representing the remainder. The
Class A certificates are senior in
priority of distributions of
principal and interest due on the
subordinate certificates, to the
extent described in this prospectus
supplement.
CLASS A PASS-THROUGH RATE................. __________% per annum, calculated on
the basis of a 360-day year
consisting of twelve 30-day months.
DISTRIBUTIONS OF INTEREST................. On each distribution date, the
trustee will be required to pass
through and distribute pro rata with
respect to the Class A certificates
to the holders of record of the
Class A certificates as of the last
day of the immediately preceding
calendar month, interest
distributable with respect to the
Class A certificates. The amount of
interest distributable on the Class
A certificates will be an amount
equal to one-twelfth of the product
of the Class A pass-through rate and
the Class A certificate balance as
of the record date to the extent
that sufficient funds are on deposit
in the collection account. The
pass-through rate for the Class A
certificates is ____% per annum.
See "Description of The
Certificates--Flow of Funds" in this
prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL................ On each distribution date, the
trustee will be required to
distribute pro rata to the Class A
certificateholders and the
subordinate certificateholders as of
the related record date as a
distribution of principal:
o that portion of all collections
on receivables, other than
liquidated receivables and
receivables that were purchased
or repurchased from the trust
under the pooling and servicing
agreement allocable to
principal, including all full
and partial principal
prepayments;
S-6
<PAGE>
o the principal balance of all
receivables, other than
purchased receivables, that
became liquidated receivables
during the related collection
period;
o (A) the portion of the purchase
amount allocable to principal of
all receivables that became
purchased receivables as of the
immediately preceding record
date, and (B) [in the sole
discretion of the insurer, the]
principal balance as of the
immediately preceding record
date of all receivables that
were required to be purchased as
of the immediately preceding
record date but were not
purchased; and
o the aggregate amount of cram
down losses that occurred during
the related collection period.
These amounts will be computed in
accordance with the simple interest
method.
A collection period with respect to
a distribution date will be the
calendar month immediately preceding
the month in which the distribution
date occurs, or, in the case of the
initial distribution date, the
period from the cut-off date through
the last day of the calendar month
preceding the month in which the
initial distribution date occurs.
See "Description of The
Certificates--Flow of Funds" in this
prospectus supplement.
Distributions of interest and
principal on the subordinate
certificates will be subordinated in
priority of distribution to interest
and principal due on the Class A
certificates. The subordinate
certificateholders will not receive
any distributions of interest or
principal with respect to a
collection period until the full
amount of interest and principal on
the Class A certificates relating to
the collection period has been
distributed from the collection
account.
THE TRUST................................. The trust will be a trust
established under the laws of the
State of _______________. The
activities of the trust are limited
by the terms of the pooling and
servicing agreement to:
o purchasing, owning and managing
the receivables;
o issuing and making distributions
on the certificates; and
S-7
<PAGE>
o other related activities.
The trust property includes:
o receivables consisting of [auto]
[recreational vehicle]
[motorcycle] [light duty truck]
[loans] [leases];
o monies due under the receivables
on or after the cut-off date;
o security interests in the
[automobiles] [recreational
vehicles] [motorcycles] [light
duty trucks] or other property
securing the receivables;
o amounts as from time to time may
be held in one or more accounts
established and maintained by
the servicer under the pooling
and servicing agreement and the
related proceeds;
o [the financial guaranty
insurance policy;]
o any proceeds from claims on
certain insurance policies;
o certain rights under the pooling
and servicing agreement, under
the transfer agreements; and
o all proceeds related to property
in the trust.
THE RECEIVABLES AND THE OTHER TRUST FUND
PROPERTIES............................. The primary assets of the issuer
will be the receivables consisting
of [auto] [recreational vehicle]
[motorcycle] [light duty truck]
[loans] [leases]. The receivables
will be sold and contributed by the
originator to the transferor, and
assigned by the transferor to the
depositor, by the depositor to the
issuer, and then by the issuer to
the trustee for the benefit of the
certificateholders on the day of
closing and from time to time on
subsequent transfer dates on or
before __________, 200_.
THE RECEIVABLES POOL...................... As of the beginning of business on
__________, 200_, the [___________]
in the pool have:
(1) an aggregate principal balance
of $___________;
(2) a weighted average annual
percentage rate of approximately
_____%;
S-8
<PAGE>
(3) a weighted average remaining
term to stated maturity of
approximately ___________
months; and
(4) a remaining term to stated
maturity of not more than __
months and not less than __
months.
OTHER TRUST FUND PROPERTIES............... In addition to the receivables, the
trust fund will also include:
(1) all moneys received with respect
to the initial receivables after
the initial cut-off date and the
subsequent receivables after the
applicable subsequent cut-off
dates;
(2) the security interests in the
[automobiles] [recreational
vehicles] [motorcycles] [light
duty trucks] financed by the
receivables;
(3) any proceeds from claims under
insurance policies covering the
underlying assets of the
receivables or the related
obligors;
(4) all instruments and documents
relating to the receivables;
(5) a security interest in amounts
on deposit in certain bank
accounts; and
(6) all rights of the issuer under
the pooling and servicing
agreement.
PRE-FUNDING
PRE-FUNDING ACCOUNT....................... On the day of closing, the
transferor will deposit
approximately $___________ of the
proceeds of the certificates into
a pre-funding account held by the
trustee. The issuer will use funds
on deposit in this account to
acquire additional receivables from
the transferor from time to time on
or before __________, 200_.
The receivables acquired by the
issuer during the period between the
day of the closing and __________,
200_ will also have been originated
by ___________.
The characteristics of the
subsequently-acquired receivables
will not differ materially from the
receivables acquired by the issuer
on the day of the closing.
S-9
<PAGE>
[INSURER.................................. [__________] is a financial guaranty
insurance company incorporated under
the laws of the State of [________].
See "The Policy" and "The Insurer"
in this prospectus supplement.]
[THE POLICY............................... On the closing date, the insurer
will issue the financial guaranty
insurance policy to the trustee for
the benefit of the Class A
certificateholders under which the
insurer will unconditionally and
irrevocably guarantee to the Class
A certificateholders payment of the
guaranteed distributions for each
distribution date. See "The Policy"
and "Description Of The
Certificates--Flow of Funds" in this
prospectus supplement.]
TRANSFER AGREEMENT........................ The purchase agreement and
assignment, dated as of [_________],
under which the originators will
sell the receivables to the seller,
and the unaffiliated seller's
agreement, dated as of [__________],
under which the seller will sell the
receivables to the depositor.
REPURCHASE AND
PURCHASE OBLIGATIONS................... [__________] will be obligated to
repurchase a receivable if the
interests of the trust, the
certificateholders [or the insurer]
in the receivable or the value of
the receivable is materially
adversely affected by a breach of
any representation or warranty made
with respect to the receivable or by
a breach of certain of the
servicer's servicing obligations
under the pooling and servicing
agreement or certain other covenants
with respect to the servicer, if
either breach has not been cured by
the deposit date of the first full
calendar month following the
discovery by or notice to [________]
of the breach.
SERVICING FEE............................. Each month the servicer will receive
a fee for servicing the receivables
plus a supplemental servicing fee.
See "The Pooling And Servicing
Agreement and the Transfer of
Agreements--Servicing" in this
prospectus supplement.
OPTIONAL PURCHASE......................... The servicer may purchase all of the
receivables as of the last day of
any month in which the aggregate
principal balance as a percentage of
the original aggregate principal
balance is 10% or less. [The
servicer's right to exercise this
option will be subject to the prior
approval of the insurer.] The
purchase price will be equal to the
aggregate purchase amounts and will
be distributed to certificateholders
on the following distribution date.
See
S-10
<PAGE>
"The Pooling And Servicing
Agreement and the Transfer
Agreements".
FEDERAL INCOME
TAX CONSIDERATIONS..................... In the opinion of Cadwalader,
Wickersham & Taft, special tax
counsel to the depositor, the trust
will be classified as a grantor
trust and not as an association
taxable as a corporation for federal
income tax purposes. The
certificateholders must report their
respective allocable shares of all
income earned on the trust assets,
other than any amounts treated as
"stripped coupons" and may deduct
their respective allocable shares of
reasonable servicing fees. See
"Federal Income Tax Considerations--
Tax Status of the Trust" in this
prospectus supplement. Prospective
investors should note that no
rulings have been or will be sought
from the IRS with respect to any of
the federal income tax consequences
discussed in this prospectus
supplement, and no assurance can be
given that the IRS will not take
contrary positions. See "Federal
Income Tax Considerations" in this
prospectus supplement.
ERISA CONSIDERATIONS...................... As described in this prospectus
supplement, the Class A certificates
may be purchased by employee benefit
plans that are subject to ERISA or
entities using assets of the plans.
Any benefit plan fiduciary
considering purchase of the Class A
certificates should, among other
things, consult with its counsel in
determining whether all required
conditions have been satisfied. See
"ERISA Considerations" in this
prospectus supplement.
RATINGS................................... As a condition to the issuance of
the Class A certificates, the Class
A certificates will be rated at
least "_______" by __________ on the
basis of the issuance of the
financial guaranty insurance policy
by the insurer. We cannot assure
you that a rating will not be
lowered or withdrawn by a rating
agency based on a change in
circumstances deemed by the rating
agency to adversely affect the Class
A certificates. A rating is not a
recommendation to purchase, hold or
sell the Class A certificates, in as
much as the rating does not comment
as to market price or suitability
for a particular investor. See
"Ratings" in this prospectus
supplement.
S-11
<PAGE>
RISK FACTORS
BEFORE MAKING AN INVESTMENT DECISION, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISKS WHICH WE BELIEVE DESCRIBE THE PRINCIPAL FACTORS THAT MAKE AN
INVESTMENT IN THE CERTIFICATES SPECULATIVE OR RISKY. IN PARTICULAR, PAYMENTS ON
YOUR CERTIFICATES WILL DEPEND ON PAYMENTS RECEIVED ON AND OTHER RECOVERIES WITH
RESPECT TO THE RECEIVABLES. THEREFORE, YOU SHOULD CAREFULLY CONSIDER THE RISK
FACTORS RELATING TO THE RECEIVABLES.
LIMITED LIQUIDITY MAY ADVERSELY AFFECT MARKET VALUE OF SECURITIES
A secondary market for the certificates may not develop or, if it does
develop, it may not provide you with liquidity of investment or continue while
your certificates are outstanding. Lack of liquidity could result in a
substantial decrease in the market value of your certificates. See "Risk
Factors--Limited Liquidity of Securities May Adversely Affect the Market Value
of Your Securities" in the accompanying prospectus.
PREPAYMENTS ON THE RECEIVABLES WILL CAUSE PREPAYMENTS ON THE CERTIFICATES
RESULTING IN REINVESTMENT RISK TO YOU
The receivables may be prepaid, in full or in part, voluntarily or as a
result of:
o prepayments on the defaults;
o casualties to the related receivables; or
o other reasons.
Since the rate of distribution of principal of the certificates depends in
part on the rate of payment, including prepayments, of the principal balance of
the [____________], final distribution of the certificates could occur
significantly earlier than the final scheduled distribution date for each class
of certificates. You will bear the risk that you may have to reinvest the
principal on your certificates earlier than you expected at a rate of interest
that is less than the rate of interest on your certificates.
PREPAYMENTS ON THE RECEIVABLES MAY AFFECT YOUR YIELD ON YOUR CERTIFICATES
If you purchase your certificates at a premium, prepayments on the
receivables may reduce your yield. The ratings on the certificates do not
address the possibility that prepayment rates may affect your yield on your
certificates.
POTENTIAL PREPAYMENTS ON CERTIFICATES DUE TO FAILURE TO TRANSFER A SUFFICIENT
NUMBER OF ADDITIONAL RECEIVABLES TO THE TRUST
If all of the funds on deposit in the pre-funding account are not used to
purchase additional receivables during the pre-funding period, any remaining
amount on deposit in loans to the trust will be used to make principal
distributions on the certificates. See "Description of the
Certificates--Distributions" in this prospectus supplement. The originator has
identified an
S-12
<PAGE>
existing pool of receivables that the originator believes will satisfy the
established criteria for receivables that will be assigned to the issuer on
subsequent transfer dates. See "The Receivables Pool--Subsequent Receivables" in
this prospectus supplement. However, we cannot assure you that the identified
receivables will in fact satisfy that criteria and that there will be a
sufficient number of eligible receivables to assign to the issuer.
For example, any receivable that is more than _____ days delinquent or that
has not had at least _____ scheduled payments made prior to the end of the
pre-funding period will not be eligible for assignment to the issuer. The
ability of the transferor to assign a sufficient number of additional
receivables to the issuer.
RISK OF POTENTIAL PREPAYMENTS ON CERTIFICATES DUE TO FAILURE TO OBTAIN RELEASE
OF EXISTING LIEN
The receivables that the originator has identified for possible transfer to
the to issuer on subsequent transfer dates are subject to a lien securing
amounts on subsequent receivables advanced under a warehouse credit line that
the originator uses to finance receivables it owns. Although the originator
anticipates that amounts on deposit in the pre-funding account will be
sufficient to repay the related warehouse debt and release the lien on
additional receivables, we cannot assure you that those amounts will be
sufficient or that the originator will have other sources of cash that could be
used to repay the warehouse debt. If the related warehouse debt were not repaid
and the lien released, the transferor would be unable to assign additional
receivables to the issuer.
YOU MAY EXPERIENCE A LOSS ON YOUR CERTIFICATES BECAUSE THE ISSUER HAS LIMITED
ASSETS
The issuer's primary assets or source of funds for distributions on the
certificates are:
o the receivables;
o the pre-funding account;
o [the reserve limited assets account;]
o [the yield supplement account;]
o the capitalized interest account; and
o [the insurance policy issued by ___________.]
For repayment, you must rely upon payments on the receivables, amounts on
deposit in the pre-funding account[, the yield supplement account, the
capitalized interest account and amounts, if any, in the reserve account].
o The pre-funding account and the capitalized interest account will only be
maintained until the first distribution date after the pre-funding period.
S-13
<PAGE>
o The money in the pre-funding account will only be used to purchase
additional receivables and is not available to cover losses on the
receivables.
o The capitalized interest account covers obligations of the issuer relating
to the portion of the issuer's assets not invested in receivables and is
not designed to provide protection against losses on the receivables.
o [Although the policy will be available to cover shortfalls in
distributions each month, if ___________ defaults in its obligations under
the policy, the certificateholders must rely solely on:
o amounts received with respect to the receivables without the benefit of
the policy
o amounts, if any, on deposit in the reserve account; and
o the amount released from the yield supplement account on each distribution
date.
If this happens, the trustee may be unable to realize on the collateral
securing the receivables and the proceeds to be distributed to
certificateholders on a current basis may be reduced.]
[ORIGINATOR HAS A LIMITED OPERATING HISTORY
All of the receivables were originated by ___________ in accordance with its
credit underwriting criteria. The originator was formed in ___________ and
commenced its operations as an originator of [auto] [recreational vehicle] [
motorcycle] [light duty truck] [loans] [leases] only in __________. Since that
time it has experienced rapid growth in its portfolio of [auto] [recreational
vehicle] [motorcycle] [light duty truck] [loans] [leases]. The originator
therefore has limited historical performance data with respect to the majority
of the [auto] [recreational vehicle] [motorcycle] [light duty truck] [loans]
[leases] it currently services. Although the originator has calculated and
presented in this prospectus supplement its delinquency and net loss experience
with respect to its entire portfolio of serviced [auto] [recreational vehicle]
[motorcycle] [light duty truck] [loans] [leases], we cannot assure you that the
information presented will reflect actual experience with respect to the
receivables. In addition, we cannot assure you that the future delinquency or
loan loss experience of the servicer with respect to the receivables will be
better or worse than that set forth in the table headed "Delinquency and Loss
Experience" in this prospectus supplement. The originator is at an early stage
of operations, is subject to the risks inherent in the establishment of a new
business and must, among other things, continue to attract and retain qualified
credit and collection personnel and support its [auto] [recreational vehicle]
[motorcycle] [light duty truck] [loans] [leases] business. See "The Originator
and the Servicer" in this prospectus supplement.]
S-14
<PAGE>
[THE ORIGINATOR'S INTERNET-BASED ORIGINATION PROGRAMS MAY GIVE RISE TO RISKS
THAT ARE NOT CUSTOMARY
The originator generally uses the internet and the mail to communicate with
obligors during the process of underwriting and originating [auto] [recreational
vehicle] [motorcycle] [light duty truck] [loans] [leases]. For a discussion of
the underwriting and origination process, see "The Originator and The Servicer"
in this prospectus supplement. The underwriting and origination processes and
documentation used by the originator are novel and were developed to capitalize
on the potential benefits of conducting its business over the internet and
through the mail. These processes and the related documentation may entail risks
that would not exist in a customary [auto] [recreational vehicle] [motorcycle]
[light duty truck] [loans] [leases origination program and may give rise to
challenges based on consumer protection or other laws based on issues that are
currently untested in the courts. We cannot assure you that these risks could
not adversely affect the collectability or enforceability of the contracts or
the security interests in the underlying assets.]
[YOU MAY EXPERIENCE A LOSS IN CONNECTION WITH AN EVENT OF DEFAULT
Unless an insurer default has occurred and is continuing, neither the trustee
nor the certificateholders may declare an event of default under the pooling and
servicing agreement. So long as an insurer event of default has not occurred and
is not continuing, an event of default will occur only upon delivery by the
insurer to the trustee of notice of the occurrence of events of default under
the insurance agreement. If a default occurs under the pooling and servicing
agreement, so long as an insurer default has not occurred and is not continuing,
the insurer will have the right, but not the obligation, to cause the sale, in
whole or in part, of the receivables and the other assets of the trust, which
will result in a prepayment, in whole or in part, of the certificates in advance
of their maturity dates. Following the occurrence of an event of default, the
trustee will continue to submit claims under the insurance policy as necessary
to enable the issuer to continue to make distributions on the certificates in
accordance with the terms of the pooling and servicing agreement on each
distribution date. Following the occurrence of an event of default, however, the
insurer may elect, in its sole discretion, to pay all or any portion of the
outstanding amount of the certificates, plus accrued interest on the
certificates. You may not be able to reinvest the principal repaid to you
earlier than expected at a rate of return that is at least equal to the rate of
return on your certificates.]
[POTENTIAL LOSSES ON YOUR CERTIFICATES DUE TO GEOGRAPHIC CONCENTRATION OF
RECEIVABLES
Economic conditions in the states where the obligors under the receivables
reside affect the delinquency, loan loss and repossession experience of the
issuer with respect to the receivables. Based on the principal balance of the
original pool of receivables as of __________, 200_, ______% of the receivables
were originated in ___________, _____% in ___________, and _____% in
___________. No other states have concentrations in excess of ____%.
Accordingly, adverse economic conditions or other factors affecting ________,
_______ or ________ could have an especially significant impact on the
delinquency, loan loss or repossession experience of the issuer and may
adversely affect the timing and amount of distribution of principal and interest
on your certificates.]
S-15
<PAGE>
FORWARD-LOOKING STATEMENTS
In this prospectus supplement and the accompanying prospectus, we use certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These forward-looking statements are
found in the material, including each of the tables, set forth under "Risk
Factors" and "Weighted Average Life Of The Securities" in this prospectus
supplement. Forward-looking statements are also found elsewhere in this
prospectus supplement and prospectus and include words like "expects,"
"intends," "anticipates," "estimates" and other similar words. These statements
are intended to convey our projections or expectations as of the date of this
prospectus supplement. These statements are inherently subject to a variety of
risks and uncertainties. Actual results could differ materially from those we
anticipate due to changes in, among other things:
(1) economic conditions and industry competition,
(2) political and/or social conditions, and
(3) the law and government regulatory initiatives.
We will not update or revise any forward-looking statement to reflect changes
in our expectations or changes in the conditions or circumstances on which these
statements were originally based.
DEFINED TERMS
We define and use capitalized terms in this prospectus supplement and the
prospectus to assist you in understanding the terms of the offered certificates
and this offering. We define the capitalized terms we used in this prospectus
supplement under the caption "Glossary of Terms" beginning on page S-[__] in
this prospectus supplement.
THE TRUST
GENERAL
The issuer, ___________ Trust 200_-_ is a business trust formed under the
laws of the State of ___________ under a trust agreement. After its formation,
the issuer will not engage in any activity other than:
o acquiring, holding and managing the trust fund;
o issuing the certificates;
o making distributions on the certificates issued by it; and
o engaging in other activities that are necessary, suitable or convenient to
accomplish those objectives.
S-16
<PAGE>
The trust's principal offices are in ___________, in care of ___________, as
trustee, at the address listed below under "--The Trustee" in this prospectus
supplement.
THE TRUSTEE
___________ is the trustee under the pooling and servicing agreement. The
trustee is a ___________ and its principal offices are located at ___________.
THE TRUST FUND
The trust fund will include, among other things, the following property of
the issuer:
(1) the Receivables;
(2) all payments due on or received under the Initial Receivables after the
beginning of business on the Initial Cut-off Date and under the
Subsequent Receivables after the Subsequent Cut-off Dates;
(3) any amounts as from time to time may be held in the collection account,
the Certificate Distribution Account, [the Yield Supplement Account,] the
Pre-Funding Account and the Capitalized Interest Account;
(4) an assignment of the security interests of the originator in the assets
underlying the Receivables;
(5) an assignment of the right to receive proceeds from claims on certain
physical damage, credit life and disability insurance policies covering
the assets underlying the Receivables or the obligors;
(6) the receivable file related to each Receivable; and
(7) certain other rights under the trust agreements.
The trust fund will also include an assignment of the transferor's rights
against the originator and the depositor's rights against the transferor and the
originator under the pooling and servicing agreement upon the occurrence of
certain breaches of representations and warranties.
THE RECEIVABLES POOL
ELIGIBILITY CRITERIA
The Receivables were originated by the originator in the ordinary course of
its business. The pool of Receivables will consist of the Initial Receivables
purchased by the issuer as of the Initial Cut-off Date and the Subsequent
Receivables purchased by the issuer as of the related Subsequent Cut-off Dates.
The Initial Receivables have been selected, and the Subsequent Receivables will
be selected, from the portfolio of the originator for inclusion in the pool of
Receivables by several criteria, including the following:
S-17
<PAGE>
o each Receivable has an annual percentage rate of at least ___________%,
o each Receivable as of the related cut-off date, was not more than ____
days past due;
o each Receivable has a scheduled maturity not later than ____ months before
__________, 20__;
o each Receivable had an original term to stated maturity of not more than
____ months; and
o each Receivable has had at least _____ scheduled payments received by the
servicer prior to the related cut-off date.
No selection criteria or procedures believed by the originator or the
transferor to be adverse to [the insurer or] the certificateholders were used in
selecting the receivables.
SUBSEQUENT RECEIVABLES
During the Pre-Funding Period, the transferor is obligated to purchase from
the originator and to assign to the depositor the Subsequent Receivables. The
Subsequent Receivables will then be assigned to the issuer, on each subsequent
transfer date. The aggregate principal balance of the Subsequent Receivables is
anticipated by the originator to equal approximately $__________. In connection
with each assignment of Subsequent Receivables, the issuer will be required to
pay to the depositor a cash purchase price equal to __% of the outstanding
principal balance of the Subsequent Receivables as of their Subsequent Cut-off
Dates [less required deposits to the reserve account]. The depositor will pay
the cash purchase price to the transferor and the transferor in turn will pay it
to the originator. At this agreed upon purchase price, the Initial Pre-Funded
Amount will be sufficient to purchase the entire $___________ aggregate
principal balance of Subsequent Receivables that the originator anticipates will
be transferred to the transferor. The purchase price will be withdrawn from the
Pre-Funding Account and paid to the depositor for further payment to the
transferor and the originator.
Any assignment of Subsequent Receivables is subject to the following
conditions, among others:
o each Subsequent Receivable and the underlying assets satisfies the
eligibility criteria specified under "Eligibility Criteria" above as of
the related Subsequent Cut-off Date;
o [the insurer, so long as no Insurer Default has occurred and is not
continuing, will have approved in its absolute and sole discretion the
assignment of the Subsequent Receivables to the issuer;]
o neither the originator nor the transferor will have selected the
Subsequent Receivables in a manner that it believes is adverse to the
interests of [the insurer or] the certificateholders;
S-18
<PAGE>
o the originator has delivered certain opinions of counsel with respect to
the validity of the conveyance of the Subsequent Receivables;
o the Rating Agencies will have confirmed that the ratings on the
certificates have not been withdrawn or reduced as a result of the
assignment of the Subsequent Receivables to the issuer; and
o no event of default under the pooling and servicing agreement has occurred
and is continuing.
In addition, the obligation of the issuer to purchase the Subsequent
Receivables on a subsequent transfer date is subject to the condition that the
Receivables assigned to the issuer, including the Subsequent Receivables to be
conveyed to the trust on the subsequent transfer date meet the following
criteria:
o each Subsequent Receivable assigned to the issuer will have an annual
percentage rate of _______% or higher;
o each Subsequent Receivable assigned to the issuer will have a remaining
term to stated maturity of not more than __ months; and
o not more than __% of the pool balance will have obligors whose mailing
addresses are in any one state other than [_________] unless an opinion of
counsel acceptable to the Rating Agencies [and the insurer] with respect
to the security interest in the related [____________] is furnished by the
transferor on or prior to the subsequent transfer date.
Except for the criteria described in the preceding paragraphs, there are no
required characteristics for the Subsequent Receivables. Therefore, following
the transfer of Subsequent Receivables to the trust, the aggregate
characteristics of the entire pool of Receivables included in the trust,
including the composition of the Receivables, the distribution by annual
percentage rate, the geographic distribution and the distribution by remaining
term described in the following tables, will vary from those of the Initial
Receivables.
POOL COMPOSITION
Set forth in the following tables is information concerning the composition,
distribution by geographic location, distribution by remaining Principal
Balance, distribution by APR, distribution by original term to stated maturity,
distribution by remaining term to stated maturity and distribution by loan
purpose of the Initial Receivables to be assigned to the issuer as of the
Initial Cut-off Date.
S-19
<PAGE>
COMPOSITION OF THE INITIAL RECEIVABLES POOL
AS OF THE INITIAL CUT-OFF DATE
Aggregate Principal Balance............................. $
Number of Receivables...................................
Average Principal Balance............................... $
(Range).................................................
Average Original Amount Financed........................ $
(Range).................................................
Weighted Average APR....................................
(Range).................................................
Weighted Average Original Term to Stated Maturity.......
(Range).................................................
Weighted Average Remaining Term to Stated Maturity......
(Range).................................................
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES AS OF
THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
RANGE OF REMAINING PRINCIPAL BALANCES NUMBER OF RECEIVABLES BALANCE BALANCE (1)
------------------------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C>
$ $
</TABLE>
---------------------------
(1) Percentages may not add to 100.00% due to rounding.
S-20
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES POOL AS OF THE
INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
STATE (1) RECEIVABLES BALANCE BALANCE (2)
------------------------------------------------ ----------- ------------------- -------------------
<S> <C> <C> <C>
Alabama......................................... $ %
Arizona.........................................
Arkansas........................................
California......................................
Colorado........................................
Connecticut.....................................
District of Columbia............................
Florida.........................................
Georgia.........................................
Idaho...........................................
Indiana.........................................
Iowa............................................
Kansas..........................................
Kentucky........................................
Maine...........................................
Maryland........................................
Massachusetts...................................
Michigan........................................
Minnesota.......................................
Missouri........................................
Montana.........................................
Nebraska........................................
New Jersey......................................
New Mexico......................................
New York........................................
North Carolina..................................
Ohio............................................
Oklahoma........................................
Oregon..........................................
Rhode Island....................................
South Carolina..................................
Tennessee.......................................
Texas...........................................
Utah............................................
Virginia........................................
Washington......................................
West Virginia...................................
Wisconsin.......................................
Total...........................................
</TABLE>
S-21
<PAGE>
---------------------------
(1) Based on mailing addresses of the obligors as of the date of origination.
(2) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE INITIAL RECEIVABLES AS OF
THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
RANGE OF ANNUAL PERCENTAGE RATES NUMBER OF RECEIVABLES BALANCE BALANCE (2)
-------------------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C>
$ %
</TABLE>
---------------------------
(1) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY ORIGINAL TERM TO STATED MATURITY OF THE INITIAL RECEIVABLES AS
OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
RANGE OF ANNUAL PERCENTAGE RATES NUMBER OF RECEIVABLES BALANCE BALANCE (2)
-------------------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C>
$ %
</TABLE>
---------------------------
(1) Percentages may not add to 100.00% due to rounding.
S-22
<PAGE>
DISTRIBUTION BY REMAINING TERM TO STATED MATURITY OF THE
INITIAL RECEIVABLES AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
RANGE OF REMAINING TERMS (1) NUMBER OF RECEIVABLES BALANCE BALANCE (2)
---------------------------- --------------------- ------------------- --------------------
<S> <C> <C> <C>
$ %
</TABLE>
---------------------------
(1) Defined as the number of months from the Initial Cut-off Date to stated
maturity.
(2) Percentages may not add to 100.00% due to rounding.
[DISTRIBUTION BY LOAN PURPOSE AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
LOAN PURPOSE RECEIVABLES BALANCE BALANCE (2)
------------ ----------- ------------------- -------------------
<S> <C> <C> <C>
[____________] Purchase......................... $ %
[____________] Purchase.........................
Refinance of Existing Loan......................
Lease Buyout....................................
Total...........................................
</TABLE>
---------------------------
(1) Percentages may not add to 100.00% due to rounding.]
THE TRANSFEROR
_________________, will be organized as a _____________ on or before the
closing date and is wholly-owned by _____________. The transferor will be
organized for limited purposes, which include selling and assigning receivables
sold to it by the originator to the depositor and any activities incidental to
and necessary or convenient for the accomplishment of that purpose. The
principal executive offices of the transferor are located at
_________________________, __________, ________, _______, and its telephone
number is (___) ____-_____.
S-23
<PAGE>
THE DEPOSITOR
PaineWebber Asset Acceptance Corporation, a Delaware corporation, is a
wholly-owned limited purpose finance subsidiary of PaineWebber Group Inc. The
principal executive offices of the depositor are located at 1285 Avenue of the
Americas, New York, New York 10019.
THE ORIGINATOR AND THE SERVICER
______________, a _____________, was formed in ______. Its executive offices
are located at _____________, and its telephone number is (___) ___-____.
GENERAL
[DESCRIBE ORIGINATOR'S BUSINESS GENERALLY]
ORIGINATION PROCESS AND CREDIT EVALUATION PROCEDURES
[DESCRIBE FOR SPECIFIC ORIGINATOR]
CONTRACT PROCESSING, PURCHASE, SERVICING AND ADMINISTRATION
[DESCRIBE FOR SPECIFIC ORIGINATOR]
DELINQUENCY CONTROL AND COLLECTION STRATEGY
[DESCRIBE FOR SPECIFIC ORIGINATOR/SERVICER]
DELINQUENCY AND LOSS EXPERIENCE
[DESCRIBE FOR SPECIFIC ORIGINATOR/SERVICER]
S-24
<PAGE>
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment considerations with
respect to the certificates is set forth under "Risk Factors--Maturity and
Prepayment Considerations" and "The Receivables--Maturity and Prepayment
Considerations" in the prospectus. As the rate of distribution of principal of
the Class A certificates depends primarily on the rate of payment including
prepayments of the principal balance of the Receivables, final distribution to
the Class A certificates could occur significantly earlier than the applicable
Final Scheduled Distribution Date for that class. Reinvestment risk associated
with early payment of the certificates will be borne exclusively by the
certificateholders. It is expected that final distribution of each class of
certificates will occur on or prior to the Final Scheduled Distribution Date.
However, if sufficient funds are not available to pay the Class A certificates
in full on or prior to the applicable Final Scheduled Distribution Date, final
distribution would occur later than that date.
Prepayments on Receivables can be measured relative to a prepayment standard
or model. The model used in this prospectus supplement, the ABS, represents an
assumed rate of prepayment each month relative to the original number of
receivables in a pool of receivables. ABS further assumes that all the
S-25
<PAGE>
receivables are the same size and amortize at the same rate and that each
receivable in each month of its life will either be paid as scheduled or be
prepaid in full. For example, in a pool of receivables originally containing
10,000 receivables, a 1% ABS rate means that 100 receivables prepay each month.
ABS does not purport to be a historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of receivables,
including the Receivables.
The following tables have been prepared on the basis of the characteristics
of the Receivables. The tables assume that:
(1) the Receivables prepay in full at the specified constant percentage of
ABS monthly, with no defaults, losses or repurchases;
(2) each scheduled monthly payment on the Receivables is made on the last day
of each month and each month has 30 days;
(3) distributions on the certificates are made on each distribution date;
(4) [the Yield Supplement Amount is deposited into the Collection Account
each period;]
(5) the amount deposited into the Pre-Funding Account on the closing date is
applied in its entirety to the purchase of Receivables transferred to the
issuer during the Pre-Funding Period and to make related deposits to the
[Reserve Account, the Yield Supplement Account and the] Capitalized
Interest Account; and
(6) the transferor exercises its option to purchase the Receivables.
The tables also assume that the Receivables have been aggregated into
hypothetical pools with all of the Receivables within each pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools will be set up so that each pool will be fully amortized by the end
of its remaining term to maturity. The scheduled monthly payment for each of the
pools which is based on its aggregate principal balance, APR, original number of
scheduled payments and remaining number of scheduled payments as of the related
Cut-off Date.
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL ORIGINAL TERM TO MATURITY REMAINING AMORTIZATION TERM
POOL BALANCE APR (IN MONTHS) (IN MONTHS) CUT-OFF DATE
---- --------- --- ------------------------- --------------------------- ------------
<S> <C> <C> <C> <C> <C>
1 $ %
2
3
4
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the tables. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivable will prepay at the
same
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<PAGE>
level of ABS. Moreover, the diverse terms of Receivables within each of the four
hypothetical pools could produce slower or faster principal distributions than
indicated in the tables at the various constant percentages of ABS specified,
even if the original and remaining terms to maturity of the Receivables are as
assumed. Any difference between the assumptions and the actual characteristics
and performance of the Receivables, or actual prepayment experience, will affect
the percentages of initial balances outstanding over time and the weighted
average lives of each class of certificates.
The following tables have been prepared based on the assumptions described
above, including the assumptions regarding the characteristics and performance
of the Receivables which will differ from the actual characteristics and
performance of the Receivables, and should be read in conjunction with those
assumptions.
<TABLE>
PERCENT OF INITIAL CLASS A CERTIFICATE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<CAPTION>
DISTRIBUTION DATE 0.00% 1.00% 1.30% 1.50% 1.70% 2.00%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date...........................
December ___________...................
January ___________....................
February ___________...................
March ___________......................
April ___________......................
May ___________........................
June ___________.......................
July ___________.......................
August ___________.....................
September ___________..................
October ___________....................
November ___________...................
December ___________...................
January ___________....................
February ___________...................
March ___________......................
April ___________......................
May ___________........................
June ___________.......................
July ___________.......................
August ___________.....................
September ___________..................
October ___________....................
November ___________...................
December ___________...................
January ___________....................
February ___________...................
March ___________......................
April ___________......................
May ___________........................
S-27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION DATE 0.00% 1.00% 1.30% 1.50% 1.70% 2.00%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
June ___________.......................
July ___________.......................
August ___________.....................
September ___________..................
October ___________....................
November ___________...................
December ___________...................
January ___________....................
February ___________...................
March ___________......................
April ___________......................
May ___________........................
June ___________.......................
July ___________.......................
August ___________.....................
Weighted Average Life (years)(1)
Weighted Average Life (years)(1) (2)
</TABLE>
---------------------------
(1) The weighted average life of a certificate is determined by (a) multiplying
the amount of each principal distribution of the certificate by the number
of years from the date of the issuance of that certificate to the related
distribution date, (b) adding the results and (c) dividing the sum by the
related initial principal amount of that certificate.
(2) This calculation assumes that the transferor does not exercise its option to
purchase the Receivables.
DESCRIPTION OF CERTIFICATES
GENERAL
The certificates will consist of the Class A certificates and the subordinate
certificates. The certificates will be issued by ____________________ Trust
200_, a trust to be organized under the laws of __________. Only the Class A
certificates are offered by this prospectus supplement.
Persons in whose name a certificate is registered in the register maintained
by the trustee are the holders of the certificates. For so long as the Class A
certificates are in book-entry form with DTC, the only holder of the Class A
certificates will be Cede & Co. All references in this prospectus supplement to
the holders of Class A certificates will mean and include the rights of Class A
interest holders, as those rights may be exercised through DTC and its
participating organizations, except as otherwise specified in the pooling and
servicing agreement.
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<PAGE>
The obligations evidenced by the certificates are recourse to the assets of
the trust only and are not recourse to the depositor, the seller, the
originators, the servicer, the trustee, or any other person, except that the
Policy is a recourse obligation of the insurer.
The percentage interest owned by a Class A certificateholder will be
expressed, for voting and certain other purposes under the pooling and servicing
agreement, as the percentage obtained by dividing the denomination representing
the percentage interest of the Class A certificate by the Class A Principal
Distributable Amount. So long as no Insurer Default has occurred and is
continuing, except as otherwise specifically provided in the pooling and
servicing agreement, whenever the action, consent or approval of a Class A
certificateholder is required under the pooling and servicing agreement, this
action, consent or approval will be deemed to have been taken or given on behalf
of, and will be binding upon, all Class A certificateholders if the insurer
agrees to take this action or give its consent or approval.
DISTRIBUTIONS
The first distribution date for distributions to the Class A
certificateholders will be __________. In general, the Class A
certificateholders will be entitled to receive, on each distribution date, the
Class A Principal Distributable Amount and the Class A Interest Distributable
Amount. Distributions of principal and interest on the Class A certificates will
be made by the trustee directly to Class A certificateholders in whose names the
Class A certificates are registered at the close of business on the record date
in accordance with the procedures set forth in the pooling and servicing
agreement. These distributions will be made by check mailed to the address of
the certificateholder as it appears on the register maintained by the trustee
or, upon the request of any certificateholder meeting the requirements set forth
in the pooling and servicing agreement, by wire transfer of immediately
available funds. On the Final Scheduled Distribution Date, the Class A Principal
Distribution Amount will equal the Class A Certificate Balance as of the Final
Scheduled Distribution Date. The final distribution on any Class A certificate,
however, will be made only upon presentation and surrender of the Class A
certificate at the office or agency specified in the notice of final
distribution to certificateholders.
THE ACCOUNTS
The servicer will establish the Collection Account in the name of the trustee
on behalf of the certificateholders and the insurer. Certain payments made on or
with respect to the Receivables will be deposited daily in the Collection
Account by the sub-servicers. On a specified date each month and prior to the
distribution date, all collections relating to the prior Collection Period will
be withdrawn from the Collection Account and deposited with the trustee for
distribution on the related distribution date.
The servicer will deposit all payments on Receivables received and all
proceeds of Receivables collected during each Collection Period into the
Collection Account no later than the ________ business day after receipt.
__________ will remit the aggregate purchase amount of any Receivables required
to be repurchased by it from the trust to the trustee on or before the
__________ business day immediately preceding the related distribution date.
S-29
<PAGE>
The Collection Account will be initially established and maintained with the
trustee so long as
o the trustee's short-term unsecured debt obligations have a rating of by
_____ and _____ by _____; or
o the Collection Account is maintained in the trust department of the
trustee.
COLLECTIONS
For purposes of the pooling and servicing agreement, collections on a
Receivable which are not late fees, prepayment charges, or other administrative
fees and expenses collected during a Collection Period are required to be
applied first to the scheduled distribution. To the extent that the collections
on a Receivable during a Collection Period exceed the scheduled payment on the
Receivable, the collections are required to be applied to prepay the Receivable
in full. If the collections are insufficient to prepay the Receivable in full,
any partial prepayment of principal during a Collection Period will be
immediately applied to reduce the principal balance of the Receivable
during the Collection Period. However, for purposes of the pooling and servicing
agreement, scheduled payments for Receivables are required to be allocated to
principal and interest according to the actuarial method.
FLOW OF FUNDS
On each distribution date, the trustee will, based on the information
contained in the servicer's certificate delivered on the related determination
date, distribute the following amounts and in the following order of priority:
o first, from the Distribution Amount, to the servicer, the servicing fee
for the related Collection Period, any supplemental servicing fees for the
related Collection Period, and certain other amounts relating to mistaken
deposits, postings or checks returned for insufficient funds to the extent
the servicer has not reimbursed itself in respect of these amounts;
o second, from the Distribution Amount, to a relevant local bank, trustee,
custodian, backup servicer or a collateral agent, including the trustee if
acting in an additional capacity, any accrued and unpaid fees, in each
case, to the extent the person has not previously received the amount from
the servicer;
o third, from the amount available to the Class A certificateholders, the
sum of (x) the Class A Interest Distributable Amount for that distribution
date and (y) the Class A Interest Carryover Shortfall, if any, for that
distribution date;
o fourth, from the Amount Available to the Class A certificateholders, the
sum of (x) the Class A Principal Distributable Amount for that
distribution date and (y) the Class A Principal Carryover Shortfall, if
any, for that distribution date;
S-30
<PAGE>
o fifth, from the distribution amount, to the insurer, to the extent of any
amounts owing to the insurer, whether with respect to premiums or
otherwise, and not paid, whether or not the originators are also obligated
to pay those amounts;
o sixth, the remaining available funds will be first deposited in certain
collateral accounts maintained for the benefit of the insurer and
thereafter any further excess amounts will be distributed to the
subordinate certificateholders.
WITHHOLDING
The trustee is required to comply with all federal income tax withholding
requirements respecting distributions to Class A certificateholders of interest
or original issue discount with respect to the Class A certificates that the
trustee reasonably believes are applicable under the Code. The consent of the
Class A certificateholders will not be required for this withholding. In the
event that the trustee does withhold or causes to be withheld any amount from
interest or original issue discount distributions or related advances to any
Class A certificateholders under federal income tax withholding requirements,
the trustee is required to indicate the amount withheld in its monthly report to
the Class A certificateholders.
[THE INSURER]
[The following information has been obtained from _______________, the
insurer, and has not been verified by the issuer, the depositor, the transferor,
__________ or the underwriters. No representation or warranty is made by the
issuer, the depositor, the transferor, ____________ or the underwriters.
GENERAL
________________ is a _______________ incorporated in ____ under the laws of
the State of ___________. _____________ is licensed to engage in the financial
guaranty insurance business in _____ states, the District of Columbia and Puerto
Rico.
________________ and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. In general, financial guaranty insurance consists
of the issuance of a guaranty of scheduled distributions of an issuer's
securities--thereby enhancing the credit rating of those securities--in
consideration for the payment of a premium to the insurer. ________________ and
its subsidiaries principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by residential
mortgage loans, consumer or trade receivables, securities or other assets having
an ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments.
________________ insures both newly issued securities sold in the primary market
and outstanding securities sold in the secondary market that satisfy
________________'s underwriting criteria.
[ADDITIONAL INSURER CORPORATE INFORMATION]
S-31
<PAGE>
The principal executive offices of ________________ are located at
_________________________________, and its telephone number at that location is
______________.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by ________________ or any of
its domestic or [_______] operating insurance company subsidiaries are generally
reinsured among those companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, ________________ reinsures a
portion of its liabilities under certain of its financial guaranty insurance
policies with other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. This reinsurance is utilized by
________________ as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit
________________'s obligations under any financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY
________________'s insurance financial strength is rated "______" by ______.
________________'s insurer financial strength is rated "______" by _______.
_____________________'s claims-paying ability is rated "______" by _____________
and ________________. These ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by the rating agencies.
CAPITALIZATION
The following table sets forth the capitalization of _____________ and its
wholly owned subsidiaries on the basis of generally accepted accounting
principles as of _____________, 200_:
S-32
<PAGE>
___________, 200_
--------------------------------------------------- -----------------
(UNAUDITED)
(IN THOUSANDS)
Deferred Premium Revenue (net of prepaid
reinsurance premiums)....................... $
Surplus Notes.................................
Minority Interest.............................
Shareholder's Equity:
Common Stock................................
Additional Paid-in Capital..................
Accumulated Other Comprehensive...............
Income (net of deferred income taxes).........
Accumulated Earnings..........................
Total Shareholder's Equity....................
Total Deferred Premium Revenue, Surplus
Notes, Minority Interest and Shareholder's
Equity......................................
For further information concerning ________________, see the Consolidated
Financial Statements of ________________ and __________, and the accompanying
notes, incorporated by reference in this prospectus supplement.
________________'s financial statements are included as Exhibits to the Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the SEC by
___________ and may be reviewed at the EDGAR Website maintained by the SEC and
at ___________' website, ____________.com. Copies of the statutory quarterly and
annual statements filed with the State of __________________by ________________
are available upon request to the State of __________________.
INSURANCE REGULATION
_____________ is licensed and subject to regulation as a financial guaranty
insurance corporation under the laws of the State of _______, its state of
domicile. In addition, _____________ and its insurance subsidiaries are subject
to regulation by insurance laws of the various other jurisdictions in which they
are licensed to do business. [As a financial guaranty insurance corporation
licensed to do business in the State of _______, ____________ is subject to
Article 69 of the New York Insurance Law which, among other things, limits the
business of that insurer to financial guaranty insurance and related lines,
requires that the insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for the
insurer, and limits the size of individual transactions and the volume of
transactions that may be underwritten by the insurer. Other provisions of the
New York Insurance Law, applicable to non-life insurance companies such as
__________, regulate, among other things, permitted investments, payment of
dividends, transactions with affiliates, mergers, consolidations, acquisitions
or sales of assets and incurrence of liability for borrowings.]]
S-33
<PAGE>
[THE POLICY]
[The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the certificates, the insurer will
deliver the Policy to the trustee for the benefit of each certificateholder.
Under the Policy, the insurer will unconditionally and irrevocably guarantee to
the trustee for the benefit of each certificateholder the full and complete
payment of:
o Scheduled Payments on the certificates and
o the amount of any Scheduled Payment which subsequently is avoided in whole
or in part as a preference payment under applicable law.
In the event the trustee fails to make a claim under the Policy,
certificateholders do not have the right to make a claim directly under the
Policy, but may sue to compel the trustee to do so.
Scheduled Payments do not include payments which become due on an accelerated
basis as a result of
o a default by the issuer,
o an election by the issuer to pay principal on an accelerated basis,
o the occurrence of an event of default under the pooling and servicing
agreement or
o any other cause, unless the insurer elects, in its sole discretion, to pay
in whole or in part the principal due upon acceleration, together with any
accrued interest to the date of acceleration.
In the event the insurer does not so elect, the Policy will continue to
guarantee Scheduled Payments due on the certificates in accordance with their
original terms. Scheduled Payments will not include unless, in each case, the
insurer elects, in its sole discretion, to pay the amount in whole or in part:
o any portion of the Certificateholders' Interest Distributable Amount due
to certificateholders because the appropriate notice and certificate for
payment in proper form was not timely received by the insurer, or
o any portion of the Certificateholders' Interest Distributable Amount due
to certificateholders representing interest on any Certificateholders'
Interest Carryover Shortfall accrued from and including the date of
distribution of the amount of the Certificateholders' Interest Carryover
Shortfall under to the Policy.
Scheduled Payments will not include any amounts due in respect of the
certificates attributable to any increase in interest rate, penalty or other sum
payable by the issuer by reason of any default or event of default in respect of
the certificates or by reason of any deterioration of
S-34
<PAGE>
the creditworthiness of the issuer nor shall coverage be provided under the
Policy in respect of any taxes, withholding or other charge imposed with respect
to any certificateholder by any governmental authority due in connection with
the payment of any Scheduled Payment to a certificateholder.
Payment of claims on the Policy made in respect of Scheduled Payments will be
made by the insurer following receipt by the insurer of the appropriate notice
for payment on the later to occur of:
o 12:00 noon, New York City time, on the [___ business day following
receipt] of the notice for payment, and
o 12:00 noon, New York City time, on the date on which the payment was due
on the certificates.
If payment of any amount avoided as a preference under applicable bankruptcy,
insolvency, receivership or similar law is required to be made under the Policy,
the insurer will cause the payment to be made on the later of:
o the date when due to be paid pursuant to the order of the court or other
governmental body and the first to occur of:
o the fourth business day following receipt by the insurer from the trustee
of (A) a certified copy of the order of the court or other governmental
body that exercised jurisdiction to the effect that certificateholders are
required to return Scheduled Payments made with respect to the
certificates during the term of the Policy because the payments were
avoidable as preference payments under applicable bankruptcy law, (B) a
certificate of the trustee that the court order has been entered and is
not subject to any stay and (C) an assignment executed and delivered by
the certificateholder, in a form as is reasonably required by the insurer
and provided to the certificateholder by the insurer, irrevocably
assigning to the insurer all rights and claims of the certificateholder
relating to or arising under the certificates against the issuer or
otherwise with respect to the preference payment, and
o the date of receipt by the insurer from the trustee of the items referred
to in clauses (A), (B) and (C) above if, at least ___ business days prior
to the date of receipt, the insurer has received written notice from the
trustee that the items were to be delivered on that date and that date was
specified in the notice. The payment will be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the
court order and not to the trustee or any certificateholder directly,
unless a certificateholder has previously paid that amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named
in the order, in which case the payment will be
S-35
<PAGE>
disbursed to the trustee for distribution to the certificateholder upon
proof of the payment reasonably satisfactory to the insurer.
In connection with the foregoing, the insurer will have the rights provided
under the pooling and servicing agreement including, without limitation, the
right, in the absence of an Insurer Default, to direct all matters relating to
any preference claim and subrogation to the rights of the trustee and each
certificateholder in the conduct of any proceeding with respect to a preference
claim.]
[OTHER PROVISIONS OF THE POLICY]
[The terms "receipt" and "received" with respect to the Policy will mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to 12:00
noon, New York City time, on a business day; delivery either on a day that is
not a business day or after 12:00 noon, New York City time, will be deemed to be
received on the next succeeding business day. If any notice or certificate given
under a Policy by the trustee is not in proper form or is not properly
completed, executed or delivered, it will be deemed not to have been received,
and the insurer or its fiscal agent will promptly so advise the trustee and the
trustee may submit an amended notice.
[Under the Policy, "business day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in,
or are authorized or obligated by law, executive order or governmental decree to
be closed.]
The Insurer's obligations under the Policy in respect of Scheduled Payments
will be discharged to the extent funds are transferred to the trustee as
provided in the Policy whether or not the funds are properly applied by the
trustee.
The insurer will be subrogated to the rights of each certificateholder to
receive payments of principal and interest to the extent of any payment by the
insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the insurer for borrowed money. Claims
against the insurer under the Policy and each other financial guaranty insurance
policy issued by the insurer constitute pari passu claims against the general
assets of the insurer. The terms of the Policy cannot be modified or altered by
any other agreement or instrument, or by the merger, consolidation or
dissolution of the issuer. The Policy may not be canceled or revoked prior to
distribution in full of all Scheduled Payments. The Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law. The Policy is governed by the laws of New York.
It is a condition to issuance that the certificates be rated ______ by ______
and ______ by _______'s. The ratings by the Rating Agencies of the certificates
will be based primarily on the issuance of the Policy. A rating is not a
recommendation to purchase, hold or sell certificates. In the event that the
rating initially assigned to any of the certificates is subsequently lowered or
withdrawn for any reason, including by reason of a downgrading of the
claims-paying ability of the insurer, no person or entity will be obligated to
provide any additional credit enhancement
S-36
<PAGE>
with respect to the certificates. Any reduction or withdrawal of the rating may
have an adverse effect on the liquidity and market price of the certificates.]
THE POOLING AND SERVICING AGREEMENT AND THE TRANSFER AGREEMENTS
The following summary describes certain terms of the pooling and servicing
agreement and the transfer agreements, does not purport to be complete and is
subject to and qualified in its entirety by reference to the agreements.
Wherever provisions of the agreements are referred to, the provisions are by
this prospectus supplement incorporated by reference.
CONVEYANCE OF RECEIVABLES
The Receivables were sold by the originators to the seller and sold by the
seller to the depositor. At the time of issuance of the Class A certificates,
the depositor will sell and assign to the trustee, without recourse, the
depositor's entire interest in the Receivables, including its security interests
in the underlying assets. Each Receivable will be identified in a schedule to
the pooling and servicing agreement. The trustee will, concurrently with the
sale and assignment, execute, authenticate and issue the certificates.
In the pooling and servicing agreement, the depositor will appoint the
trustee as the depositor's attorney-in-fact with all power independently to
enforce all of the depositor's rights against the originator for breach of the
representations and warranties made under the transfer agreements. This includes
the originator's obligation to repurchase any Receivable from the trust if the
breach of a representation or warranty relating to a Receivable materially and
adversely affects the value of the Receivable or the interests of the trust, the
certificateholders or the insurer in the Receivable unless the breach will have
been cured by the deposit date of the first full calendar month following the
discovery by or notice to the originator of the breach.
The originator will deliver to the trustee a receivable file with respect to
each Receivable containing the original contract for each Receivable and the
original certificate of title or certificate of lien.
SERVICING
The Receivables will be serviced by the servicer under the pooling and
servicing agreement. However, ____________ will act as sub-servicer with respect
to the Receivables it originates and __________ will act as sub-servicer with
respect to the Receivables it originates.
Each sub-servicer will be required to make reasonable efforts to collect all
payments due with respect to the Receivables and will continue the collection
procedures as each generally follows with respect to all comparable Receivables
that it services for itself or others, in a manner consistent with the pooling
and servicing agreement. If a sub-servicer determines that eventual payment in
full of a Receivable is unlikely, each will follow its normal collection
practices and procedures, including the repossession and disposition of the
underlying assets securing the Receivable at a public or private sale, or the
taking of any other action permitted by applicable law.
S-37
<PAGE>
Servicing Compensation. The servicer is entitled under the pooling and
servicing agreement on each distribution date to the Servicing Fee for the
related monthly period. The servicer may retain the Servicing Fee from
collections on the Receivables. See "Description of the Trust
Agreements--Servicing Compensation" in the prospectus.
Appointment of Subservicer. The servicer may at any time appoint a
subservicer to perform all or any portion of its obligations as servicer upon
the prior written consent of the Controlling Party. However, the servicer may
refer delinquent accounts to an outside collection agency for further collection
and possible repossession of the related Receivable without the consent of the
Controlling Party. The servicer will remain obligated and liable to the trustee,
the insurer and the certificateholders for the servicing and administering of
the Receivables in accordance with the provisions of the receivables without
diminution of its obligation and liability by virtue of the appointment of a
subservicer and to the same extent and under the same terms and conditions as if
the servicer alone were servicing and administering the Receivables. The fees
and expenses of the subservicer will be as agreed between the servicer and its
subservicer from time to time and none of the trustee, the insurer, the
certificateholders will have any responsibility for those fees and expenses.
Evidence as to Compliance. The pooling and servicing agreement will provide
that a firm of independent public accountants will furnish to the trustee, the
backup servicer, [the insurer,] the depositor, the certificateholders and each
rating agency, for the first two calendar months after the closing date and if
exceptions or errors that are required by generally accepted auditing standards
to be reported exist, for each month thereafter until reports for two
consecutive months indicate no exceptions or errors that are required by
generally accepted auditing standards to be reported, a report of its audit of
the Servicer's financial statements including its examination of the servicer's
and each sub-servicer's financial statements and policies and procedures as of
that date. The accountant's report will also be submitted on or before
__________ of each year with respect to the twelve months ended the immediately
preceding __________, beginning __________.
The pooling and servicing agreement will also provide for delivery to the
trustee [and the insurer], on or before __________ of each year, commencing
__________, of a certificate signed by an officer of the servicer stating that
the servicer has fulfilled its obligations under the pooling and servicing
agreement throughout the preceding twelve months, or, for the initial report,
for a shorter period as will have elapsed from the date of issuance of the
certificates, or, if there has been a default in the fulfillment of the
obligation, describing the default.
Copies of the statements and certificates may be obtained by the Class A
certificateholders by a request in writing addressed to the trustee.
Monthly Statement. Under the pooling and servicing agreement, the servicer
will perform certain monitoring and reporting functions for the trustee and the
insurer, including the preparation and delivery on the determination date to the
trustee and the insurer of a statement setting forth the amounts on deposit in
the Collection Account and the sources of the amounts and the amounts to be paid
to certificateholders and certain other information.
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<PAGE>
Retention and Termination of Servicer. Under the pooling and servicing
agreement, the servicer will act as servicer for an initial term commencing on
the closing date and ending on __________, which term will be extendible by the
insurer for successive quarterly terms ending on each successive March 31, June
30, September 30 and December 31 until the termination of the trust.
Removal of the Servicer. The pooling and servicing agreement will provide
that the servicer may not resign from its obligations and duties as servicer
under the pooling and servicing agreement, except upon a determination that the
servicer's performance of its duties is no longer permissible under applicable
law. This resignation will not become effective until the backup servicer or
another successor servicer acceptable to the insurer has assumed the servicer's
servicing obligations and duties under the servicing agreement. The servicer can
only be removed under a servicer termination event. A servicer termination event
under the pooling and servicing agreement will include:
o the servicer's failure to deliver to the trustee in accordance with the
pooling and servicing agreement any proceeds or payments required for
distribution to the certificateholders which failure continues unremedied
for a period of __________ business days, after written notice is received
by the servicer from the trustee, [the insurer, unless an Insurer Default
will have occurred and be continuing] or after discovery of the failure by
a responsible officer of the servicer;
o the servicer's failure to deliver the servicer's certificate to the
trustee or to the insurer on the date on which the certificate is
required, under the pooling and servicing agreement, to be delivered, or
failure on the part of the servicer to observe certain of its covenants
and agreements set forth in the pooling and servicing agreement;
o failure to satisfy certain other material covenants or agreements set
forth in the pooling and servicing agreement, which covenants and
agreements remain uncured for a period of days after notice of the failure
to satisfy those covenants or agreements;
o certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings with respect to the servicer
indicating its insolvency, reorganization under bankruptcy proceedings, or
inability to pay its obligations which condition remains in effect for a
period of 60 consecutive days or the commencement of an involuntary case
under the federal bankruptcy laws, as now or in this prospectus supplement
after in effect, or another present or future federal or state bankruptcy,
insolvency or similar law and the case is not dismissed within __________
days;
o the material breach of certain of the servicer's representations or
warranties and the servicer's failure to cure the breach within __________
days after notice of the breach;
o the servicer's term not being extended as provided in the pooling and
servicing agreement;
o [certain defaults under the insurance agreement; and]
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o [a claim being made under the Policy.]
In addition, a servicer termination event includes any default by either
sub-servicer.
Rights Upon a Servicer Termination Event. If a servicer termination event has
occurred and is continuing, [the insurer, or, if an Insurer Default exists,
either] the trustee or the majority of certificateholders may terminate all, but
not less than all, of the servicer's rights and obligations under the pooling
and servicing agreement. Upon this termination, all authority, powers,
obligations and responsibilities of the servicer under the pooling and servicing
agreement automatically then pass to the backup servicer, [or, at the direction
of the insurer,] a successor servicer appointed by [the insurer, or, if an
Insurer Default exists, by] the Certificate Majority.
[Waiver of Past Defaults. The insurer may, on behalf of all
certificateholders, waive any default by the Servicer in the performance of its
obligations under the pooling and servicing agreement and its consequences. This
waiver will not impair the certificateholders' rights with respect to subsequent
defaults.]
CERTAIN REPORTS
Reports to Certificateholders. On each distribution date, the trustee will be
required to forward to each Class A certificateholder [and, to the insurer] a
statement, setting forth certain information for the Collection Period related
to the distribution date based on information provided to the trustee by the
servicer with respect to the preceding Collection Period. The information
provided in the statement will include:
o the amount of the distribution allocable to principal and the amount of
the distribution allocable to interest;
o the Class A Certificate Balance, after giving effect to distributions made
on the distribution date;
o the amount of fees paid to the trust with respect to the Collection
Period; the Class A certificate factor;
o certain loss and delinquency information; and
o whether certain events of default have occurred.
In addition, within the prescribed period of time for tax reporting purposes
after the end of each calendar year during the term of the pooling and servicing
agreement, the trustee will be required to mail to each person who at any time
during the calendar year will have been a Class A certificateholder a statement
containing certain information related to the certificateholder's preparation of
federal income tax returns.
The "Class A certificate factor" will be a seven-digit decimal number which
the servicer will compute each month indicating the Class A Certificate Balance
as of the close of business on the distribution date in that month as a fraction
of the respective original outstanding principal balance of the Class A
certificates. The Class A certificate factor will be 1.0000000 as of the
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Cut-Off Date. After the Cut-Off Date, the Class A certificate factor will
decline to reflect reductions in the Class A Certificate Balance as a result of
Scheduled Payments collected, partial prepayments, prepayments and liquidations
of the Receivables. The amount of a Class A certificateholder's pro rata share
of the Class A Certificate Balance can be determined on any date by multiplying
the original denomination of the holder's certificate by the Class A certificate
factor as of the close of business on the most recent distribution date.
TERMINATION
Termination of the Trust. The obligations of the servicer, the depositor and
the trustee under the pooling and servicing agreement [and of the insurer] will
terminate upon the latest of:
o the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any remaining
Receivables; and
o the payment to certificateholders of all amounts required to be paid to
them under the pooling and servicing agreement, the expiration of any
preference period related to the pooling and servicing agreement [and
payment to the insurer of all amounts payable or reimbursable to it under
the pooling and servicing agreement and the insurance agreement].
The representations, warranties and indemnities of the depositor, the seller
and the Servicer will survive any termination of the trust and the pooling and
servicing agreement.
Optional Purchase. The pooling and servicing agreement will provide that the
servicer is permitted at its option to purchase from the trust, as of the last
day of any month as of which the Aggregate Principal Balance with respect to the
Receivables is less than 10% of the original Aggregate Principal Balance, all
remaining Receivables at a price equal to the aggregate of the Purchase Amounts
of the Receivables as of the last day, plus the appraised value of any other
property held by the trust. [This repurchase requires the consent of the
insurer.]
AMENDMENT
The pooling and servicing agreement may be amended by the servicer, the
depositor and the trustee, [with the prior written consent of the insurer,] but
without the consent of the certificateholders, to cure any ambiguity, or to
correct or supplement any provision tin this prospectus supplement which may be
inconsistent with any other provision in this prospectus supplement. However,
this amendment may not adversely affect in any material respect the interests of
the certificateholders.
The servicer, the depositor and the trustee may also amend the pooling and
servicing agreement with the prior written consent of [the insurer and] the
consent of the Certificate Majority to add, change or eliminate any other
provisions with respect to matters or questions arising under the pooling and
servicing agreement or affecting the rights of the certificateholders. However,
this amendment may not:
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o increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions that
are required to be made on any certificate or change the pass-through rate
applicable to any class of certificates; or
o reduce the percentage of certificateholders required to consent to the
amendment, without, in either case, the consent of all of the affected
certificateholders.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain federal income tax
consequences of the purchase, ownership and disposition of Class A certificates.
This summary is based upon laws, regulations, rulings and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Class A certificates as "capital assets,"
generally, property held for investment, within the meaning of Section 1221 of
the Code. Investors should consult their own tax advisors to determine the
federal, state, local and other tax consequences of the purchase, ownership and
disposition of the Class A certificates. Prospective investors should note that
no rulings have been or will be sought from the IRS with respect to any of the
federal income tax consequences discussed below, and no assurance can be given
that the IRS will not take contrary positions.
TAX STATUS OF THE TRUST
In the opinion of Cadwalader, Wickersham & Taft, special tax counsel to the
depositor, the trust will be classified as a grantor trust and not as an
association taxable as a corporation for federal income tax purposes. Each Class
A certificateholder will be treated as the owner of an interest in the ordinary
income and corpus portions of the Trust.
Each Class A certificateholder will be treated as owning its pro rata
percentage interest in the principal of, and interest payable on, each
Receivable, minus the portion of the interest, the excess interest, payable on
the Receivable that exceeds the sum of the applicable pass-through rate on the
certificates and the Servicing Fee Rate, and the ownership interest in each
Receivable will be treated as a "stripped bond" within the meaning of Section
1286 of the Code.
TAXATION OF CERTIFICATEHOLDERS
Subject to the discussion below under the heading "Discount and Premium,"
each Class A certificateholder is required to include for federal income tax
purposes its share of the gross income of the trust, including interest and
certain other charges accrued on the Receivables and any gain upon collection or
disposition of the Receivables, but not including any portion of the excess
interest. This gross income attributable to interest on the Receivables exceeds
the Class A Pass-Through Rate by an amount equal to the Class A
certificateholder's share of the expenses of the trust for the period during
which it owns a Class A certificate. Each Class A certificateholder is entitled
to deduct its share of the amount used to pay expenses of the trust to the
extent described below. Any amounts received by a Class A certificateholder from
the subordinate certificates, accounts established for the benefit of the
insurer or excess interest as a
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result of the subordination provisions will be treated for federal income tax
purposes as having the same characteristics as the payments they replace.
Each Class A certificateholder should report its share of the income of the
trust under its usual method of accounting. Accordingly, interest would be
included in a Class A certificateholder's gross income when it accrues on the
Receivables, or in the case of Class A certificateholders who are cash basis
taxpayers, when received by the Servicer on behalf of the Class A
certificateholders. Because
(1) interest accrues on the Receivables over differing monthly periods and is
paid in arrears and
(2) interest collected on a Receivable generally is paid to Class A
certificateholders in the following month, the amount of interest
accruing to a Class A certificateholder during any calendar month will
not equal the interest distributed in that month. Discount on a
Receivable would be included in income as described below.
Each Class A certificateholder will be entitled to deduct, consistent with
its method of accounting, its pro rata share of reasonable servicing fees and
other fees paid or incurred by the trust as provided in Section 162 or 212 of
the Code. If a Class A certificateholder is an individual, estate or trust, the
deduction for the Class A certificateholder's share of those fees will be
allowed only to the extent that all of the Class A certificateholder's
miscellaneous itemized deductions, including the Class A certificateholder's
share of the fees, exceed 2% of the Class A certificateholder's adjusted gross
income. In addition, in the case of certificateholders who are individuals,
certain otherwise allowable itemized deductions will be reduced by an amount
equal to 3% of the Class A certificateholder's adjusted gross income in excess
of a statutorily defined threshold, but not by more than 80% of the itemized
deductions.
To the extent that any fee is determined to be in excess of a reasonable
amount, and hence not deductible, the excess should be characterized as an
additional ownership right that has been stripped from the Receivables.
Accordingly, the gross income of the Class A certificateholders should not
include any amount attributable to the excess fee.
Rule of 78s Receivables. The annual statement regularly furnished to Class A
certificateholders for federal income tax purposes will include information
based on the actuarial method of accounting for interest and principal on the
Rule of 78s Receivables, and the amount of the fees paid to the servicer and
others. Class A certificateholders should generally be permitted to account for
interest on the Rule of 78s Receivables using the actuarial method, the method
used to compute the Class A certificate factor and the Class A Pass-Through
Rate. However, certain of the Receivables provide that, upon a prepayment in
full, the amount payable by the obligor will be determined under the Rule of 78s
method of loan amortization. Prospective investors should consult their own tax
advisors as to whether they may be required or permitted to use the Rule of 78s
method to account for interest on the Receivables. A Class A certificateholder
will be furnished information for federal income tax purposes enabling him to
report interest on the Receivables under the Rule of 78s method of accounting
only upon written request to the trustee, and payment of the actual costs of
producing that information.
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If a Receivable is prepaid, any amount received by the trust upon prepayment
in excess of the account balance using the actuarial method either
(1) would constitute income to a Class A certificateholder who had reported
income with respect to the Receivable on the actuarial method, and an
amount equal to the excess will be paid to the servicer as an additional
fee and be deductible, subject to the limitations described above, or
(2) would be treated as an interest stripped from the Receivables and not
sold to the Class A certificateholders.
DISCOUNT AND PREMIUM
A certificateholder that purchases a Class A certificate at a discount, i.e.,
for an amount less than its face amount, must include the discount in income
over the life of the Class A certificates. Distinctions in the Code between
original issue discount and market discount generally are not relevant in the
case of the Class A certificates.
The rate at which discount must be included in income depends on whether it
is greater or than a statutorily defined de minimis amount. Although not
entirely certain, it would appear that the de minimis computation can be done
for each overall Class A certificate and need not be done on a
Receivable-by-Receivable basis. Generally, discount is treated as de minimis if
it is less than 1/4 of one percent of the principal amount of the Class A
certificate times the number of full years remaining to the maturity date of the
Class A certificate. It is not clear whether the maturity date for this purpose
is the final maturity date or the weighted average maturity date, and whether
expected prepayments are taken into account.
If the discount is de minimis which should be the case for original
purchasers of Class A certificates it would appear that the discount may be
included in income as principal payments are received on the Receivables and in
proportion to the principal payments. Although not entirely clear, the income
attributable to de minimis discount should be treated as capital gain.
If the discount is more than a de minimis amount, the discount must be
included in income as it accrues on the basis of the yield to maturity of the
Class A certificate, to the particular purchaser. It is not clear whether a
prepayment assumption must be taken into account in computing this yield to
maturity and how actual prepayments will affect accruals of discount. Unless the
Class A certificates are originally issued with more than a de minimis amount of
discount, the Servicer will not be providing any information relating to the
computation of the accruals of discount by subsequent purchasers of Class A
certificates.
In the event that a Receivable is treated as purchased at a premium, i.e.,
the Purchase Price exceeds the portion of the remaining principal balance of the
Receivables allocable to the certificateholders, the premium will be amortizable
by a Class A certificateholder as an offset to interest income, with a
corresponding reduction in the certificateholder's basis, under a constant yield
method over the term of the Receivable if an election under Section 171 of the
Code is made, or was previously in effect, with respect to the Class A
certificates. This election will also apply to debt instruments held by the
taxpayer during the year in which the election is made and to all debt
instruments acquired after that year.
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SALE OF A CLASS A CERTIFICATE
If a Class A certificate is sold, gain or loss will be recognized equal to
the difference between the amount realized on the sale and the Class A
certificateholder's adjusted basis in the certificate. A certificateholder's
adjusted basis will equal the certificateholder's cost for the Class A
certificate increased by any discount previously included in income, and
decreased by any payments received that are attributable to accrued discount, or
by any offset previously allowed for accrued premium, and by the amount of
principal payments previously received on the Receivables. Any gain or loss will
be capital gain or loss if the Class A certificate was held as a capital asset.
FOREIGN CLASS A CERTIFICATEHOLDERS
Interest attributable to Receivables which is received by a foreign Class A
certificateholder, other than a foreign bank and certain other persons,
generally will not be subject to the normal 30% withholding tax, or lower treaty
rate, imposed with respect to those payments, provided that the Class A
certificateholder is not engaged in a trade or business in the United States and
that such certificateholder fulfills certain certification requirements. Under
these requirements, the holder must certify, under penalties of perjury, that it
is not a U.S. Person and provide its name and address.
BACKUP WITHHOLDING
Backup withholding of federal income tax at a rate of 31 percent may apply to
payments made in respect of the Class A certificates as well as payments of
proceeds from the sale of certificates, to certificateholders that are not
"exempt recipients" and that fail to provide certain identifying information,
such as the taxpayer identification number of the certificateholder, to the
trustee or its agent in the manner required. Individuals generally are not
exempt recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the Class A certificates must be
reported to the IRS, unless the recipient is an exempt recipient or establishes
an exemption. Any amounts withheld under the backup withholding rules from a
payment to a person would be allowed as a refund or a credit against such
person's United States federal income tax, provided that the required
information is furnished to the IRS. Furthermore, certain penalties may be
imposed by the IRS on a certificateholder who is required to supply information
but who does not do so in the proper manner.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing, or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to the Plan. ERISA also
imposes certain duties on persons who are fiduciaries of Plans subject to ERISA
and prohibits certain transactions between a plan and parties in interest with
respect to these Plans. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a Plan is
considered to be a fiduciary of the Plan, subject to certain exceptions not here
relevant. A violation of these "prohibited
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transaction" rules may generate excise tax and other liabilities under ERISA and
the Code for these persons.
In addition to the matters described below, purchasers of Class A
certificates that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank, 114 S. Ct. 517 (1993). In John Hancock, the Supreme
Court ruled that assets held in an insurance company's general account may be
deemed to be "plan assets" for ERISA purposes under certain circumstances.
Prospective purchasers should determine whether the decision affects their
ability to make purchases of the Class A certificates.
Under a final regulation issued by the Department of Labor concerning the
definition of what constitutes the "plan assets" of an employee benefit plan
subject to ERISA or the Code, or an IRA, or any entity whose underlying assets
are deemed to be assets of an employee benefit plan or an IRA by reason of the
employee benefit plan's or the IRA's investment in that entity, the assets and
properties of certain entities in which a Plan makes an equity investment could
be deemed to be assets of the Plan unless certain exceptions under the final
regulation apply or an exemption is available. If Plans that purchase the Class
A certificates are deemed to own an interest in the underlying assets of the
trust, the operations of the trust could result in prohibited transactions.
The Department Of Labor has granted to PaineWebber Incorporated an
administrative exemption, Prohibited Transaction Exemption 90-36 which generally
exempts from the application of the prohibited transaction provisions of Section
406(a), Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the
excise taxes imposed under Sections 4975(a) and (b) of the Code, certain
transactions relating to the servicing and operation of asset pools, and the
purchase, sale and holding of asset-backed pass-through certificates, including
pass-through certificates evidencing interests in certain receivables, loans and
other obligations, such as the Class A certificates, provided that certain
conditions set forth in the exemption are satisfied.
If the general conditions of the exemption are satisfied, the exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA, as well as the excise taxes imposed by Sections 4975(c)(1)(A) through
(D) of the Code, in connection with the direct or indirect sale, exchange or
transfer of Class A certificates by Plans in the initial issue of certificates,
the holding of Class A certificates by Plans or the direct or indirect
acquisition or disposition in the secondary market of Class A certificates by
Plans. However, no exemption is provided from the restrictions of Section
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Class A certificate on behalf of an Excluded Plan by any person who has
discretionary authority or renders investment advice with respect to the assets
of the Excluded Plan.
If the specific conditions of paragraph I.B. of Section I of the exemption
are also satisfied, the exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the
Code in connection with
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(1) the direct or indirect sale, exchange or transfer of Class A certificates
in the initial issuance of Class A certificates to a Plan when the person
who has discretionary authority or renders investment advice with respect
to the investment of plan assets in Class A certificates is (a) an
Obligor with respect to 5 percent or less of the fair market value of the
Receivables or (b) an affiliate of that person,
(2) the direct or indirect acquisition or disposition in the secondary market
of Class A certificates by Plans and
(3) the holding of Class A certificates by Plans.
Among the specific conditions that must be satisfied is the condition that
immediately after the acquisition of the Class A certificates no more than 25%
of the assets of the Plan with respect to which the person is a fiduciary are
invested in certificates representing an interest in a trust containing assets
sold or serviced by the same entity. As of the date hereof, the seller believes
no obligor with respect to Receivables included in the trust constitutes more
than 5 percent of the aggregate unamortized principal balance of the trust.
If the specific conditions of paragraph I.C. of Section I of the exemption
are satisfied, the exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust.
The exemption may provide an exemption from the restrictions imposed by
Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if the restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan, or by virtue of
having certain specified relationships to that person, solely as a result of the
Plan's ownership of Class A certificates.
The exemption sets forth the following six general conditions which must be
satisfied for a transaction to be eligible for exemptive relief thereunder:
(1) The acquisition of the certificates by a Plan is on terms, including the
price for the certificates, that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust;
(3) The certificates acquired by the Plan have received a rating at the time
of the acquisition that is one of the three highest general rating
categories from either Standard & Poor's Ratings Services, Moody's
Investors Service, Fitch IBCA, Inc. or Duff & Phelps Credit Rating Co.;
(4) The trustee is not an affiliate of any other member of the Restricted
Group;
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(5) The sum of all payments made to and retained by PaineWebber Incorporated
in connection with the distribution of certificates represents not more
than reasonable compensation for its services. The sum of all payments
made and retained by the seller under the assignment of the Receivables
to the trust represents not more than the fair market value of the
Receivables. The sum of all payments made to and retained by the servicer
represents not more than reasonable compensation for that person's
services under the pooling and servicing agreement and reimbursement of
that person's reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the 1933 Act.
The trust must also meet the following requirements:
(1) the Receivables must consist solely of assets of the type that have been
included in other investment pools;
(2) certificates in the other investment pools must have been rated in one of
the three highest rating categories of Standard & Poor's Ratings
Services, Moody's Investors Service, Fitch IBCA, Inc. or Duff & Phelps
Credit Rating Co. for at least one year prior to the Plan's acquisition
of certificates; and
(3) certificates evidencing interest in the other investment pools must have
been purchased by investors other than Plans for at least one year prior
to the Plan's acquisition of certificates
It is a condition of issuance of the Class A certificates that they be rated
AAA or its equivalent by a nationally recognized rating agency. Before
purchasing a Class A certificate based on the exemption, a fiduciary of a Plan
should itself confirm (1) that the certificate constitutes a "certificate" for
purposes of the exemption and (2) that the specific conditions and other
requirements set forth in the exemption would be satisfied. Any Plan fiduciary
considering the purchase of a Class A certificate should consult with its
counsel with respect to the potential applicability of ERISA and the Code to
that investment. Moreover, each Plan fiduciary should determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the Class A certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio. The subordinate certificates may not be acquired by
any Plan.
LEGAL INVESTMENT
The Class A certificates will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
the depositor has agreed to cause the issuer to sell to each of the underwriters
listed below, and each of the underwriters has agreed to purchase, the principal
amount of each class of the certificates set forth opposite its name below.
Under the terms and conditions of the underwriting agreement, each of the
underwriters is obligated to take and pay for all of the certificates if any are
taken.
CLASS A
UNDERWRITERS CERTIFICATES
------------ ------------
PaineWebber Incorporated................................ $
[____________________]..................................
Total...................................................
The depositor has been advised by the underwriters that they propose
initially to offer the certificates to the public at the prices set forth below,
and to selling group members at those prices less a selling concession not in
excess of the percentage set forth below for each class of certificates. The
underwriters may allow, and the selling group members may also allow, a
subsequent concession not in excess of the percentage set forth below for each
class of certificates. After the initial public offering, the public offering
price and such concessions may be changed.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT CONCESSION REALLOWANCE
-------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Class A Certificates % % % %
</TABLE>
The depositor does not intend to apply for listing of the certificates on a
national securities exchange, but has been advised by the underwriters that they
may make a market in the certificates. The underwriters are not obligated,
however, to make a market in the certificates and may discontinue market making
at any time without notice. We cannot assure you as to the liquidity of the
trading market for the certificates.
The depositor, the transferor and the servicer have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, each underwriter and
its affiliates have engaged and may in the future engage in commercial banking
and investment banking transactions with the depositor, the transferor and the
servicer.
After the initial distribution of the certificates by the underwriters, this
prospectus supplement may be used by the underwriters or its successors, in
connection with offers and sales relating to market making transactions in the
certificates. The underwriters may act as principal or agent in these
transactions. The transactions will be at prices related to prevailing
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market prices at the time of sale. Each underwriter is a member of the New York
Stock Exchange, Inc.
The underwriter is an affiliate of the depositor.
ADDITIONAL INFORMATION
PaineWebber Asset Acceptance Corporation has filed with the SEC a
registration statement (Registration No. 333-37164) under the Securities Act of
1933, as amended, with respect to the certificates offered under this prospectus
supplement. This prospectus supplement and the accompanying prospectus, which
form a part of the registration statement, omit certain information contained in
the registration statement under the rules and regulations of the SEC. You may
read and copy the registration statement at the Public Reference Room at the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at the SEC's
regional offices at Seven World Trade Center, 13th Floor, New York, New York,
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Rooms. In addition, the SEC maintains a site
on the World Wide Web containing reports, proxy materials, information
statements and other items. The address is http://www.sec.gov.
EXPERTS
[The consolidated balance sheets of __________, the insurer, and subsidiaries
as of December 31, ____ and ____ and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for each of the three
years in the period ended December 31, ____, incorporated by reference in this
prospectus supplement. These statements have been so incorporated in reliance on
the report of __________, independent accountants, given on the authority of
that firm as experts in accounting and auditing.]
LEGAL MATTERS
The validity of the certificates and certain federal income tax matters will
be passed upon for the depositor by Cadwalader, Wickersham & Taft, New York, New
York. [Certain legal matters will be passed upon for the insurer by __________,
__________ to the insurer.]
RATINGS
As a condition to the issuance of the Class A certificates, the Class A
certificates must be rated "____" by __________________________________ and
"___" by _____________________________.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time. The ratings assigned to
the offered certificates address the likelihood of the receipt by
certificateholders of all distributions to which such certificateholders are
entitled. The ratings assigned to the offered certificates do not represent any
assessment of
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the likelihood that principal prepayments might differ from those originally
anticipated or address the possibility that certificateholders might suffer a
lower than anticipated yield.
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<PAGE>
GLOSSARY OF TERMS
"ABS" the prepayment model used in this prospectus supplement to measure
prepayments on [__________].
"AGGREGATE PRINCIPAL BALANCE" means, with respect to any Determination Date,
the sum of the Principal Balances, computed as of the related record date, for
all Receivables, other than (1) any Receivable that became a Liquidated
Receivable during the related Collection Period and (2) any Receivable that
became a Purchased Receivable on the immediately preceding Deposit Date.
"AMOUNT AVAILABLE" means, with respect to any distribution date, the sum of
(1) the Available Funds for the immediately preceding Determination Date[, plus
(2) the Deficiency Claim Amount, if any, received by the trustee with respect to
the distribution date, plus (3) the Policy Claim Amount, if any, received by the
trustee with respect to the distribution date].
"AMOUNT FINANCED" means, with respect to a Receivable, the amount advanced
under that Receivable toward the purchase price or refinancing of the
____________ and any related costs, including amounts in respect of
____________, ____________, ____________ and ____________, and other items
customarily financed as part of ____________.
"APR" means annual percentage rate.
"AVAILABLE FUNDS" means, with respect to any Determination Date, the sum of
(1) the Collected Funds for the Determination Date and (2) all Purchase Amounts
deposited in the Collection Account on the related Deposit Date.
"CAPITALIZED INTEREST ACCOUNT" is an account which is an asset of the trust
established with the trustee, and will be pledged to the trustee for the benefit
of the certificateholders.
"CERTIFICATE DISTRIBUTION ACCOUNT" an account established and maintained by
the servicer, in the name of the trustee, on behalf of the certificateholders
[and the insurer], in which amounts released from the Collection Account for
distribution to certificateholders will be deposited and from which all
distributions to certificateholders will be made.
"CERTIFICATE MAJORITY" means holders of 50% or more of the aggregate
principal balance of the certificates.
"CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date, the sum of the Certificateholder's Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
"CERTIFICATEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to any
distribution date, the excess of the Certificateholders' Interest Distributable
Amount for the preceding distribution date, over the amount in respect of
interest that was actually deposited in the Certificate Distribution Account on
the preceding distribution date, plus interest on the amount of interest due but
not paid to certificateholders on the preceding distribution date, to the extent
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permitted by law, at the interest rate borne by those certificates from the
preceding distribution date to but excluding the current distribution date.
"CERTIFICATEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any distribution date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for the distribution date and the Certificateholders'
Interest Carryover Shortfall for that distribution date.
"CERTIFICATEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any distribution date, the sum of the products for each class of
Certificates of:
(1) the product of the applicable interest rate for the class and 1/12 and
(2) the outstanding principal amount of the class of certificates immediately
preceding the distribution date.
"CERTIFICATEHOLDERS' PERCENTAGE" will be approximately %, for each
distribution date until the Class A certificates have been paid in full, and
then will be equal to zero.
"CERTIFICATEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, with respect to
any distribution date, the excess of the Certificateholders' Principal
Distributable Amount for the preceding distribution date, over the amount in
respect of principal that was actually deposited in the Certificate Distribution
Account on the preceding distribution date, plus interest on the amount of
principal due but not paid to certificateholders on the preceding distribution
date, to the extent permitted by law, at the interest rate borne by those
certificates from the preceding distribution date to but excluding the current
distribution date.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" for any distribution
date will equal the sum of:
(1) the Certificateholders' Percentage of the Principal Distributable Amount
and
(2) any unpaid portion of the amount described in clause (1) with respect to
any prior distribution date.
"CLASS A CERTIFICATE BALANCE" means, initially, $_____ and then will equal
the Class A Certificate Balance reduced by all principal distributions on the
Class A certificates.
"CLASS A INTEREST CARRYOVER SHORTFALL" means, as of the close of business on
any distribution date, the excess of the Class A Interest Distributable Amount
for the distribution date plus, without duplication, any outstanding Class A
Interest Carryover Shortfall from the preceding distribution date plus interest
on the outstanding Class A Interest Carryover Shortfall, to the extent permitted
by law, at the Class A Pass-Through Rate from the preceding distribution date
through the current distribution date, over the amount of interest that the
Class A certificateholders actually received on the current distribution date.
"CLASS A INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date, 30 days of interest, calculated on the basis of a 360-day
year consisting of twelve 30-day months, at the Class A Pass-Through Rate on the
Class A Certificate Balance as of the close of business
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on the last day of the preceding Collection Period, and any outstanding Class A
Interest Carryover Shortfall.
"CLASS A PASS-THROUGH RATE" means ___% per annum.
"CLASS A PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of business on
any distribution date, the excess of the Class A Principal distributable amount
plus any outstanding Class A Principal Carryover Shortfall from the preceding
distribution date over the amount of principal that the Class A
certificateholders actually received on the current distribution date.
"CLASS A PRINCIPAL DISTRIBUTABLE AMOUNT" means the Class A
certificateholders' pro rata share of the amount equal to the sum of the
following amounts with respect to the immediately preceding Collection Period,
computed in accordance with the simple interest method:
(1) that portion of all collections on Receivables allocable to principal,
including all full and partial principal prepayments;
(2) the Principal Balance of all Receivables, other than Purchased
Receivables, that became Liquidated Receivables during the related
Collection Period;
(3) (A) the portion of the Purchase Amount allocable to principal of all
Receivables that became Purchased Receivables as of the immediately
preceding Record Date, and (B) in the sole discretion of the Certificate
Insurer, the Principal Balance as of the immediately preceding Record
Date of all Receivables that were required to be purchased as of the
immediately preceding Record Date but were not so purchased and
(4) the aggregate amount of Cram Down Losses that occurred during the related
Collection Period.
With respect to each distribution date, the Class A Certificateholders' pro
rata share of such principal distribution (the "Class A Principal Distributable
Amount") is equal to the Class A Percentage of the amounts in clauses (1)
through and including (4) of the immediately preceding paragraph, provided, that
on the Final Scheduled Distribution Date, the Class A Principal Distributable
Amount will equal the Class A Certificate Balance as of the Final Scheduled
Distribution Date.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTED FUNDS" means, with respect to any Determination Date, the amount
of funds in the Collection Account representing collections on the Receivables
during the related Collection Period, including all Net Liquidation Proceeds
collected during the related Collection Period.
"COLLECTION ACCOUNT" is an account established in the name of the trustee on
behalf of the certificateholders, the certificateholders and the insurer, into
which payments or other amounts received with respect to the Receivables will be
deposited.
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"COLLECTION PERIOD" means, with respect to a Determination Date or a
distribution date, the calendar month preceding the month in which the
Determination Date or distribution date occurs, the calendar month being
referred to as the "related" Collection Period with respect to the Determination
Date or distribution date. With respect to a Record Date, the calendar month in
which the Record Date occurs is referred to in this prospectus supplement as the
"related" Collection Period to the Record Date.
"CONTROLLING PARTY" means, the insurer, so long as no Insurer Default exists,
and the trustee for the benefit of the certificateholders, for so long as an
Insurer Default exists. However, the owner trustee for the benefit of the
certificateholders will be the Controlling Party after all unpaid principal and
interest on the certificates and all amounts owing to the insurer under the
insurance agreement have been paid in full.
"CRAM DOWN LOSS" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding will have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
the Scheduled Payments to be made on a Receivable, an amount equal to the excess
of the principal balance of the Receivable immediately prior to the order over
the principal balance of the Receivable as so reduced or the net present value,
using as the discount rate the higher of the APR on the Receivable or the rate
of interest, if any, specified by the court in the order, of the Scheduled
Payments as so modified or restructured. A "Cram Down Loss" will be deemed to
have occurred on the date of issuance of the order.
"CREDIT SCORE" is a [Fair, Isaac National Automotive Industry Market Score].
"CUT-OFF DATE" means, with respect to an Initial Receivable, the Initial
Cut-off Date, and, with respect to a Subsequent Receivable, the related
Subsequent Cut-off Date.
["DEFICIENCY CLAIM AMOUNT" means, with respect to any determination date, the
excess, if any, of the sum of the amounts payable on the related Distribution
Date under clauses (1), (2), (3), (4) and (5) under the heading "Description Of
The Certificates--Flow of Funds" over the amount of Available Funds with respect
to the Determination Date.]
["DEFICIENCY NOTICE" means, a written notice delivered by the trustee to a
collateral agent appointed by the insurer, insurer, the fiscal agent, if
necessary, and the servicer specifying the Deficiency Claim Amount for the
distribution date.]
"DEPOSIT DATE" means, with respect to any Collection Period, the business day
immediately preceding the related Determination Date.
"DETERMINATION DATE" means, with respect to any Collection Period, the _____
business day preceding the distribution date in the next calendar month.
"DISTRIBUTION AMOUNT" means, with respect to a distribution date, the sum of
(1) the Available Funds for the distribution date[, plus (2) the Deficiency
Claim Amount, if any, received by the trustee with respect to the distribution
date.]
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"DRAW DATE" means, with respect to any distribution date, the ______ business
day immediately preceding the distribution date.
"EXCLUDED PLAN" means, for purposes of the Class A certificates, a Plan
sponsored by (1) PaineWebber Incorporated, (2) the originators, (3) the
servicer, (4) the trustee, (5) the seller, (6) the depositor, (7) any obligor
with respect to Receivables constituting more than 5 percent of the aggregate
unamortized principal balance of the Receivables as of the date of initial
issuance, (8) the insurer and (9) any affiliate or successor of a person
described in (1) to (8).
"FINAL SCHEDULED DISTRIBUTION DATE" is the Class A Final Scheduled
Distribution Date.
"INITIAL CUT-OFF DATE" is __________, 200_.
"INITIAL PRE-FUNDED AMOUNT" a cash amount equal to approximately $__________
deposited in the Pre-Funding Account on the closing date.
"INITIAL RECEIVABLES" are the [auto] [recreational vehicle] [motorcycle]
[light duty truck] [loans] [leases] assigned to the issuer on the closing date.
["INSURER DEFAULT" means, the occurrence and continuance of any of the
following events:
(1) the insurer will have failed to make a payment required under the Policy
in accordance with its terms;
(2) the insurer will have (x) filed a petition or commenced any case or
proceeding under any provision or chapter of the United States Bankruptcy
Code or any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization, (y) made a
general assignment for the benefit of its creditors, or (z) had an order
for relief entered against it under the United States Bankruptcy Code or
any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization which is final
and nonappealable; or
(3) a court of competent jurisdiction, the New York Department of Insurance
or other competent regulatory authority will have entered a final and
nonappealable order, judgment or decree (x) appointing a custodian,
trustee, agent or receiver for the insurer or for all or any material
portion of its property or (y) authorizing the taking of possession by a
custodian, trustee, agent or receiver of the insurer (or the taking of
possession of all or any material portion of the property of the
insurer).]
"INSURER OPTIONAL DEPOSIT" means, with respect to any distribution date, an
amount delivered by the insurer for deposit into the Collection Account for any
of the following purposes:
(1) to provide funds in respect of the payment of fees or expenses of any
provider of services to the issuer with respect to the distribution date,
or
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(2) to include the funds to the extent that without those amounts a draw
would be required to be made on the Policy.
"LIQUIDATED RECEIVABLE" means, with respect to any Determination Date, a
Receivable as to which, as of the last day of the related Collection Period,
(1) 60 days have elapsed since the servicer repossessed the _____________,
(2) the servicer has determined in good faith that all amounts it expects to
recover have been received,
(3) the _____________ has been sold and the proceeds received or
(4) all or any portion of any scheduled payment by the obligor is 120 days or
more delinquent.
"NET LIQUIDATION PROCEEDS" means, with respect to any Liquidated Receivable,
all amounts, including insurance proceeds, realized with respect to the
Receivable, other than amounts withdrawn from the Reserve Account and drawings
under the Policy, net of:
(1) reasonable expenses incurred by the servicer in connection with the
collection of the Receivable and the repossession and disposition of the
_____________ and
(2) amounts that are required to be refunded to the obligor on that
Receivable; provided that Net Liquidation Proceeds with respect to any
Receivable may not be less than zero.
"OWNER TRUST AGREEMENT" is the trust agreement under which the trust for the
transactions described in this prospectus supplement is formed.
"PERSON" means, any legal person, including any individual, corporation,
partnership, joint venture, estate, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof, or any other entity.
"PLAN" is any:
(1) employee benefit plan as defined in Section 3(3) of ERISA,
(2) plan described in Section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans, or
(3) entity whose underlying assets include plan assets by reason of a plan's
investment in entities specified in clauses (1) and (2) above.
["POLICY" is a financial guaranty insurance policy issued by the insurer that
guarantees full and timely payment of the certificateholders' distributable
amount on each distribution date.]
["POLICY CLAIM AMOUNT" means, with respect to any Determination Date on which
the trustee has delivered a Deficiency Notice the shortfall of (y) the sum of
(1) the amount of Available
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Funds with respect to the Determination Date, as stated in the servicer's
certificate with respect to the Determination Date, plus (2) the amount of the
Deficiency Claim Amount, if any, to be delivered by a collateral agent to the
trustee under a Deficiency Notice delivered with respect to the Distribution
Date, as stated in the certificate delivered on the immediately preceding
Deficiency Claim Date by a collateral agent, after giving effect to the
distributions required by the pooling and servicing agreement and described in
clauses (1) and (2) of "Description Of The Certificates--Flow of Funds", over
(z) the amount necessary to pay the Class A Interest Distributable Amount and
the Class A Principal Distributable Amount for the related distribution date.]
"POOL BALANCE" means, at any time, the sum of the Principal Balances of the
Receivables, excluding Purchased Receivables and Liquidated Receivables.
"PRE-FUNDED AMOUNT" is the Initial Pre-Funded Amount as reduced from time to
time during the Pre-Funding Period by the amount of the Initial Pre used to
purchase Subsequent Receivables in accordance with the pooling and servicing
agreement.
"PRE-FUNDING ACCOUNT" is an account which will be established with the
trustee which will be an asset of the trust and will be pledged to the trustee
for the benefit the certificateholders.
"PRE-FUNDING PERIOD" is the period from the closing date until the earliest
of:
(1) the date on which the amount on deposit in the Pre-Funding Account is
less than $__________,
(2) the occurrence of a servicer default under the pooling and servicing
agreement, or
(3) __________, 200_ . --
"PRINCIPAL BALANCE" for any Receivable, at any time, means the Amount
Financed minus:
(1) that portion of all amounts received on or prior to that date and
allocable to principal in accordance with the terms of the Receivable,
and
(2) any Cram Down Loss in respect of that Receivable.
"PRINCIPAL DISTRIBUTABLE AMOUNT" with respect to any distribution date will
be an amount equal to the sum of the following amounts:
(1) the principal portion, allocable on the basis of the simple interest
method, of all Collected Funds received during the immediately preceding
calendar month, other than Liquidated Receivables and Purchased
Receivables, including the principal portion of all prepayments;
(2) the Principal Balance of all Receivables that became Liquidated
Receivables during the related calendar month, other than Purchased
Receivables;
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(3) the principal portion of the Purchase Amounts received with respect to
all Receivables that became Purchased Receivables during the related
calendar month;
(4) at the option of the insurer, the Principal Balance of the Receivables
that were required to be purchased by the transferor and the servicer
during the related calendar month but were not purchased; and
(5) the aggregate amount of Cram Down Losses that have occurred during the
related calendar month.
"PURCHASE AMOUNT" means, with respect to a Receivable, the Principal Balance
and accrued interest on the Receivable, including one month's interest on the
Receivable, in the month of payment, at the APR less the servicing fee, after
giving effect to the receipt of any moneys collected, from whatever source, on
the Receivable, if any.
"PURCHASED RECEIVABLE" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the Servicer or repurchased
by the Transferor or the originator pursuant to the pooling and servicing
agreement.
"RATING AGENCIES" are __________ and __________ . -
"RECEIVABLES" the Initial Receivables together with the Subsequent
Receivables.
"RECORD DATE" with respect to any distribution date means the close of
business on the business day preceding that distribution date.
"REMAINING PRE-FUNDING AMOUNT" is any net earnings from the investment of
funds on deposit in the Pre-Funding Account.
"RESTRICTED GROUP" is any affiliate of a Person described in (1) to (8) of
the definition of Excluded Plan.
"RULE OF 78S" is the provision of payments according to a "sum of periodic
balances" or "sum of monthly payments" method and under which the portion of
each payment allocable to interest is higher during the early months of the term
of a Receivable and lower during later months than that under a constant yield
method for allocating payments between interest and principal.
"RULE OF 78S RECEIVABLES" means Receivables that provide for the allocation
of payments according to the "sum of periodic balances" or "sum of monthly
payments" method.
"SCHEDULED PAYMENT" means payments which are scheduled to be made on the
certificates during the term of the Policy in accordance with the original terms
of the certificates when issued and without regard to any subsequent amendment
or modification of the certificates or the pooling and servicing agreement that
has not been consented to by the insurer, which payments for each distribution
date are:
(1) the Certificateholders' Interest Distributable Amount for the
distribution date and
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(2) the Certificateholders' Principal Distributable Amount.
"SERVICER'S CERTIFICATE" means, with respect to each Determination Date, a
certificate, completed by and executed on behalf of the servicer, in accordance
with the applicable pooling and servicing agreement provisions.
"SERVICING FEE" is the fee to which the servicer is entitled under the
pooling and servicing agreement on each distribution date for the related
monthly period equal to the sum of:
(1) the Servicing Fee Rate multiplied by the Pool Balance as of the first day
of the monthly period and
(2) the investment earnings, net of losses, on the Collection Account.
"SERVICING FEE RATE" is the rate, equal to ___%, at which the Servicing Fee
is paid.
"SUBSEQUENT CUT-OFF DATE" the dates designated by the transferor from time to
time as subsequent cut-off dates.
"SUBSEQUENT RECEIVABLES" are the [auto loans] [recreational vehicle loans]
[motorcycles] [light duty trucks] assigned to the issuer from time to time
after the closing date and prior to __________.
"SUPPLEMENTAL SERVICING FEE" with respect to any Collection Period, all
administrative fees, expenses and charges paid by or on behalf of obligors,
including late fees, collected on the Receivables during the Collection Period.
"U.S. PERSON" means a citizen or resident of the United States for U.S.
federal income tax purposes, a corporation or partnership, except to the extent
provided in applicable Treasury regulations, created or organized in or under
the laws of the United States, any state or the District of Columbia, including
an entity treated as a corporation or partnership for U.S. federal income tax
purposes, an estate the income of which is subject to U.S. federal income
taxation regardless of its source, or a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust, and one or more of those U.S. Persons have the authority to control all
substantial decisions of the trust, or, to the extent provided in applicable
Treasury regulations, certain trusts in existence on August 20, 1996, which are
eligible to elect to be treated as U.S. Persons.
"WEIGHTED AVERAGE RATE" means, with respect to any date of determination, a
per annum rate equal to
(1) the product of (x) the outstanding principal amount of the Class A-1
Certificates on that date and (y) the Class A Pass-Through Rate, divided
by
(2) the outstanding principal amount of the Class A certificates on that
date.
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"YIELD SUPPLEMENT ACCOUNT" is an account that the transferor will establish
for the benefit of the certificateholders and the insurer, which will initially
be a segregated trust account in the corporate trust department of the trustee.
"YIELD SUPPLEMENT AMOUNT" with respect to any distribution date will
determined by aggregating for all of the Receivables, one twelfth of the
difference, if positive, between
(1) the product of (a) the Principal Balance of the Receivable multiplied by
(b) a rate equal to the Weighted Average Rate plus approximately _____%,
which percentage represents the Servicing Rate plus approximately _____%,
and
(2) the product of (a) the Principal Balance of the Receivable multiplied by
(b) the APR on that Receivable.
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=========================================== ===================================
YOU SHOULD RELY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED
PROSPECTUS. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION.
WE ARE NOT OFFERING THESE CERTIFICATES IN
ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
--------------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary.................................S-5
Risk Factors...........................S-12
Forward-Looking Statements.............S-16
Defined Terms..........................S-16 $___________ (APPROXIMATE)
The Trust..............................S-16
The Trust Fund.........................S-17
The Receivables Pool...................S-17 _____________________TRUST 200_-_
The Transferor.........................S-23 ISSUER
The depositor..........................S-24 ASSET-BACKED CERTIFICATES,
THE ORIGINATOR And The Servicer........S-24 SERIES 200_-_
Weighted Average Life of the
Securities...........................S-25
Description of Certificates............S-28
[The Insurer]..........................S-31 _________________________
[The Policy]...........................S-34 SERVICER
The Pooling and Servicing AGreement
and the Transfer Agreements..........S-37
Federal Income Tax Considerations......S-42 PAINEWEBBER ASSET
ERISA Considerations...................S-45 ACCEPTANCE CORPORATION
Legal Investment.......................S-48 DEPOSITOR
Underwriting...........................S-49 $___________
Additional Information.................S-50 CLASS A CERTIFICATES
Experts................................S-50
Legal MATTERS..........................S-50
Ratings................................S-50
Glossary of Terms......................S-52
-----------------------------------
PROSPECTUS PROSPECTUS SUPPLEMENT
-----------------------------------
Prospectus Supplement......................
Summary of Terms...........................
Risk Factors...............................
The Trust Funds............................
The Issuers................................
The Receivables............................ PAINEWEBBER INCORPORATED
Pool Factors...............................
Use of Proceeds............................
The Depositor..............................
The Trustee................................
Description of the Securities.............. _________, 200_
Description of the Trust Agreements........
Certain Legal Aspects of the Receivables...
Federal Income Tax Considerations..........
ERISA Considerations.......................
Methods of Distribution ...................
Incorporation of Information by Reference..
Legal Matters..............................
Financial Information......................
Additional Information.....................
Ratings....................................
Glossary of Terms..........................
DEALERS WILL BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS OF THESE SECURITIES
AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION,
ALL DEALERS SELLING THESE SECURITIES
WILL DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS UNTIL ____________, 200_.
=========================================== ===================================
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
of sale is not permitted.
--------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED __________, 200_
PROSPECTUS SUPPLEMENT DATED __________, 200_
(TO PROSPECTUS DATED ___________, 200_)
$______________ (APPROXIMATE)
____________________ OWNER TRUST 200_-_
(ISSUER)
____________________ ASSET-BACKED NOTES, SERIES 200_-_
$___________ ______% CLASS A-1 NOTES
$___________ ______% CLASS A-2 NOTES
$___________ ______% CLASS A-3 NOTES
[LOGO OF __________________]
_________________________
(ORIGINATOR AND SERVICER)
PAINEWEBBER ASSET ACCEPTANCE CORPORATION
(DEPOSITOR)
THE TRUST FUND--
o The trust fund consists primarily of a pool of receivables consisting of
[auto] [recreational vehicle] [motorcycle] [light duty truck] [loans]
[leases] and security interests in the underlying assets.
THE OFFERED NOTES--
o The trust will issue 3 classes of notes.
CREDIT ENHANCEMENT--
o [The Class A notes will be unconditionally and irrevocably guaranteed as
to the payment of scheduled interest and to specified payments of
principal pursuant to the terms of a financial guaranty insurance policy
to be issued by ____________________]
[____ LOGO]
____________________ Owner Trust 200_-_ is issuing notes in 3 classes
PRICE TO THE UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT DEPOSITOR
------------ ------------ ---------------
% % $
The price to public, underwriting discount and proceeds to depositor shown
are for the Class A-1, Class A-2 and Class A-3 notes in the aggregate. This
information is shown for each individual class on page S-[ ]. See "Underwriting"
in this prospectus supplement.
The proceeds to depositor are less expenses, estimated at $[ ]. See
"Underwriting" in this prospectus supplement.
--------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-___ OF
THIS PROSPECTUS SUPPLEMENT AND PAGE ___ IN THE PROSPECTUS.
The notes will not represent obligations of the depositor, originator or any
other person or entity other than the issuer. No governmental agency will insure
the notes or the collateral securing the notes.
You should consult with your own advisors to determine if the offered notes
are appropriate investments for you and to determine the applicable legal, tax,
regulatory and accounting treatment of the offered notes.
--------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE OFFERED
NOTES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PAINEWEBBER INCORPORATED
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information about the offered notes for the series 200_-_ in two
separate documents that progressively include more detail:
(1) the accompanying prospectus dated ___________, 200_. The accompanying
prospectus provides general information, some of which may not apply to the
offered notes for the series 200_-_.
(2) this prospectus supplement. This prospectus supplement describes the
specific terms of the notes for the series 200_-_. Sales of the offered
notes may not be completed unless you have received both this prospectus
supplement and the prospectus. You are urged to read both this prospectus
supplement and the prospectus in full.
IF THE TERMS OF THE OFFERED NOTES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS, THEN YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.
Cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials are included to assist in locating
further related discussions. The following table of contents and the table of
contents in the accompanying prospectus provide the pages on which these
captions are located.
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<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY........................................................................1
RISK FACTORS...................................................................8
Limited Liquidity May Adversely Affect Market Value Of Notes................8
Prepayments On The Receivables Will Cause Prepayments On The Notes
Resulting In Reinvestment Risk To You....................................8
Prepayments On The Receivables May Affect Your Yield On Your Notes..........8
Potential Prepayments On Notes Due To Failure To Transfer A Sufficient
Number Of Additional Receivables To The Trust............................8
Risk Of Potential Prepayments On Notes Due To Failure To Obtain Release
Of Existing Lien.........................................................9
You May Experience A Loss On Your Notes Because The Issuer Has Limited
Assets...................................................................9
[Originator Has A Limited Operating History................................10
[The Originator's Internet-Based Origination Programs May Give Rise To
Risks That Are Not Customary............................................10
You May Experience A Loss In Connection With An Event Of Default...........11
[Potential Losses On Your Notes Due To Geographic Concentration Of
Receivables.............................................................11
[Risk Of Recharacterization Of True Sale As A Pledge.......................11
FORWARD-LOOKING STATEMENTS....................................................12
DEFINED TERMS.................................................................12
THE TRUST.....................................................................13
General....................................................................13
Capitalization of the Issuer...............................................13
The Owner Trustee..........................................................13
The Indenture Trustee......................................................13
THE TRUST FUND................................................................14
THE RECEIVABLES POOL..........................................................14
Eligibility Criteria.......................................................14
Subsequent Receivables.....................................................15
Pool Composition...........................................................16
THE TRANSFEROR................................................................20
THE DEPOSITOR.................................................................20
THE ORIGINATOR AND THE SERVICER...............................................20
General....................................................................20
Origination Process and Credit Evaluation Procedures.......................21
Contract Processing, Purchase, Servicing and Administration................21
Delinquency Control and Collection Strategy................................21
Delinquency and Loss Experience............................................21
WEIGHTED AVERAGE LIFE OF THE NOTES............................................22
DESCRIPTION OF THE NOTES......................................................26
Payments of Interest.......................................................26
Payments of Principal......................................................27
Optional Redemption........................................................27
Mandatory Redemption.......................................................27
The Indenture..............................................................28
The Indenture Trustee......................................................34
DESCRIPTION OF THE CERTIFICATES...............................................35
[THE INSURER].................................................................35
General....................................................................35
Reinsurance................................................................36
Rating of Claims-Paying Ability............................................36
Capitalization.............................................................36
Insurance Regulation.......................................................37
[THE POLICY]..................................................................37
Other Provisions of the Policy.............................................39
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DESCRIPTION OF THE TRUST AGREEMENTS...........................................40
Assignment of Receivables..................................................41
Obligation to Repurchase Receivables.......................................42
Accounts...................................................................43
Certain Allocations........................................................45
Payments...................................................................46
Statements to Noteholders..................................................46
Servicer Default; Rights Upon Servicer Default.............................47
Servicing Compensation.....................................................48
Appointment of Subservicer.................................................48
Amendment..................................................................49
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES......................................50
FEDERAL INCOME TAX CONSIDERATIONS.............................................50
General....................................................................50
Classification of Investment Arrangement...................................50
Taxation of Holders........................................................50
Backup Withholding and Information Reporting...............................52
ERISA CONSIDERATIONS..........................................................52
LEGAL INVESTMENT..............................................................53
UNDERWRITING..................................................................54
ADDITIONAL INFORMATION........................................................55
EXPERTS.......................................................................55
LEGAL MATTERS.................................................................55
RATINGS.......................................................................55
GLOSSARY OF TERMS.............................................................57
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<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN INVESTMENT
DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE OFFERED NOTES,
YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS.
RELEVANT PARTIES
The Issuer................... ___________ Owner Trust 200_-_, a _______ business
trust, will issue the notes.
Originator................... ___________ originates the receivables consisting
of [auto] [recreational vehicle] [motorcycle]
[light duty truck] [loans] [leases] and will sell
and contribute the receivables to the transferor.
The originator is a ___________ [company], whose
executive offices are located at _____________.
Transferor................... ___________ will assign the receivables to the
depositor. [The transferor is a ___________ and is
a wholly-owned subsidiary of the originator.] The
transferor's principal executive offices are
located at ___________.
Depositor.................... PaineWebber Asset Acceptance Corporation will
assign the receivables to the issuer. The
depositor is a Delaware corporation. The
depositor's principal executive offices are
located at 1285 Avenue of the Americas, New York,
New York 10019, telephone number (212) 713-2000.
Servicer..................... ______________ will service the receivables
assigned to the issuer. The servicer is a
_________ with its principal place of business in
__________. The servicer's address is __________,
telephone number (___) ____-____.
Indenture Trustee,
Backup Servicer
[and Indenture Collateral
Agent]..................... _______________ will serve as the indenture
trustee under the indenture, as backup servicer
under the sale and servicing agreement, [as
indenture collateral agent for the reserve
account] and as custodian for the receivables
files. The indenture trustee's address is _______,
telephone number ( ) ____-____.
Owner Trustee................ _______________ will serve as the trustee of the
issuer. The owner trustee's address is __________,
telephone number ( ) ___-____
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Initial Cut-off Date......... Beginning of business on ________, 200_. The
issuer will receive payments due on, or received
with respect to, the receivables on or after this
date.
Closing Date................. The issuer will issue the notes on or about
________, 200_.
Payment Dates................ The first payment date will be ____________, 200_.
After that, the payment dates will be the __ day
of each month if the __ day is a business day. If
the __ day is not a business day, then the payment
date will be the following business day.
The Notes.................... Each class of notes will have the initial
principal amount, interest rate and final
scheduled payment date set forth in the following
table.
PRINCIPAL INTEREST FINAL SCHEDULED
CLASS AMOUNT RATE PAYMENT DATE
----- --------- -------- ---------------
$ %
$ %
$ %
If any class of notes is not repaid in full on or
prior to its final scheduled payment date, an
event of default will occur.
Book-Entry Registration...... The notes will be initially available only in
book-entry form through the facilities of The
Depository Trust Company, Clearstream Banking,
societe anonyme, or the Euroclear System, except
under limited circumstances. See "Description of
the Securities--Book-Entry Registration" in the
prospectus.
The Receivables and
the Other Trust Fund
Properties................. The primary assets of the issuer will be the
receivables consisting of [auto] [recreational
vehicle] [motorcycle] [light duty truck] [loans]
[leases]. The receivables will be sold and
contributed by the originator to the transferor,
and assigned by the transferor to the depositor.
The depositor will transfer the receivables to the
issuer. The issuer will pledge the receivables to
the indenture trustee for the benefit of the
noteholders on the day of closing and from time to
time on subsequent transfer dates on or before
__________, 200_.
The Receivables Pool......... As of the beginning of business on __________,
200_, the receivables in the pool have:
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o an aggregate principal balance of $___________;
o a weighted average annual percentage rate of
approximately ___________%;
o a weighted average remaining term to stated
maturity of approximately ___________ months;
and
o a remaining term to stated maturity of not more
than __ months and not less than __months.
Other Trust Fund Properties.. In addition to the receivables, the trust fund
will also include:
o all moneys received with respect to the initial
receivables after the initial cut-off date and
the subsequent receivables after the applicable
subsequent cut-off dates;
o the security interests in the underlying assets
of the receivables;
o any proceeds from claims under insurance
policies covering the underlying assets of the
receivables or the related obligors;
o all instruments and documents relating to the
receivables;
o a security interest in amounts on deposit in
certain bank accounts; and
o all rights of the issuer under the sale and
servicing agreement.
PRE-FUNDING
Pre-funding Account.......... On the day of closing, the transferor will deposit
approximately $___________ of the proceeds from
the sale of notes into a pre-funding account held
by the indenture trustee. The issuer will use
funds on deposit in this account to acquire
additional receivables from the transferor from
time to time on or before __________, 200_.
The receivables acquired by the issuer during the
period between the day of the closing and
__________, 200_ will also have been originated by
___________.
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The characteristics of the subsequently-acquired
receivables will not differ materially from the
receivables acquired by the issuer on the day of
the closing.
Capitalized Interest Account. On the day of closing, the transferor will also
deposit $_______ into a capitalized interest
account held by the indenture trustee. The amount,
if any, deposited into the capitalized interest
account will be applied on the payment dates
occurring on or prior to __________, 200_ to fund
an amount equal to the amount of interest accrued
for that payment date at the weighted average
interest rates on the portion of the notes having
a principal balance in excess of the principal
balances of the receivables pledged by the issuer.
Any amounts remaining in the capitalized interest
account on __________, 200_ and not used for these
purposes will be paid to the transferor on that
date. See "Description of the Trust Agreements--
Accounts--Capitalized Interest Account" in this
prospectus supplement.
Interest Payments............ Each class of notes will bear interest each year
at the rate listed in the table under "--The
Notes" above. Interest on each class of notes will
accrue on a "30/360" basis. This means that the
interest payable on each payment date on each
class of notes will be the product of:
(1) the outstanding principal balance of the
class of notes;
(2) the applicable interest rate; and
(3) 1/12.
PRINCIPAL PAYMENTS
Calculation.................. The aggregate amount of principal payable on the
notes on each payment date will be equal to an
amount called the "noteholders' principal
distributable amount," which will generally be
equal to the noteholders' percentage of the sum
of:
(1) the amount of principal collected on the
receivables
during the prior calendar month,
(2) the outstanding principal balance of any
receivable that became a liquidated
receivable during the prior calendar month,
(3) the principal balance of each receivable that
was purchased by the originator or the
transferor during the prior calendar month,
and [at the option of the
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insurer,] the principal balance of each
receivable that was required to be, but was
not, so purchased,
(4) the aggregate amount of any reduction of the
principal balance of a receivable as a result
of a court order in an insolvency proceeding,
and
(5) any unpaid portion of the amounts included in
1, 2, 3 and 4 above for a prior payment date
that were not paid to the noteholders,
because of insufficient available cash.
Sequential Pay Feature....... Absent an event of default which has resulted in
an acceleration of the notes, the noteholders'
principal distributable amount will be payable to
the Class A-1 notes, the Class A-2 notes and the
Class A-3 notes in that order. This means that no
principal will be paid to the Class A-2 notes
until the Class A-1 notes have been paid in full,
and so forth. The noteholders' principal
distributable amount is more fully described under
"Description of the Trust Agreements--Payments" in
this prospectus supplement.
The Certificates............. The issuer will also issue $___________ aggregate
principal amount of non-interest bearing
certificates pursuant to a trust agreement to be
dated as of __________, 200_ between the depositor
and the owner trustee. The certificates are not
being offered pursuant to this prospectus
supplement and will initially be held by the
transferor.
The certificates will not receive any
distributions on a payment date until the
noteholders have received all amounts required to
be distributed to them on such payment date [and
until the reserve account has been fully funded
and certain amounts owed to the insurer have been
paid.]
[The Reserve Account]........ [The transferor will establish a reserve account
for the benefit of the insurer. On the day of
closing, the transferor will make an initial
deposit of cash into the reserve account. On each
payment date, if the amount on deposit in the
reserve account is less than the required amount,
additional amounts will be deposited into the
reserve account from collections on the
receivables that are available for this purpose.
Funds will be withdrawn from the reserve account
on each payment date if the amount of available
funds on any payment date is not sufficient to
pay:
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o the monthly servicing fee;
o accrued and unpaid fees owing to the indenture
trustee, the owner trustee, the indenture
collateral agent, the custodian and the backup
servicer;
o required payments of interest and principal to
the noteholders; and
o amounts owed to the insurer.
The amount required to be on deposit in the
reserve account may increase or decrease without
the consent of the noteholders. As a result, you
should not rely on amounts on deposit in or
required to be deposited to the reserve account as
a source of funds for payments on the notes.]
[The Yield Supplement
Account]................... [The transferor will establish a yield supplement
account held by indenture trustee for the benefit
of the noteholders. On the day of closing, the
transferor will deposit approximately $___________
in the yield supplement account.
On each payment date, the issuer will use funds in
the yield supplement account to cover any
shortfall between:
o the weighted average interest rate on the notes
plus approximately ___________%; and
o the interest rate on each receivable.]
[Insurer and the Policy]..... [__________ is a ________ financial guaranty
insurance company. ___________ will issue a
policy, which will guarantee the payment of timely
interest and principal due on the notes, but only
as set forth under the heading "The Policy" in
this prospectus supplement.]
OPTIONAL REDEMPTION.......... If the aggregate principal balance of the
receivables on any payment date is __% or less of
the sum of the aggregate principal balance of the
initial receivables as of the initial cut-off date
and the aggregate principal balance of all
subsequently-acquired receivables as of their
subsequent cut-off dates, the transferor may
reacquire the receivables. If the transferor
elects to reacquire the receivables, the
outstanding principal balance of the notes will be
paid in full together with accrued interest.
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FEDERAL INCOME
TAX CONSIDERATIONS........... In the opinion of Cadwalader, Wickersham & Taft,
for federal income tax purposes, the notes will be
characterized as debt, and the issuer will not be
classified as a separate entity that is an
association, or a publicly traded partnership,
taxable as a corporation.
If you purchase a note, you agree to treat it as
debt for tax purposes. See "Federal Income Tax
Considerations" in this prospectus supplement for
additional information concerning the application
of federal and state tax laws to the issuer and
the notes.
ERISA CONSIDERATIONS......... The notes are generally eligible for purchase by
employee benefit plans that are subject to ERISA.
However, administrators of employee benefit plans
should review the matters discussed under "ERISA
Considerations" in the prospectus and in this
prospectus supplement before purchasing notes.
RATINGS...................... The notes must receive at least the following
ratings from ___________ and ___________ in order
to be issued:
RATING
------
CLASS
----- --------- ---------
A-1
A-2
A-3
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RISK FACTORS
BEFORE MAKING AN INVESTMENT DECISION, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISKS WHICH WE BELIEVE DESCRIBE THE PRINCIPAL FACTORS THAT MAKE AN
INVESTMENT IN THE NOTES SPECULATIVE OR RISKY. IN PARTICULAR, PAYMENTS ON YOUR
NOTES WILL DEPEND ON PAYMENTS RECEIVED ON AND OTHER RECOVERIES WITH RESPECT TO
THE RECEIVABLES. THEREFORE, YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS
RELATING TO THE RECEIVABLES.
LIMITED LIQUIDITY MAY ADVERSELY AFFECT MARKET VALUE OF NOTES
A secondary market for the notes may not develop or, if it does develop, it
may not provide you with liquidity of investment or continue while your notes
are outstanding. Lack of liquidity could result in a substantial decrease in the
market value of your notes. See "Risk Factors--Limited Liquidity of Securities
May Adversely Affect the Market Value of Your Securities" in the accompanying
prospectus.
PREPAYMENTS ON THE RECEIVABLES WILL CAUSE PREPAYMENTS ON THE NOTES RESULTING IN
REINVESTMENT RISK TO YOU
The receivables may be prepaid, in full or in part, voluntarily or as a
result of:
o prepayments on defaults;
o casualties to the related assets; or
o other reasons.
Since the rate of payment of principal of the notes depends in part on the
rate of payment, including prepayments, of the principal balance of the
receivables, final payment of the notes could occur significantly earlier than
the final scheduled payment date for each class of notes. You will bear the risk
that you may have to reinvest the principal on your notes earlier than you
expected at a rate of interest that is less than the rate of interest on your
notes.
PREPAYMENTS ON THE RECEIVABLES MAY AFFECT YOUR YIELD ON YOUR NOTES
If you purchase your notes at a premium, prepayments on the receivables may
reduce your yield. The ratings on the notes do not address the possibility that
prepayment rates may affect your yield on your notes.
POTENTIAL PREPAYMENTS ON NOTES DUE TO FAILURE TO TRANSFER A SUFFICIENT NUMBER OF
ADDITIONAL RECEIVABLES TO THE TRUST
If all of the funds on deposit in the pre-funding account are not used to
purchase additional receivables during the pre-funding period, any remaining
amount on deposit in the pre-funding account will be used to make principal
payments on the notes. See "Description of the Notes--Mandatory Redemption" in
this prospectus supplement. The originator has identified an existing pool of
receivables that the originator believes will satisfy the established criteria
for receivables that
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<PAGE>
will be assigned to the issuer on subsequent transfer dates. See "The
Receivables Pool--Subsequent Receivables" in this prospectus supplement.
However, the issuer cannot assure you that the identified receivables will in
fact satisfy that criteria and that there will be a sufficient number of
eligible receivables to assign to the issuer.
RISK OF POTENTIAL PREPAYMENTS ON NOTES DUE TO FAILURE TO OBTAIN RELEASE OF
EXISTING LIEN
[The receivables that the originator has identified for possible transfer to
the issuer on subsequent transfer dates are subject to a lien securing amounts
advanced under a warehouse credit line that the originator uses to finance
receivables it owns. Although the originator anticipates that amounts on deposit
in the pre-funding account will be sufficient to repay the related warehouse
debt and release the lien on additional receivables, we cannot assure you that
those amounts will be sufficient or that the originator will have other sources
of cash that could be used to repay the warehouse debt. If the related warehouse
debt were not repaid and the lien released, the transferor would be unable to
assign those additional receivables to the issuer and any amount remaining in
the pre-funding account at the end of the pre-funding period will be used to
partially redeem the notes in the manner described under "Description of the
Notes--Mandatory Redemption" in this prospectus supplement.]
YOU MAY EXPERIENCE A LOSS ON YOUR NOTES BECAUSE THE ISSUER HAS LIMITED ASSETS
The issuer's primary assets or source of funds for payments on the notes are:
o the receivables;
o the pre-funding account;
o [the reserve limited assets account;]
o [the yield supplement account;]
o the capitalized interest account; and
o [the insurance policy issued by ___________.]
For repayment, you must rely upon payments on the receivables, amounts on
deposit in the pre-funding account, [the yield supplement account, the
capitalized interest account and amounts, if any, in the reserve account].
The pre-funding account and the capitalized interest account will only be
maintained until the first payment date after the pre-funding period.
The money in the pre-funding account will only be used to purchase additional
receivables and is not available to cover losses on the receivables.
The capitalized interest account covers obligations of the issuer relating to
the portion of the issuer's assets not invested in receivables and is not
designed to provide protection against losses on the receivables.
[Although the insurance policy will be available to cover shortfalls in
distributions each month, if ___________ defaults in its obligations under the
insurance policy, the noteholders must rely solely on:
o amounts received with respect to the receivables without the benefit of
the insurance policy;
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o amounts, if any, on deposit in the reserve account; and
o the amount released from the yield supplement account on each payment
date.]
If this happens, the indenture trustee may be unable to realize on the assets
underlying the receivables and the proceeds to be distributed to noteholders on
a current basis may be reduced.
[ORIGINATOR HAS A LIMITED OPERATING HISTORY
All of the receivables were originated by ___________ in accordance with its
credit underwriting criteria. The originator was formed in ___________ and
commenced its operations as an originator of [auto] [recreational vehicle]
[motorcycle] [light duty truck] [loans] [leases] only in __________. Since that
time it has experienced rapid growth in its portfolio of [auto] [recreational
vehicle] [motorcycle] [light duty truck] [loans] [leases]. The originator
therefore has limited historical performance data with respect to the majority
of the [auto] [recreational vehicle] [motorcycle] [light duty truck] [loans]
[leases] it currently services. Although the originator has calculated and
presented in this prospectus supplement its delinquency and net loss experience
with respect to its entire portfolio of serviced [auto] [recreational vehicle]
[motorcycle] [light duty truck] [loans] [leases], we cannot assure you that the
information presented will reflect actual experience with respect to the
receivables acquired by the issuer. In addition, we cannot assure you that the
future delinquency or loss experience of the servicer with respect to the
receivables will be better or worse than that set forth in the table headed "The
Originator and the Servicer--Delinquency and Loss Experience" in this prospectus
supplement. The originator is at an early stage of operations, is subject to the
risks inherent in the establishment of a new business and must, among other
things, continue to attract and retain qualified credit and collection personnel
and support its [auto] [recreational vehicle] [motorcycle] [light duty truck]
[loans] [leases] business. See "The Originator and the Servicer" in this
prospectus supplement.]
[THE ORIGINATOR'S INTERNET-BASED ORIGINATION PROGRAMS MAY GIVE RISE TO RISKS
THAT ARE NOT CUSTOMARY
The originator generally uses the internet and the mail to communicate with
obligors during the process of underwriting and originating [auto] [recreational
vehicle] [motorcycle] [light duty truck] [loans] [leases]. For a discussion of
the underwriting and origination process, see "The Originator and the Servicer"
in this prospectus supplement. The underwriting and origination processes and
loan documentation used by the originator are novel and were developed to
capitalize on the potential benefits of conducting its business over the
internet and through the mail. These processes and the related documentation may
entail risks that would not exist in a customary [auto] [recreational vehicle]
[motorcycle] [light duty truck] [loans] [leases] origination program and may
give rise to challenges based on consumer protection or other laws based on
issues that are currently untested in the courts. We cannot assure you that
these risks could not adversely affect the collectibility or enforceability of
the contracts or the security interests in the underlying assets.]
YOU MAY EXPERIENCE A LOSS IN CONNECTION WITH AN EVENT OF DEFAULT
[Unless an insurer default has occurred and is continuing,] neither the
indenture trustee nor the noteholders may declare an event of default under the
indenture. [So long as an insurer event
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of default has not occurred and is not continuing, an event of default will
occur only upon delivery by the insurer to the indenture trustee of notice of
the occurrence of events of default under the insurance agreement.] If a default
occurs under the indenture, [so long as an insurer default has not occurred and
is not continuing, the insurer] will have the right, but not the obligation, to
cause the sale, in whole or in part, of the receivables and the other assets of
the trust, which will result in a prepayment, in whole or in part, of the notes
in advance of their maturity dates. [Following the occurrence of an event of
default, the indenture trustee will continue to submit claims under the
insurance policy as necessary to enable the issuer to continue to make payments
on the notes in accordance with the terms of the indenture on each payment date.
Following the occurrence of an event of default, however, the insurer may elect,
in its sole discretion, to pay all or any portion of the outstanding amount of
the notes, plus accrued interest on the notes.] You may not be able to reinvest
the principal repaid to you earlier than expected at a rate of return that is at
least equal to the rate of return on your notes.
[POTENTIAL LOSSES ON YOUR NOTES DUE TO GEOGRAPHIC CONCENTRATION OF RECEIVABLES
Economic conditions in the states where the obligors under the receivables
reside affect the delinquency, loan loss and repossession experience of the
issuer with respect to the receivables. Based on the principal balance of the
original pool of receivables as of __________, 200_, ______% of the receivables
were originated in ___________, _____% in ___________, and _____% in
___________. No other states have concentrations in excess of ____%.
Accordingly, adverse economic conditions or other factors affecting ________,
_______ or ________ could have an especially significant impact on the
delinquency, loan loss or repossession experience of the issuer and may
adversely affect the timing and amount of payment of principal and interest on
your notes.]
[RISK OF RECHARACTERIZATION OF TRUE SALE AS A PLEDGE
The originator warrants to the transferor in the sale and servicing agreement
that the sale and contribution of the receivables by it to the transferor is a
valid sale and contribution of the receivables to the transferor. In addition,
under the sale and servicing agreement the originator and the transferor have
agreed to treat the transactions described in this prospectus supplement as a
sale and contribution of the receivables to the transferor, and the originator
will take all actions that are required under applicable law to perfect the
transferor's ownership interest in the receivables. However, if the originator
were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of the originator or the originator itself as debtor-in-
possession were to take the position that the sale and contribution of the
receivables from the originator to the transferor should be recharacterized as a
pledge of those receivables to secure a borrowing from the originator, then
delays in payments of collections of receivables could occur. Alternatively, if
the court rules in favor of the trustee, debtor-in-possession or creditor,
reductions in the amount of those payments could result.
It is possible that the risk of recharacterization of the transfer between
the originator and the transferor may be increased by the fact that, for
accounting purposes, the transferor will treat the notes as debt and the
transfer of the receivables from the transferor to the depositor as a pledge
rather than a sale and contribution.
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If the transfer of receivables to the transferor were respected as a sale and
contribution, the receivables would not be part of the originator's bankruptcy
estate and would not be available to the originator's creditors.
In addition, if the originator were to become a debtor in a bankruptcy case
and a creditor or trustee-in-bankruptcy of that debtor or the originator itself
were to request a court to order that the originator should be substantively
consolidated with the transferor, delays in payments on the notes could result.
If the bankruptcy court rules in favor of the creditor, trustee-in-bankruptcy or
the originator, reductions in those payments could result.]
FORWARD-LOOKING STATEMENTS
In this prospectus supplement and the accompanying prospectus, we use certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These forward-looking statements are
found in the material, including each of the tables, set forth under "Risk
Factors" and "Weighted Average Life Of The Securities" in this prospectus
supplement. Forward-looking statements are also found elsewhere in this
prospectus supplement and prospectus and include words like "expects,"
"intends," "anticipates," "estimates" and other similar words. These statements
are intended to convey our projections or expectations as of the date of this
prospectus supplement. These statements are inherently subject to a variety of
risks and uncertainties. Actual results could differ materially from those we
anticipate due to changes in, among other things:
(1) economic conditions and industry competition,
(2) political and/or social conditions, and
(3) the law and government regulatory initiatives.
We will not update or revise any forward-looking statement to reflect changes
in our expectations or changes in the conditions or circumstances on which these
statements were originally based.
DEFINED TERMS
We define and use capitalized terms in this prospectus supplement and the
prospectus to assist you in understanding the terms of the offered notes and
this offering. We define the capitalized terms we used in this prospectus
supplement under the caption "Glossary of Terms" beginning on page S-[__] in
this prospectus supplement.
THE TRUST
GENERAL
The issuer, ___________ Owner Trust 200_-_ is a business trust formed under
the laws of the State of ___________ under a trust agreement. After its
formation, the issuer will not engage in any activity other than:
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o acquiring, holding and managing the trust fund;
o issuing the notes and certificates to finance its acquisition of its
interest in the trust fund;
o making payments on the notes and the certificates issued by it; and
o engaging in other activities that are necessary, suitable or convenient to
accomplish those objectives.
The trust's principal offices are in ___________, in care of ___________, as
owner trustee, at the address listed below under "--The Owner Trustee" in this
prospectus supplement.
CAPITALIZATION OF THE ISSUER
The following table illustrates the capitalization of the issuer as of
__________, 200_, as if the issuance and sale of the notes and the certificates
have taken place on that date:
Class A-1___________% Asset Backed Notes...................... $
Class A-2___________% Asset Backed Notes......................
Class A-3___________% Asset Backed Notes......................
Asset Backed Certificates..................................... ____________
Total................................................... $
============
THE OWNER TRUSTEE
___________ is the owner trustee under the Owner Trust Agreement. The owner
trustee is a ___________ banking corporation and its principal offices where
information can be obtained relating to the issuer and the notes are located at
___________. The originator, the transferor, the depositor and their respective
affiliates may maintain normal commercial banking relations with the owner
trustee and its affiliates.
THE INDENTURE TRUSTEE
___________ is the indenture trustee under the indenture. The indenture
trustee is a ___________ and its principal offices are located at ___________.
The originator, the transferor, the depositor and their respective affiliates
may maintain normal commercial banking relations with the indenture trustee and
its affiliates.
THE TRUST FUND
The trust fund will include, among other things, the following property of
the issuer:
(1) the Receivables;
(2) all payments due on or received under the Initial Receivables after the
beginning of business on the Initial Cut-off Date and under the
Subsequent Receivables after the Subsequent Cut-off Dates;
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(3) any amounts as from time to time may be held in the collection account,
the Note Distribution Account, [the Yield Supplement Account,] the
Pre-Funding Account and the Capitalized Interest Account;
(4) an assignment of the security interests of the originator in the assets
underlying the Receivables;
(5) an assignment of the right to receive proceeds from claims on certain
physical damage, credit life and disability insurance policies covering
the assets underlying the Receivables or the obligors;
(6) the receivable file related to each Receivable; and
(7) certain other rights under the trust agreements.
The trust fund will also include an assignment of the transferor's rights
against the originator and the depositor's rights against the transferor and the
originator under the Sale and Servicing Agreement upon the occurrence of certain
breaches of representations and warranties.
The Receivables were originated by ___________, the originator, in the
ordinary course of business using its underwriting criteria. All of the
Receivables will be sold and assigned by the originator to __________, the
transferor, assigned by the transferor to the depositor and assigned by the
depositor to the issuer under the Sale and Servicing Agreement. The Subsequent
Receivables will be purchased by the transferor from the originator and will be
assigned from the transferor to the depositor and from the depositor to the
issuer in accordance with the Sale and Servicing Agreement and one or more
subsequent transfer agreements.
Under the Indenture, the issuer will grant a security interest in the
Receivables included in the trust fund in favor of the indenture trustee on
behalf of the noteholders.
THE RECEIVABLES POOL
ELIGIBILITY CRITERIA
The pool of Receivables will consist of the Initial Receivables purchased by
the issuer as of the Initial Cut-off Date and the Subsequent Receivables
purchased by the issuer as of the related Subsequent Cut-off Dates. The Initial
Receivables have been selected, and the Subsequent Receivables will be selected,
from the portfolio of the originator for inclusion in the pool of Receivables by
several criteria, including the following:
o each Receivable has an annual percentage rate of at least ___________%,
o each Receivable as of the related cut-off date, was not more than ____
days past due;
o each Receivable has a scheduled maturity not later than ____ months before
__________, 20__;
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o each Receivable had an original term to stated maturity of not more than
____ months; and
o each Receivable has had at least _____ scheduled payments received by the
servicer prior to the related cut-off date.
No selection criteria or procedures believed by the originator or the
transferor to be adverse to [the insurer], the noteholders or the
certificateholders were used in selecting the receivables.
SUBSEQUENT RECEIVABLES
During the Pre-Funding Period, the transferor is obligated to purchase from
the originator and to assign to the depositor the Subsequent Receivables. The
Subsequent Receivables will then be assigned to the issuer, on each subsequent
transfer date. The aggregate principal balance of the Subsequent Receivables is
anticipated by the originator to equal approximately $__________. In connection
with each assignment of Subsequent Receivables, the issuer will be required to
pay to the depositor a cash purchase price equal to __% of the outstanding
principal balance of the Subsequent Receivables as of their Subsequent Cut-off
Dates [less required deposits to the reserve account.] The depositor will pay
the cash purchase price to the transferor and the transferor in turn will pay it
to the originator. At this agreed upon purchase price, the Initial Pre-Funded
Amount will be sufficient to purchase the entire $___________ aggregate
principal balance of Subsequent Receivables that the originator anticipates will
be transferred to the transferor. The purchase price will be withdrawn from the
Pre-Funding Account and paid to the depositor for further payment to the
transferor and the originator as described in the second preceding sentence.
Any assignment of Subsequent Receivables is subject to the following
conditions, among others:
o each such Subsequent Receivable and the underlying asset satisfies the
eligibility criteria specified under "--Eligibility Criteria" above as of
the related Subsequent Cut-off Date;
o [the insurer, so long as no Insurer Default has occurred and is not
continuing, will have approved in its absolute and sole discretion the
assignment of the Subsequent Receivables to the issuer;]
o neither the originator nor the transferor will have selected the
Subsequent Receivables in a manner that it believes is adverse to the
interests of [the insurer,] the certificateholders or the noteholders;
o the originator has delivered certain opinions of counsel with respect to
the validity of the conveyance of such Subsequent Receivables;
o the Rating Agencies will have confirmed that the ratings on the notes have
not been withdrawn or reduced as a result of the assignment of the
Subsequent Receivables to the issuer; and
o no event of default under the indenture has occurred and is continuing.
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In addition, the obligation of the issuer to purchase the Subsequent
Receivables on a subsequent transfer date is subject to the condition that the
Receivables assigned to the issuer, including the Subsequent Receivables to be
conveyed to the issuer on the subsequent transfer date meet the following
criteria:
o each Subsequent Receivable assigned to the issuer will have an annual
percentage rate of _______% or higher;
o each Subsequent Receivable assigned to the issuer will have a remaining
term to stated maturity of not more than __ months; and
o not more than __% of the pool balance will have obligors whose mailing
addresses are in any one state other than [_________] unless an opinion of
counsel acceptable to the Rating Agencies [and the insurer] with respect
to the security interest in the underlying asset is furnished by the
transferor on or prior to the subsequent transfer date.
Except for the criteria described in the preceding paragraphs, there are no
required characteristics for the Subsequent Receivables. Therefore, following
the transfer of Subsequent Receivables to the issuer, the aggregate
characteristics of the entire pool of Receivables included in the trust,
including the composition of the Receivables, the distribution by annual
percentage rate, the geographic distribution and the distribution by remaining
term described in the following tables, will vary from those of the Initial
Receivables.
POOL COMPOSITION
Set forth in the following tables is information concerning the composition,
distribution by geographic location, distribution by remaining Principal
Balance, distribution by APR, distribution by original term to stated maturity,
distribution by remaining term to stated maturity and distribution by loan
purpose of the Initial Receivables to be assigned to the issuer as of the
Initial Cut-off Date.
S-16
<PAGE>
COMPOSITION OF THE INITIAL RECEIVABLES POOL
AS OF THE INITIAL CUT-OFF DATE
Aggregate Principal Balance.............. $
Number of Receivables....................
Average Principal Balance................ $
(Range)..................................
Average Original Amount Financed......... $
(Range)..................................
Weighted Average APR.....................
(Range)..................................
Weighted Average Original Term to Stated
Maturity...............................
(Range)..................................
Weighted Average Remaining Term to Stated
Maturity...............................
(Range)..................................
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES AS OF
THE INITIAL CUT-OFF DATE
AGGREGATE AGGREGATE
RANGE OF REMAINING PRINCIPAL NUMBER OF PRINCIPAL PRINCIPAL
BALANCES RECEIVABLES BALANCE BALANCE (1)
---------------------------- ----------- --------- -----------
$ %
-------------------------
(1) Percentages may not add to 100.00% due to rounding.
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<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES POOL AS OF THE
INITIAL CUT-OFF DATE
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
STATE (1) RECEIVABLES BALANCE BALANCE (2)
--------------------------------- ----------- --------- -------------
Alabama.......................... $ %
Arizona..........................
Arkansas.........................
California.......................
Colorado.........................
Connecticut......................
District of Columbia.............
Florida..........................
Georgia..........................
Idaho............................
Indiana..........................
Iowa.............................
Kansas...........................
Kentucky.........................
Maine............................
Maryland.........................
Massachusetts....................
Michigan.........................
Minnesota........................
Missouri.........................
Montana..........................
Nebraska.........................
New Jersey.......................
New Mexico.......................
New York.........................
North Carolina...................
Ohio.............................
Oklahoma.........................
Oregon...........................
Rhode Island.....................
South Carolina...................
Tennessee........................
Texas............................
Utah.............................
Virginia.........................
Washington.......................
West Virginia....................
Wisconsin........................
Total......................
-------------------------
(1) Based on mailing addresses of the obligors as of the date of origination.
(2) Percentages may not add to 100.00% due to rounding.
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<PAGE>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE INITIAL RECEIVABLES AS OF
THE INITIAL CUT-OFF DATE
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF ANNUAL PERCENTAGE RATES RECEIVABLES BALANCE BALANCE (2)
-------------------------------- ----------- ------- -----------
$ %
-------------------------
(1) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY ORIGINAL TERM TO STATED MATURITY OF THE INITIAL RECEIVABLES AS
OF THE INITIAL CUT-OFF DATE
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF ANNUAL PERCENTAGE RATES RECEIVABLES BALANCE BALANCE (2)
-------------------------------- ----------- --------- -------------
$ %
-------------------------
(1) Percentages may not add to 100.00% due to rounding.
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<PAGE>
DISTRIBUTION BY REMAINING TERM TO STATED MATURITY OF THE
INITIAL RECEIVABLES AS OF THE INITIAL CUT-OFF DATE
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF REMAINING TERMS (1) RECEIVABLES BALANCE BALANCE (2)
---------------------------- ----------- --------- -------------
$ %
-------------------------
(1) Defined as the number of months from the Initial Cut-off Date to stated
maturity.
(2) Percentages may not add to 100.00% due to rounding.
THE TRANSFEROR
_________________, will be organized as a _____________ on or before the
closing date and is wholly-owned by _____________. The transferor will be
organized for limited purposes, which include selling and assigning receivables
sold to it by the originator to the depositor and any activities incidental to
and necessary or convenient for the accomplishment of that purpose. The
principal executive offices of the transferor are located at
_________________________, __________, ________, _______, and its telephone
number is (___) ____-_____.
THE DEPOSITOR
PaineWebber Asset Acceptance Corporation, a Delaware corporation, is a
wholly-owned limited purpose finance subsidiary of PaineWebber Group Inc. The
principal executive offices of the depositor are located at 1285 Avenue of the
Americas, New York, New York 10019.
THE ORIGINATOR AND THE SERVICER
______________, a _____________, was formed in ______. Its executive offices
are located at _____________, and its telephone number is (___) ___-____.
GENERAL
[DESCRIBE ORIGINATOR'S BUSINESS GENERALLY]
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<PAGE>
ORIGINATION PROCESS AND CREDIT EVALUATION PROCEDURES
[DESCRIBE FOR SPECIFIC ORIGINATOR]
CONTRACT PROCESSING, PURCHASE, SERVICING AND ADMINISTRATION
[DESCRIBE FOR SPECIFIC ORIGINATOR]
DELINQUENCY CONTROL AND COLLECTION STRATEGY
[DESCRIBE FOR SPECIFIC ORIGINATOR/SERVICER]
DELINQUENCY AND LOSS EXPERIENCE
[DESCRIBE FOR SPECIFIC ORIGINATOR/SERVICER]
S-21
<PAGE>
WEIGHTED AVERAGE LIFE OF THE NOTES
Information regarding certain maturity and prepayment considerations with
respect to the notes is set forth under "Risk Factors--Yield is Sensitive to
Rate of Principal Prepayments on Receivables" and "The Receivables--Maturity and
Prepayment Considerations" in the prospectus. No principal payments on any class
of notes will be made until all notes with lower class designations have been
paid in full. For example, no payments on the Class A-3 notes will be made until
the Class A-1 notes and Class A-2 notes have been paid in full. See "Description
of the Notes--Payments of Principal" in this prospectus supplement. As the rate
of payment of principal of each class of notes depends primarily on the rate of
payment including prepayments of the principal balance of the Receivables, final
payment of any class of the notes could occur significantly earlier than the
applicable Final Scheduled Payment Date for that class. Reinvestment risk
associated with early payment of the notes will be borne exclusively by the
noteholders. It is expected that final payment of each class of notes will occur
on or prior to the Final Scheduled Payment Date. However, if sufficient funds
are not available to pay the notes of any class in full on or prior to the
applicable Final Scheduled Payment Date, final payment of such class of notes
would occur later than such date.
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<PAGE>
Prepayments on Receivables can be measured relative to a prepayment standard
or model. The model used in this prospectus supplement, the ABS, represents an
assumed rate of prepayment each month relative to the original number of
receivables in a pool of receivables. ABS further assumes that all the
receivables are the same size and amortize at the same rate and that each
receivable in each month of its life will either be paid as scheduled or be
prepaid in full. For example, in a pool of receivables originally containing
10,000 receivables, a 1% ABS rate means that 100 receivables prepay each month.
ABS does not purport to be a historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of receivables,
including the Receivables.
The following tables have been prepared on the basis of the characteristics
of the Receivables. The tables assume that:
(1) the Receivables prepay in full at the specified constant percentage of
ABS monthly, with no defaults, losses or repurchases;
(2) each scheduled monthly payment on the Receivables is made on the last day
of each month and each month has 30 days;
(3) payments on the notes are made on each payment date;
(4) [the Yield Supplement Amount is deposited into the Collection Account
each period;]
(5) the amount deposited into the Pre-Funding Account on the closing date is
applied in its entirety to the purchase of Receivables transferred to the
issuer during the Pre-Funding Period and to make related deposits to [the
Reserve Account, the Yield Supplement Account and] the Capitalized
Interest Account; and
(6) the transferor exercises its option to purchase the Receivables.
The tables also assume that the Receivables have been aggregated into
hypothetical pools with all of the Receivables within each pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools will be such that each pool will be fully amortized by the end of
its remaining term to maturity. The scheduled monthly payment for each of the
pools which is based on its aggregate principal balance, APR, original number of
scheduled payments and remaining number of scheduled payments as of the related
Cut-off Date.
ORIGINAL REMAINING
AGGREGATE TERM TO AMORTIZATION
PRINCIPAL MATURITY (IN TERM
POOL BALANCE APR MONTHS) (IN MONTHS) CUT-OFF DATE
-------------- --------- ------- ------------ ------------ ------------
1 $ %
2
3
4
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<PAGE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the tables. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivable will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
four hypothetical pools could produce slower or faster principal distributions
than indicated in the tables at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between the assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of each class of notes.
The following tables have been prepared based on the assumptions described
above, including the assumptions regarding the characteristics and performance
of the Receivables which will differ from the actual characteristics and
performance of the Receivables, and should be read in conjunction with those
assumptions.
PERCENT OF INITIAL CLASS A-1 NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
PAYMENT DATE 0.00% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
Closing Date..............
December ___________......
January ___________.......
February ___________......
March ___________.........
April ___________.........
May ___________...........
June ___________..........
July ___________..........
August ___________........
September ___________.....
October ___________.......
November ___________......
December ___________......
-------------------------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment of the note by the number of years from the
date of the issuance of that note to the related payment date, (b) adding
the results and (c) dividing the sum by the related initial principal amount
of that Note.
(2) This calculation assumes that the transferor does not exercise its option to
purchase the Receivables.
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<PAGE>
PERCENT OF INITIAL CLASS A-2 NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
PAYMENT DATE 0.00% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
Closing Date..............
December ___________......
January ___________.......
February ___________......
March ___________.........
April ___________.........
May ___________...........
June ___________..........
July ___________..........
August ___________........
September ___________.....
October ___________.......
November ___________......
December ___________......
Weighted Average Life
(years)(1)
Weighted Average Life
(years)(1) (2)
-------------------------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment of the note by the number of years from the
date of the issuance of the note to the related payment date, (b) adding the
results and (c) dividing the sum by the related initial principal amount of
that note.
(2) This calculation assumes that the transferor does not exercise its option to
purchase the Receivables.
PERCENT OF INITIAL CLASS A-3 NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
PAYMENT DATE 0.00% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
Closing Date..............
December ___________......
January ___________.......
February ___________......
March ___________.........
April ___________.........
May ___________...........
June ___________..........
July ___________..........
August ___________........
September ___________.....
October ___________.......
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<PAGE>
PAYMENT DATE 0.00% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
November ___________......
December ___________......
Weighted Average Life
(years)(1)
Weighted Average Life
(years)(1) (2)
-------------------------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment of the note by the number of years from the
date of the issuance of the note to the related payment date, (b) adding the
results and (c) dividing the sum by the related initial principal amount of
that note.
(2) This calculation assumes that the transferor does not exercise its option to
purchase the Receivables.
DESCRIPTION OF THE NOTES
The notes will be issued pursuant to an indenture to be dated as of
__________, 200_ between the issuer and the indenture trustee. A copy of the
indenture will be filed with the SEC following the issuance of the notes. The
following summary, together with the description in the prospectus under the
heading "Description of the Securities," describes the material terms of the
notes and the indenture. The following summary supplements the description of
the general terms and provisions of the notes of any given series and the
related indenture set forth in the prospectus.
PAYMENTS OF INTEREST
The Class A-1 notes will bear interest at the rate of ___________ % per
annum; the Class A-2 notes will bear interest at the rate of ___________% per
annum and the Class A-3 notes will bear interest at a rate of ___________% per
annum.
Each class of the notes will constitute fixed income securities, as described
under "Summary of Terms--Securities--General Nature of the Securities as
Investments" in the prospectus. Interest on the principal balances of each class
of the notes will accrue at the respective interest rate for that class and will
be payable to the persons in whose names the notes are registered on the related
Record Date monthly on each payment date commencing _________, 200_. See
"Description of the Securities--Book-Entry Registration" in the prospectus.
With respect to any payment date, interest on the outstanding amount of each
class of notes will be an amount equal to one twelfth of the applicable interest
rate, multiplied by the principal amount of that class of notes as of the close
of business on the preceding payment date, or the closing date, for the initial
payment date. Interest distributions payable for any payment date but not
distributed on that payment date will be payable on the next payment date
increased by an amount equal to interest on the amount at the applicable
interest rate to the extent lawful. See "Description of the Trust
Agreements--Payments" in this prospectus supplement.
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Interest payments to the holders of the notes of any class will have the same
priority. [If an Insurer Default occurs, the amount available for interest
payments could be less than the amount of interest payable on the notes on any
payment date. If this happens, each class of holders of notes will receive their
ratable share, based upon the aggregate amount of interest payable to each class
of notes of the aggregate amount available to be distributed in respect of
interest on the notes.]
PAYMENTS OF PRINCIPAL
Principal payments will be made to the noteholders on each payment date in an
amount generally equal to the Noteholders' Principal Distributable Amount.
Absent an event of default, on each payment date, to the extent of available
funds, the indenture trustee will distribute an amount up to the Noteholders'
Principal Distributable Amount in respect of principal on the notes first to the
Class A-1 notes, then to the Class A-2 notes and then to the Class A-3 notes.
The principal balance of the Class A-1 notes, to the extent not previously
paid, will be due on the Class A-1 Final Scheduled Payment Date. The principal
balance of the Class A-2 notes, to the extent not previously paid, will be due
on the Class A-2 Final Scheduled Payment Date. The principal balance of the
Class A-3 notes, to the extent not previously paid, will be due on the Class A-3
Final Scheduled Payment Date.
The actual date on which the aggregate outstanding principal balance of any
class of notes is paid in full may be earlier than the applicable Final
Scheduled Payment Date based on a variety of factors, including those described
under "Weighted Average Life of the Notes" in this prospectus supplement and
under the headings "Risk Factors--Yield is Sensitive to Rate of Principal
Prepayments on Receivables" and "The Receivables--Maturity and Prepayment
Considerations" in the prospectus.
OPTIONAL REDEMPTION
The transferor may reacquire the Receivables when the Pool Balance as of the
end of the related Collection Period has declined to __% or less of the sum of
the Pool Balance as of the Initial Cut-off Date, plus the aggregate Principal
Balance of the Subsequent Receivables as of their respective Subsequent Cut-off
Dates. This redemption will cause an early retirement of the notes. The
redemption price will be equal to the unpaid principal amount of the notes plus
accrued and unpaid interest on the notes.
MANDATORY REDEMPTION
On the payment date on or immediately following the last day of the
Pre-Funding Period, any funds remaining in the Pre-Funding Account, after giving
effect to the purchase of all Subsequent Receivables, including any purchase on
the last day of the Pre-Funding Period, exclusive of earnings from the
investment of funds in the Pre-Funding Account will be applied to redeem each
class of notes then outstanding. The aggregate principal amount of each class of
notes to be redeemed will be an amount equal to that class's pro rata share,
based on the respective current principal amount of each class of notes of these
remaining funds, net of investment earnings. However, if the remaining funds,
net of investment earnings, are $_____ or
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less, the amount will be applied exclusively to reduce the outstanding principal
balance of the class of notes then entitled to receive distributions of the
Noteholders' Principal Distributable Amount. It is unlikely that the aggregate
principal amount of Subsequent Receivables will exactly equal the Pre-Funded
Amount, and therefore it is likely that at least a nominal amount of principal
will be prepaid to the noteholders at the end of the Pre-Funding Period. See
"Risk Factors--Risk of Potential Prepayments on Notes Due to Failure to Obtain
Release of Existing Lien" in this prospectus supplement.
THE INDENTURE
Events of Default, Rights Upon Event of Default. [Unless an Insurer Default
is continuing, "events of default is continuing" under the indenture will
consist of insurance agreement indenture cross defaults, and will constitute an
event of default under the indenture only if the insurer has delivered to the
indenture trustee, and not rescinded, a written notice specifying that the
insurance agreement indenture cross default constitutes an event of default
under the indenture. Insurance agreement indenture cross defaults include, among
others:
(1) any failure of the issuer to make any payment when due on the notes;
(2) a demand for payment being made under the Policy;
(3) certain events of bankruptcy, insolvency, receivership or liquidation of
the issuer;
(4) the issuer is treated as an association, or publicly traded partnership,
taxable as a corporation for federal or state income tax purposes;
(5) the sum of the Available Funds with respect to any distribution date plus
the amount, if any, available to be withdrawn from the reserve account is
less than the sum of the amounts described in clauses 1 through 5 under
"Description of the Trust Agreements--Payments" in this prospectus
supplement;
(6) the notes not being treated as indebtedness for federal or applicable
state income tax purposes and the characterization having a material
adverse effect on the trust, the noteholders or the insurer;
(7) any failure by the issuer to observe or perform in any material respect
any other covenants or agreements in the indenture, or any representation
or warranty of the issuer made in the indenture or in any certificate or
other writing delivered pursuant to the indenture or in connection with
the indenture proving to have been incorrect in any material respect when
made, and the failure continuing or not being cured, or the circumstance
or condition in respect of which the misrepresentation or warranty was
incorrect not having been eliminated or otherwise cured, for 30 days
after the giving of written notice of the failure or incorrect
representation or warranty to the issuer and the indenture trustee by the
insurer; and
(8) [the violation of certain portfolio performance tests specified in the
insurance agreement.]
S-28
<PAGE>
Upon the occurrence of an event of default, so long as an Insurer Default has
not occurred and is not continuing, the insurer will have the right, but not the
obligation, to cause the indenture trustee to liquidate the assets of the trust
fund in whole or in part, on any date or dates following the acceleration of the
notes due to such event of default as the Insurer, in its sole discretion, may
elect, and to distribute the proceeds of such liquidation in accordance with the
terms of the indenture. The insurer may not, however, cause the indenture
trustee to liquidate the trust fund in whole or in part if the proceeds of the
liquidation would not be sufficient to pay all outstanding principal of and
accrued interest on the notes, unless the event of default arose from a claim
being made on the Policy or from certain events of bankruptcy, insolvency,
receivership or liquidation of the assets of the trust. Following the occurrence
of any event of default, the indenture trustee will continue to submit claims
under the Policy for any shortfalls in the Scheduled Payments on the notes.
Following any event of default under the indenture, the insurer may elect to pay
all or any portion of the outstanding amount of the notes, plus any accrued
interest. See "The Policy" in this prospectus supplement.]
[If an Insurer Default has occurred and is continuing,] an "event of default"
means any one of the following events, whatever the reason for such event of
default and whether it is voluntary or involuntary or is effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body:
(1) default in the payment of any interest on the notes when it becomes due
and payable, and the default continues for a period of five days;
(2) default in the payment of the principal of or any installment of the
principal of the notes when it becomes due and payable;
(3) default in the observance or performance of any covenant or agreement of
the issuer made in the indenture, or any representation or warranty of
the issuer made in the indenture or in any certificate or other writing
delivered under the indenture or in connection with the indenture proves
to be incorrect in any material respect as of the time when the
representation or warranty was made, and the default continues or is not
cured, or the circumstance or condition in respect of which the
misrepresentation or warranty was incorrect is not eliminated or
otherwise cured, for a period of ____ days, or for a longer period, not
in excess of ____ days, as may be reasonably necessary to remedy the
default; provided that the default is capable of remedy within ____ days
or less and the servicer on behalf of the indenture trustee delivers an
officer's certificate to the indenture trustee to the effect that the
issuer has commenced, or will promptly commence and diligently pursue,
all reasonable efforts to remedy the default, after there is given, by
registered or certified mail, to the issuer by the indenture trustee or
to the issuer and the indenture trustee by the holders of at least
[____]% of the outstanding principal balance of the notes, a written
notice specifying the default or incorrect representation or warranty and
requiring it to be remedied and stating that the notice is a "notice of
default" under the indenture;
(4) certain events of bankruptcy, insolvency, receivership or liquidation
with respect to the originator, the transferor or the issuer.
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<PAGE>
If an event of default occurs and is continuing, [and an Insurer Default has
occurred and is continuing,] the indenture trustee may declare the principal of
the notes to be immediately due and payable. This declaration may be rescinded
by the Note Majority if:
o the issuer has paid to the indenture trustee a sum sufficient to pay all
amounts then due; and
o 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 the notes have been declared due and payable following an event of
default, the indenture trustee may with the consent of the Controlling Party and
must, at the direction of the Controlling Party, institute proceedings to
collect amounts due or foreclose on the trust fund, exercise remedies as a
secured party, sell the trust fund or elect to have the issuer maintain
possession of the trust fund and continue to apply collections on the trust fund
as if there had been no declaration of acceleration. The indenture trustee,
however, will be prohibited from selling the trust fund following an event of
default if the proceeds of the sale are not sufficient to pay all outstanding
principal of and accrued interest on the notes, unless:
(1) [no Insurer Default has occurred and is continuing and] the related event
of default arose from [a claim being made on the Policy or] from certain
events of bankruptcy, insolvency, receivership or liquidation with
respect to the issuer or; and
(2) [an Insurer Default has occurred and is continuing and] (a) the holders
of all the outstanding notes consent to the sale; or (b) the indenture
trustee determines that the trust fund would not be sufficient on an
ongoing basis to make all payments on the notes as the payments would
have become due if the obligations had not been declared due and payable
and the indenture trustee provides written notice to the Rating Agencies
and obtains the consent of the holders of notes representing [66-2/3]% of
the aggregate principal balance of the outstanding 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 the notes, the indenture trustee will be under no obligation to exercise any
of the rights or powers under the indenture at the request or direction of any
of the Controlling Party or holders of such notes, if the indenture trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with the
request. Subject to the provisions for indemnification and certain limitations
contained in the indenture, the Controlling Party 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 the indenture trustee and the Controlling Party may, in
certain cases, waive any default with respect to the indenture, except a default
in the payment of principal or interest or a default in respect of a covenant or
provision of the indenture that cannot be modified without the waiver or consent
of all of the holders of the outstanding notes.
[Neither the insurer,] nor any holder of a note will have the right to
institute any proceeding with respect to the indenture unless:
S-30
<PAGE>
(1) [the insurer or] the holder previously gave to the indenture trustee
written notice of a continuing event of default;
(2) [the insurer or] the holders of not less than __% in principal amount of
the outstanding notes made written request of the indenture trustee to
institute the proceeding in its own name as indenture trustee;
(3) [the insurer or] the holder or holders offered the indenture trustee
reasonable indemnity;
(4) the indenture trustee failed to institute the proceeding for __ days; and
(5) a Note Majority did not give any direction inconsistent with the written
request to the indenture trustee during the __-day period.
If an event of default occurs and is continuing and if it is known to the
indenture trustee, the indenture trustee will mail to each noteholder [and the
insurer, unless an Insurer Default has occurred and is continuing] notice of the
event of default within __ days after it occurs. Except in the case of a failure
to pay principal of or interest on any note, the indenture trustee may withhold
the notice of an event of default and so long as it determines in good faith
that withholding the notice is in the interest of the noteholders.
In addition, the indenture trustee and the noteholders, by accepting the
notes, will covenant that they will not at any time institute against the
depositor, the transferor, the servicer or the issuer 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 issuer or the indenture trustee on the notes or under the
indenture or any certificate or other writing delivered in connection with the
indenture, against:
(A) the depositor, the issuer or the indenture trustee in its individual
capacity; or
(B) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the depositor, the issuer or the indenture trustee or of any
successor or assignee of the depositor, the issuer or the indenture
trustee in its individual capacity, except as that person may have
expressly agreed.
Amendment. The indenture may be amended by the issuer, with the consent of
the indenture trustee [and, if the insurer is the Controlling Party, the
insurer,] but without the consent of the noteholders to cure any ambiguity, or
to correct or supplement any provision in the indenture which may be
inconsistent with any other provision in the indenture. The issuer and the
indenture trustee may also amend the indenture:
(1) [with the consent of the insurer, if the insurer is the Controlling
Party; or]
(2) [if the insurer is no longer the Controlling Party,] with the consent of
a Note Majority to add, change or eliminate any other provisions with
respect to matters or questions arising under the indenture or affecting
the rights of the noteholders; provided that the action will not:
S-31
<PAGE>
o increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the notes or distributions that are
required to be made for the benefit of the noteholders; or
o reduce the percentage of the noteholders required to consent to the
amendment, without, in either case, the consent of the holders of all
notes outstanding.
The indenture requires the issuer to deliver to the indenture trustee [and
the insurer] upon the execution and delivery of the indenture and any amendment
to the indenture an opinion of counsel, satisfactory to the insurer and the
indenture trustee that all financing statements and continuation statements have
been filed that are necessary to fully protect and preserve the indenture
trustee's interest in the trust fund.
Certain Covenants. The indenture will provide that the issuer may not
consolidate with or merge into any other entity, unless:
o the entity formed by or surviving the consolidation or merger is organized
under the laws of the United States or any state;
o such entity expressly assumes the issuer's obligation to make due and
punctual payments upon the notes and the performance or observance of
every agreement and covenant of the issuer under the indenture;
o no event of default will have occurred and be continuing immediately after
the transaction;
o the issuer has been advised that the rating of the notes then in effect
would not be reduced or withdrawn by the Rating Agencies as a result of
the transaction;
o the issuer has received an opinion of counsel to the effect that the
transaction would have no material adverse tax consequence to the issuer,
[the insurer,] any noteholder or any certificateholder;
o any action necessary to maintain the lien and security interest under the
indenture has been taken;
o the issuer has delivered an officer's certificate and an opinion of
counsel each stating that the transaction and the supplemental indenture
comply with the provisions of the indenture of the issuer and that all
conditions precedent in the indenture to the transaction have been
complied with; and
o [so long as no Insurer Default has occurred and is not continuing, the
issuer has given the insurer written notice of the transaction at least 20
business days prior to the consolidation or merger and] the issuer or the
person, if other than the issuer, formed by or surviving the consolidation
or merger has a net worth, immediately prior to giving effect to the
consolidation or merger, that is (a) greater than zero and (b) not less
than the net worth of the issuer immediately prior to giving effect to
such consolidation or merger.
S-32
<PAGE>
The indenture will also provide that the issuer may not convey or transfer
all or substantially all of its properties or assets to any other entity, unless
the entity that acquires the assets of the issuer:
o agrees that all right, title and interest conveyed or transferred shall be
subject and subordinate to the rights of noteholders,
o unless otherwise agreed, expressly agrees to indemnify, defend and hold
harmless the issuer against and from any loss, liability or expense
arising under or related to the indenture and the notes,
o expressly agrees to make all filings with the SEC, and any other
appropriate entity, required by the Securities Exchange Act of 1934 in
connection with the notes, and
o is organized under the laws of the United States or any state.
The issuer will not, among other things:
o except as expressly permitted by the Trust Agreements or certain related
documents with respect to the issuer sell, transfer, exchange or otherwise
dispose of any of the assets of the issuer;
o claim any credit on or make any deduction from the principal and interest
payable in respect of the notes, other than amounts withheld under the
Internal Revenue Code of 1986, or assert any claim against any present or
former holder of the notes because of the payment of taxes levied or
assessed upon any part of the trust fund;
o permit the validity or effectiveness of the indenture to be impaired or
permit the lien in favor of the indenture trustee created by the indenture
to be amended, hypothecated, subordinated, terminated or discharged or
permit any person to be released from any covenants or obligations with
respect to the notes except as may be expressly permitted by the
indenture;
o permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance, other than certain liens that arise by operation of
law, to be created on or extend to or otherwise arise upon or burden the
trust fund or any part of the trust fund, or any interest in the trust
fund or the proceeds of the trust fund;
o permit the lien of the related indenture not to constitute a valid first
priority, other than certain liens that arise by operation of law,
security interest in the assets of the trust fund;
o amend, modify or fail to comply with the provisions of the trust fund or
related documents without the prior written consent of the Controlling
Party; or
S-33
<PAGE>
o assume, guarantee or otherwise become liable, directly or indirectly, for
any indebtedness other than indebtedness incurred pursuant to the notes,
obligations under [the insurance agreement and] the indenture or otherwise
in accordance with the trust fund or related documents.
Annual Compliance Statement. The issuer will be required to file annually
with the indenture trustee [and the insurer] 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 noteholders a brief report relating to, among other
things:
o its eligibility and qualification to continue as indenture trustee under
the indenture;
o any amounts advanced by it under the indenture;
o the amount, interest rate and maturity date of certain indebtedness owing
by the trust to the indenture trustee in its individual capacity;
o the property and funds physically held by the indenture trustee as such;
and
o any action taken by it that materially affects the notes and that has not
been previously reported.
Satisfaction and Discharge of Indenture. The indenture trustee will be
discharged with respect to the collateral securing the notes upon the delivery
to the indenture trustee for cancellation of all notes or, with certain
limitations, upon deposit with the indenture trustee of funds sufficient for the
payment in full of all of the 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 resign at any time, in which event the issuer will
be obligated to appoint a successor trustee eligible under the indenture [which,
if there is no Insurer Default, will be acceptable to the insurer]. The issuer
will remove the indenture trustee, if the indenture trustee ceases to be
eligible to continue as indenture trustee under the indenture or if the
indenture trustee becomes insolvent. In these circumstances, the issuer will be
obligated to appoint a successor trustee eligible under the indenture that, if
no insurer default exists, is acceptable to the insurer. 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 insurer
and will not become effective until acceptance of the appointment by a successor
trustee.
S-34
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The certificates are not being offered by this prospectus supplement. The
certificates will be issued under the Owner Trust Agreement. A copy of the Owner
Trust Agreement will be filed with the SEC following the issuance of the notes.
The certificates will initially be sold to the transferor on the closing date
for cash in the amount of $____________________.
On each payment date, all distributions on the certificates will be
subordinated in priority of payment in full of the Noteholders' Principal
Distributable Amount and Noteholders' Interest Distributable Amount for that
payment date. The certificateholders' will not receive any distribution on any
payment date unless the Noteholders' Distributable Amount has been deposited in
the Note Distribution Account. See "Description of the Trust
Agreements--Payments" and "--Accounts" in this prospectus supplement.
[THE INSURER]
[The following information has been obtained from _______________, the
insurer, and has not been verified by the issuer, the depositor, the transferor,
the originator or the underwriters. No representation or warranty is made by the
issuer, the depositor, the transferor, the originator or the underwriters.
GENERAL
________________ is a _______________ incorporated in ____ under the laws of
the State of ___________. The insurer is licensed to engage in the financial
guaranty insurance business in _____ states, the District of Columbia and Puerto
Rico.
The insurer and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. In general, financial guaranty insurance consists
of the issuance of a guaranty of scheduled payments of an issuer's
securities--thereby enhancing the credit rating of those securities--in
consideration for the payment of a premium to the insurer. The insurer and its
subsidiaries principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by residential
mortgage loans, consumer or trade receivables, securities or other assets having
an ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments. The
insurer insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy the insurer's
underwriting criteria.
[ADDITIONAL INSURER CORPORATE INFORMATION]
The principal executive offices of the insurer are located at
_________________________________, and its telephone number at that location is
____________________.
S-35
<PAGE>
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the insurer or any of its
domestic or international operating insurance company subsidiaries are generally
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, the insurer reinsures a
portion of its liabilities under certain of its financial guaranty insurance
policies with other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. This reinsurance is utilized by the insurer as
a risk management device and to comply with certain statutory and rating agency
requirements. This reinsurance does not alter or limit the insurer's obligations
under any financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY
The insurer's insurance financial strength is rated "______" by ______. The
insurer's insurer financial strength is rated "______" by _______. The insurer's
claims-paying ability is rated "______" by _____________ and ________________.
Such ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
CAPITALIZATION
The following table sets forth the capitalization of the insurer and its
wholly owned subsidiaries on the basis of generally accepted accounting
principles as of _____________, 200_:
___________, 200_
-----------------
(UNAUDITED)
(IN THOUSANDS)
Deferred Premium Revenue (net of
prepaid reinsurance premiums)......... $
Surplus Notes...........................
Minority Interest.......................
Shareholder's Equity:
Common Stock..........................
Additional Paid-in Capital............
Accumulated Other Comprehensive.........
Income (net of deferred income taxes)...
Accumulated Earnings....................
Total Shareholder's Equity..............
Total Deferred Premium Revenue,
Surplus Notes, Minority Interest
and Shareholder's Equity..............
S-36
<PAGE>
For further information concerning the insurer, see the Consolidated
Financial Statements of ________________ and Subsidiaries, and the accompanying
notes, incorporated by reference in this prospectus supplement. The insurer's
financial statements are included as Exhibits to the Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q filed with the SEC by the insurer and may be
reviewed at the EDGAR Website maintained by the SEC and at the insurer's
website, ____________.com. Copies of the statutory quarterly and annual
statements filed with the State of __________________by ________________ are
available upon request to the State of __________________.
INSURANCE REGULATION
The insurer is licensed and subject to regulation as a financial guaranty
insurance corporation under the laws of the State of _______, its state of
domicile. In addition, the insurer and its insurance subsidiaries are subject to
regulation by insurance laws of the various other jurisdictions in which they
are licensed to do business. [As a financial guaranty insurance corporation
licensed to do business in the State of _______, the insurer is subject to
Article 69 of the New York Insurance Law which, among other things, limits the
business of each such insurer to financial guaranty insurance and related lines,
requires that each such insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
such insurer, and limits the size of individual transactions and the volume of
transactions that may be underwritten by each such insurer. Other provisions of
the New York Insurance Law, applicable to non-life insurance companies such as
the insurer, regulate, among other things, permitted investments, payment of
dividends, transactions with affiliates, mergers, consolidations, acquisitions
or sales of assets and incurrence of liability for borrowings.]
[THE POLICY]
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the notes, the insurer will deliver the
Policy to the indenture trustee for the benefit of each noteholder. Under the
Policy, the insurer will unconditionally and irrevocably guarantee to the
indenture trustee for the benefit of each noteholder the full and complete
payment of:
o Scheduled Payments on the notes; and
o the amount of any Scheduled Payment which subsequently is avoided in whole
or in part as a preference payment under applicable law.
In the event the indenture trustee fails to make a claim under the Policy,
noteholders do not have the right to make a claim directly under the Policy, but
may sue to compel the indenture trustee to do so.
S-37
<PAGE>
Scheduled Payments do not include payments which become due on an accelerated
basis as a result of:
o a default by the issuer,
o an election by the issuer to pay principal on an accelerated basis,
o the occurrence of an event of default under the indenture or
o any other cause,
unless the insurer elects, in its sole discretion, to pay in whole or in part
the principal due upon acceleration, together with any accrued interest to the
date of acceleration.
In the event the insurer does not so elect, the Policy will continue to
guarantee Scheduled Payments due on the notes in accordance with their original
terms. Scheduled Payments will not include, unless the insurer elects, in its
sole discretion, to pay the amount in whole or in part:
o any portion of the Noteholders' Interest Distributable Amount due to
noteholders because the appropriate notice and certificate for payment in
proper form was not timely received by the insurer, or
o any portion of the Noteholders' Interest Distributable Amount due to
noteholders representing interest on any Noteholders' Interest Carryover
Shortfall accrued from and including the date of payment of the amount of
the Noteholders' Interest Carryover Shortfall under the Policy.
Scheduled Payments will not include any amounts due in respect of the notes
attributable to any increase in interest rate, penalty or other sum payable by
the issuer by reason of any default or event of default in respect of the notes
or by reason of any deterioration of the creditworthiness of the issuer no
coverage will be provided under the Policy in respect of any taxes, withholding
or other charge imposed with respect to any noteholder by any governmental
authority due in connection with the payment of any Scheduled Payment to a
noteholder.
Payment of claims on the Policy made in respect of Scheduled Payments will be
made by the insurer following receipt by the insurer of the appropriate notice
for payment on the later to occur of:
o 12:00 noon, New York City time, on the [___ business day following
receipt] of the notice for payment, and
o 12:00 noon, New York City time, on the date on which the payment was due
on the notes.
If payment of any amount avoided as a preference under applicable bankruptcy,
insolvency, receivership or similar law is required to be made under the Policy,
the insurer will cause the payment to be made on the later of:
o the date when due to be paid pursuant to the order of the court or other
governmental body; and
S-38
<PAGE>
o the first to occur of:
o the fourth business day following receipt by the insurer from the
indenture trustee of:
(A) a certified copy of the order of the court or other governmental
body that exercised jurisdiction to the effect that noteholders are
required to return Scheduled Payments made with respect to the
notes during the term of the Policy because the payments were
avoidable as preference payments under applicable bankruptcy law,
(B) a certificate of the indenture trustee that the court order has
been entered and is not subject to any stay, and
(C) an assignment executed and delivered by the noteholder, in a form
as is reasonably required by the insurer and provided to the
noteholder by the insurer, irrevocably assigning to the insurer all
rights and claims of the noteholder relating to or arising under
the notes against the issuer or otherwise with respect to the
preference payment;
o [the date of receipt by the insurer from the indenture trustee of the
items referred to in clauses (A), (B) and (C) above if, at least ___
business days prior to the date of receipt, the insurer has received
written notice from the indenture trustee that the items were to be
delivered on that date and that date was specified in the notice].
the payment will be disbursed to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the court order and not to the indenture
trustee or any noteholder directly. This will be the case unless a noteholder
has previously paid the amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the order, in which case
the payment will be disbursed to the indenture trustee for distribution to the
noteholder upon proof of the payment reasonably satisfactory to the insurer. In
connection with this, the insurer will have the rights provided under the
indenture including, without limitation, the right, in the absence of an Insurer
Default, to direct all matters relating to any preference claim and subrogation
to the rights of the indenture trustee and each noteholder in the conduct of any
proceeding with respect to a preference claim.
OTHER PROVISIONS OF THE POLICY
The terms "receipt" and "received" with respect to the Policy will mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to 12:00
noon, New York City time, on a business day. Delivery either on a day that is
not a business day or after 12:00 noon, New York City time, will be deemed to be
received on the next succeeding business day. If any notice or certificate given
under a Policy by the indenture trustee is not in proper form or is not properly
completed, executed or delivered, it will be deemed not to have been received,
and the insurer or its fiscal
S-39
<PAGE>
agent will promptly so advise the indenture trustee and the indenture trustee
may submit an amended notice.
Under the Policy, "business day" means any day other than a Saturday, Sunday,
legal holiday or other day on which commercial banking institutions in
[___________________], [__________________], [________________] or
[____________________] are authorized or obligated by law, executive order or
governmental decree to be closed.
The Insurer's obligations under the Policy in respect of Scheduled Payments
will be discharged to the extent funds are transferred to the indenture trustee
as provided in the Policy whether or not the funds are properly applied by the
indenture trustee.
The insurer will be subrogated to the rights of each noteholder to receive
payments of principal and interest to the extent of any payment by the insurer
under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the insurer for borrowed money. Claims
against the insurer under the Policy and each other financial guaranty insurance
policy issued by the insurer constitute pari passu claims against the general
assets of the insurer. The terms of the Policy cannot be modified or altered by
any other agreement or instrument, or by the merger, consolidation or
dissolution of the issuer. The Policy may not be canceled or revoked prior to
distribution in full of all Scheduled Payments. The Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law. The Policy is governed by the laws of New York.
It is a condition to issuance that the notes be rated ______ by ______ and
______ by _______'s. The ratings by the Rating Agencies of the notes will be
based primarily on the issuance of the Policy. A rating is not a recommendation
to purchase, hold or sell notes. In the event that the rating initially assigned
to any of the notes is subsequently lowered or withdrawn for any reason,
including by reason of a downgrading of the claims-paying ability of the
insurer, no person or entity will be obligated to provide any additional credit
enhancement with respect to the notes. Any reduction or withdrawal of the rating
may have an adverse effect on the liquidity and market price of the notes.]
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary, together with the description in the prospectus under
the heading "Description of the Trust Agreements," describes certain terms of
the Trust Agreements, which include the Sale and Servicing Agreement, the Owner
Trust Agreement, the indenture and any subsequent transfer agreement. Copies of
the Trust Agreements will be filed with the SEC following the issuance of the
notes. The summary describes the material terms of the Trust Agreements, but it
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of the Trust Agreements.
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ASSIGNMENT OF RECEIVABLES
Under the Sale and Servicing Agreement, the originator will sell and
contribute to the transferor, on or prior to the closing date, or, with respect
to the Subsequent Receivables, the related subsequent transfer date, without
recourse, all of its right, title and interest in and to the related Receivables
including, without limitation:
o the related Receivables, and all moneys due or received on the Receivables
after the Cut-off Date;
o an assignment of the security interests in the assets underlying the
Receivables granted by obligors under the Receivables and any other
interest of the originator in those assets;
o any proceeds with respect to the Receivables from claims on any theft,
physical damage, credit life or disability insurance policies covering the
assets underlying the Receivables or obligors and any proceeds from the
liquidation of the Receivables;
o all rights under any agreements providing for the repair of the related
[automobile] [recreational vehicle], including any extended warranty;
o the related files with respect to the Receivables; and
o the proceeds of any and all of the foregoing.
Also under the Sale and Servicing Agreement, the transferor will assign the
Receivables and other assets to the depositor, which will in turn assign the
Receivables and other assets to the issuer. Finally, pursuant to the indenture,
the issuer will pledge the Receivables and other assets to the indenture trustee
to secure the obligations of the issuer under the notes. The assignments of
Receivables under the Sale and Servicing Agreement may be treated as pledges
under the bankruptcy code and under other applicable insolvency law. See "Risk
Factors--Competing Claims to Ownership of Receivables May Result in Reduced
Payments on Your Securities" and "--Insolvency and Bankruptcy Proceedings Could
Adversely Affect Payments on the Securities" in the prospectus and "Risk
Factors--Risk of Recharacterization Of True Sale As A Pledge" in this prospectus
supplement.
In connection with the transfer and assignment of the Receivables on the
closing date and each subsequent transfer date, the originator will be required
to deliver or cause to be delivered to __________________________, as custodian,
the following with respect to each Receivable:
(a) [the note and security agreement or other evidence of the obligor's
indebtedness to repay the Receivable;]
(b) [a record of the information supplied by the obligor in the original
credit application;]
(c) [the original certificate of title or any documents that the servicer
keeps on file, in accordance with its customary procedures, evidencing
the security interest of
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_________ in the _______________, however, original certificates of title
generally are not delivered to the originator for __ days, but promptly
upon delivery they will be delivered to the custodian];
(d) [the lease contract]; and
(e) any and all other documents that the servicer keeps on file, in
accordance with its customary procedures, relating to a Receivable, an
obligor or a _______________.
In the Sale and Servicing Agreement, the originator will represent and
warrant to the transferor and the transferor will represent and warrant to the
depositor and the issuer, among other things, that:
o the information provided in the related schedule of Receivables and the
related computer tape with respect to the Receivables is correct in all
material respects;
o neither the transferor nor the originator has received notice of any liens
or claims, including liens for work, labor, materials or unpaid state or
federal taxes, relating to the assets underlying the Receivable, that are
or may be prior to or equal to the lien granted by the Receivable;
o as of the closing date or the applicable subsequent transfer date, if any,
each of the Receivables is owned by the transferor free and clear of any
lien [and is secured by a first perfected security interest in favor of
the transferor in the asset underlying the Receivable];
o each related Receivable, at the time it was originated, complied and, as
of the closing date or the applicable subsequent transfer date, if any,
complies in all material respects with applicable federal and state laws,
including, without limitation, consumer credit, truth in lending, equal
credit opportunity and disclosure laws; and
o each of the Receivables as of the related Cut-off Date satisfied the
eligibility criteria for inclusion in the pool of Receivables that are
described under "The Receivables Pool--Eligibility Criteria" in this
prospectus supplement.
OBLIGATION TO REPURCHASE RECEIVABLES
Under the Sale and Servicing Agreement, the originator will be obligated to
repurchase a Receivable from the transferor if the interests of the issuer, [the
insurer] or the noteholders are materially and adversely affected by any breach
of any representation or warranty made by the originator with respect to the
Receivable, if the breach has not been cured following discovery by or notice to
the originator of the breach. The transferor will be obligated to repurchase a
Receivable from the issuer if the interests of the issuer, [the insurer] or the
noteholders are materially and adversely affected by any breach of any
representation or warranty made by the transferor with respect to the
Receivable, if the breach has not been cured following discovery by or notice to
the originator of the breach. Each Receivable will be purchased from the trust
by the
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originator or the transferor, as the case may be, at a price equal to the
Purchase Amount. The purchase obligations will constitute the sole remedy
available to the noteholders or the indenture trustee for any such uncured
breaches.
Pursuant to the Sale and Servicing Agreement, the servicer will be obligated
to purchase a Receivable from the issuer if the interests of the noteholders,
[the insurer] or the issuer in the Receivable are materially adversely affected
by a breach of specified servicing obligations under the Sale and Servicing
Agreement, if the breach has not been cured following the discovery or notice to
the servicer of the breach.
ACCOUNTS
Collection Account. The issuer will establish and maintain the Collection
Account with the indenture trustee in the name of the indenture trustee on
behalf of the noteholders, the certificateholders [and the insurer]. The issuer
will deposit into the Collection Account payments or other amounts received with
respect to the Receivables. The Collection Account will be maintained with the
indenture trustee so long as the indenture trustee's deposits have a rating
acceptable to [the insurer and] the Rating Agencies. If the deposits of the
indenture trustee or its corporate parent no longer have an acceptable rating,
the servicer will, with the indenture trustee's assistance as necessary, cause
the accounts to be moved within 30 days to a bank whose deposits have an
acceptable rating.
Distribution Accounts. The servicer will also establish and maintain the Note
Distribution Account, in the name of the indenture trustee, on behalf of the
noteholders [and the insurer]. Amounts released from the Collection Account for
distribution to noteholders will be deposited into the Note Distribution Account
and all distributions to noteholders will be made from the Note Distribution
Account. A separate account, the Certificate Distribution Account, will be
maintained for the purpose of making distributions to certificateholders.
[Reserve Account. Pursuant to a reserve account agreement, dated as of the
closing date, among the transferor, [the insurer,] the indenture trustee and
____________________, as indenture collateral agent, the transferor will cause
the indenture collateral agent to establish the reserve account in the name of
the indenture collateral agent [for the benefit of the insurer]. On the closing
date, the transferor will make an initial deposit of cash into the reserve
account. On each payment date, additional amounts will be deposited into the
reserve account from collections on the Receivables to the extent funds are
available for the deposit as described under "Description of the Trust
Agreements--Payments" in this prospectus supplement and from amounts, if any,
released from the Yield Supplement Account as described under "--Yield
Supplement Account" in this prospectus supplement. Funds will be withdrawn from
the reserve account on or before each payment date to pay any Deficiency Claim
Amount for the payment date, including amounts needed to pay the Noteholders'
Interest Distributable Amount and the Noteholders' Principal Distributable
Amount for that payment date.
The amount required under the reserve account agreement to be on deposit in
the reserve account at any time may increase or decrease without noteholder
consent. There can be no assurance that the amounts on deposit in the reserve
account will reach the amount required to be on deposit since the existence of
the reserve account and any other term or provision in the reserve account
agreement regarding the reserve account may be amended by the insurer without
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noteholder consent. Consequently, the noteholders should not rely on amounts on
deposit in or to be deposited to the reserve account in evaluating the
likelihood of receiving repayment of the notes.
Amounts, if any, on deposit in the reserve account on any payment date in
excess of the amount required to be on deposit in the reserve account for each
payment date will be paid to the certificateholders.
In addition, the issuer, the depositor, the insurer and the indenture
collateral agent may amend the reserve account agreement, and any provisions in
the insurance agreement relating to the reserve account, in any respect. The
amendment may include, without limitation, reducing or eliminating the amount
required to be on deposit in the reserve account and/or reducing or eliminating
the funding requirements of the reserve account or permitting those funds to be
used for the benefit of persons other than noteholders, without the consent of,
or notice to, the indenture trustee, the owner trustee or the noteholders. The
indenture collateral agent will not withhold or delay its consent with respect
to any amendment that does not adversely affect the indenture collateral agent
in its individual capacity. The insurer will be obligated on each payment date
to fund for the benefit of the noteholders the full amount of each Scheduled
Payment otherwise required to be made on such payment date in accordance with
the terms of the Policy.]
[Yield Supplement Account. The transferor will establish the Yield Supplement
Account for the benefit of the noteholders and the insurer, which will initially
be a segregated trust account in the corporate trust department of the indenture
trustee. On the closing date, the transferor will make an initial deposit to the
Yield Supplement Account in the amount specified in the Sale and Servicing
Agreement.
No later than 12:00 noon New York City time on each payment date, the
indenture trustee will cause an amount equal to the Yield Supplement Amount for
the payment date, determined as described below, to be transferred from the
Yield Supplement Account to the Collection Account. The "Yield Supplement
Amount" with respect to any Payment Date will determined by aggregating for all
of the Receivables, one twelfth of the difference, if positive, between:
(x) the product of:
(1) the Principal Balance of such Receivable multiplied by
(2) a rate equal to the Weighted Average Rate plus approximately ___%,
which percentage represents the Servicing Fee Rate plus approximately
___%; and
(y) the product of:
(1) the Principal Balance of the Receivable multiplied by
(2) the APR on the Receivable.
For purposes of calculating the Yield Supplement Amount on each payment date,
the servicer will determine the principal balance of each Receivable and the
Weighted Average Rate as of the first day of the related Collection Period.
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On each payment date, the amount required to be on deposit in the Yield
Supplement Account, after giving effect to the transfer of the Yield Supplement
Amount for the payment date to the Collection Account will be an amount equal to
the sum of all projected Yield Supplement Amounts for all future payment dates,
which will be determined assuming that future scheduled payments on the
Receivables are made on their scheduled due dates. The amount on deposit in the
Yield Supplement Account in excess of the maximum required balance on each
payment date will be transferred to the reserve account.]
Pre-Funding Account. On the closing date, the Pre-Funded Amount will be
deposited in the Pre-Funding Account. The Pre-Funding Account will be an asset
of the trust and will be pledged to the indenture trustee for the benefit the
noteholders.
The transferor expects that the Pre-Funded Amount will be reduced to less
than $_____ on or before the end of the Pre-Funding Period. Any Pre-Funded
Amount remaining at the end of the Pre-Funding Period will be payable to the
noteholders as described under "Description of the Notes--Mandatory Redemption"
in this prospectus supplement.
Capitalized Interest Account. On the closing date, cash in the approximate
amount of $________ will be deposited in the Capitalized Interest Account which
will be established with the indenture trustee. The Capitalized Interest Account
will be an asset of the trust, and will be pledged to the indenture trustee for
the benefit of the noteholders. The amount, if any, deposited in the Capitalized
Interest Account will be applied on the payment dates occurring on or prior to
_________, 200__ to fund an amount equal to the amount of interest accrued for
each of the payment dates at the weighted average interest rates on the portion
of the notes having a principal balance in excess of the principal balances of
the Receivables, which portion will equal the Pre-Funded Amount. Any amounts
remaining in the Capitalized Interest Account on the payment date on or
immediately following the last day of the Pre-Funding Period and not used for
those purposes are required to be paid directly to the transferor on that date.
CERTAIN ALLOCATIONS
On or before the Determination Date, the servicer will be required to deliver
a certificate to the indenture trustee [and the insurer], specifying, among
other things, the amount of aggregate collections on the Receivables and the
aggregate Purchase Amount of Receivables to be purchased by the transferor or
the servicer, all with respect to the preceding Collection Period.
[Not later than the fourth business day prior to each payment date, the
indenture trustee will, based solely on the information contained in the
servicer's certificate delivered on the related Determination Date, deliver to
the indenture collateral agent, [the insurer] and the servicer a written notice
specifying the Deficiency Claim Amount for the payment date. The deficiency
notice will direct the indenture collateral agent to transfer the Deficiency
Claim Amount from amounts on deposit in the reserve account for deposit in the
Collection Account.]
On each payment date, the servicer is required to instruct the indenture
trustee to distribute funds in the amounts and priority set forth below under
"--Payments" in this prospectus supplement.
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PAYMENTS
On each payment date, the indenture trustee will make the following payments
from the Collection Account in the following order of priority:
(1) first, from the Distribution Amount, to the servicer, any accrued and
unpaid servicing fee for the related calendar month to the extent not
retained by the servicer;
(2) second, from the Distribution Amount, pro rata, all accrued and unpaid
fees and expenses due and owing the indenture trustee, the owner
trustee, the backup servicer, the custodian and the indenture
collateral agent;
(3) third, from the Distribution Amount, to the Note Distribution Account,
the Noteholders' Interest Distributable Amount;
(4) fourth, from the Distribution Amount, to the Note Distribution
Account, the Noteholders' Principal Distributable Amount, to be
distributed as described under "Description of the Notes--Payments of
Principal" in this prospectus supplement;
(5) [fifth, from the Distribution Amount, to the insurer, any amounts due
and owing under the insurance agreement;]
(6) [sixth, from Available Funds, to the reserve account, all Available
Funds remaining after the distributions pursuant to clauses 1 through
5 above;]
(7) [seventh, from amounts, if any, released from the reserve account on
that payment date due to an excess of the amount on deposit in the
reserve account over the amount required to be on deposit in the
reserve account, to the Certificate Distribution Account for
distribution to the certificateholders, the Certificateholders'
Principal Distributable Amount; and]
(8) [eighth, all remaining amounts released from the reserve account on
that payment date, after giving effect to the payment under clause 7,
to the Certificate Distribution Account for distribution to the
certificateholders.]
[In the event that the servicer's certificate indicates that the Distribution
Amount will be insufficient on any payment date to make the payments required
under clauses (1) through (4) above on the payment date, the indenture trustee
will furnish to the insurer no later than 12:00 noon, New York City time on the
third business day immediately preceding the payment date a notice of claim in
the amount of the Policy Claim Amount. Amounts paid by the insurer pursuant to
any notice of claim will be deposited by the insurer into the Note Distribution
Account for payment to the noteholders on the related payment date.]
STATEMENTS TO NOTEHOLDERS
On or prior to each payment date, the indenture trustee will be required to
forward a statement to the noteholders, the Rating Agencies [and the insurer].
These statements will be based on the information contained in the servicer's
certificate delivered by the servicer on or before the related Determination
Date. Each statement will include the following information as
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to the notes, with respect to that payment date or the period since the previous
payment date, as applicable:
(1) the amount of the distribution allocable to interest on or with respect
to the notes;
(2) the amount of the distribution allocable to principal with respect to the
notes;
(3) the Noteholders' Interest Carryover Shortfall if any, the Noteholders'
Principal Carryover Shortfall, if any, and the change in such amounts
from the preceding statement;
(4) the amount of the distribution, if any, payable pursuant to a claim on
the Policy;
(5) the amount of the servicing fee paid to the servicer with respect to the
related Collection Period; and
(6) the aggregate Purchase Amounts for Receivables, if any, that were
repurchased in the Collection Period.
Each amount set forth pursuant to subclauses (1), (2) and (3) with respect to
notes will be expressed as a dollar amount per $1,000 of the initial principal
amount of the notes.
Unless and until definitive notes are issued, the reports will be sent on
behalf of the issuer to Cede & Co., as registered holder of the notes and the
nominee of DTC.
Within the required period of time after the end of each calendar year, the
indenture trustee will furnish to each person who at any time during the
calendar year was a noteholder, a statement as to the aggregate amounts of
interest and principal paid to the noteholder and any other information that the
issuer deems necessary to enable the noteholder to prepare its tax returns.
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
A "servicer default" under the Sale and Servicing Agreement will include:
(a) any failure by the servicer to deliver to the owner trustee or the
indenture trustee any deposit or payment required to be so made, which
failure continues unremedied for one business day after written notice
from [the insurer], the owner trustee or the indenture trustee is
received by the servicer or after discovery of the failure by the
Servicer,
(b) any failure by the servicer duly to observe or perform in any material
respect any other covenant or agreement in the Sale and Servicing
Agreement which failure materially and adversely affects the rights of
the noteholders [and the insurer] and which continues unremedied after
applicable grace periods,
(c) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings with respect to the servicer or
the transferor and certain actions by the servicer or the transferor
indicating its insolvency,
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reorganization pursuant to bankruptcy proceedings, or inability to pay
its obligations,
(d) failure to deliver a servicer's certificate or annual statement of
servicer's compliance within specified periods,
(e) breach of any representation or warranty of the servicer set forth in the
Sale and Servicing Agreement, which materially and adversely affects the
rights of the noteholders [or the insurer] and remains uncured after
applicable grace periods, and
(f) [unless an Insurer Default has occurred and is continuing, certain
defaults under the insurance agreement].
If a servicer default occurs, then the Controlling Party or holders of notes
representing not less than [25]% of the voting rights of the notes, or if the
notes have been paid in full and the indenture has been discharged in accordance
with its terms, by holders of certificates evidencing not less than [25]% of the
voting interest of the certificates, may terminate the rights and obligations of
the servicer under the Sale and Servicing Agreement. If this event occurs when
__________ is the servicer, or, if ________ is terminated as servicer,
_____________ acting as backup servicer, has agreed, subject to the
qualifications contained in the Sale and Servicing Agreement, to serve as
successor servicer under the Sale and Servicing Agreement. As successor
servicer, it will receive compensation at the Servicing Fee Rate and will no
longer be entitled to receive a fee as backup servicer.
Consistent with its customary procedures, the servicer may, in its
discretion, arrange with the obligor on a Receivable to extend or modify the
payment schedule. However, no such arrangement will reduce the principal balance
or APR of any Receivable or modify any Receivable if the amendment or
modification would extend the final payment date of any Receivable beyond the
Final Scheduled Payment Date. Some of the arrangements may result in the
servicer purchasing the Receivable for the Purchase Amount. See "Risk
Factors--Yield is Sensitive to Rate of Principal Prepayments on Receivables" in
the prospectus. The servicer may sell the assets underlying the respective
Receivable at public or private sale, or take any other action permitted by
applicable law.
The servicer may refinance any Receivable by accepting a new promissory note
from the related obligor and applying the proceeds of the refinancing to pay all
obligations in full of the obligor under the Receivable. The receivable created
by the refinancing will not be property of the issuer.
SERVICING COMPENSATION
The servicer is entitled on each payment date to the Servicing Fee for the
related monthly period. The servicer may retain the Servicing Fee from
collections on the Receivables.
APPOINTMENT OF SUBSERVICER
The servicer may at any time appoint a subservicer to perform all or any
portion of its obligations as servicer upon the prior written consent of the
Controlling Party. However, the
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servicer may refer delinquent accounts to an outside collection agency for
further collection and possible repossession of the related Receivable without
the consent of the Controlling Party. The servicer will remain obligated and
liable to the indenture trustee[, the insurer] and the noteholders for the
servicing and administering of the Receivables in accordance with the provisions
of the Receivables without diminution of its obligation and liability by virtue
of the appointment of a subservicer and to the same extent and under the same
terms and conditions as if the servicer alone were servicing and administering
the Receivables. The fees and expenses of the subservicer will be as agreed
between the servicer and its subservicer from time to time and none of the
indenture trustee, [the insurer], the noteholders will have any responsibility
for those fees and expenses.
AMENDMENT
The Sale and Servicing Agreement may be amended from time to time by the
transferor, the depositor, the indenture trustee, the originator, the servicer,
the backup servicer, the custodian and the issuer, [with the consent of the
insurer, so long as an Insurer Default has not occurred and is not continuing,]
but without the consent of any of the noteholders or certificateholders to cure
any ambiguity. This type of amendment may be made to correct or supplement any
of its provisions, to comply with any changes in the code, or to make any other
provisions with respect to matters or questions arising under the Internal
Revenue Code of 1986, as amended, which would not be inconsistent with the
provisions of the Sale and Servicing Agreement or the insurance agreement.
However, [if the insurer is no longer the Controlling Party,] the action may
not, as evidenced by an opinion of counsel delivered to the depositor, the owner
trustee, the Rating Agencies and the indenture trustee, adversely affect in any
material respect the interests of any noteholders and the certificateholders.
The Sale and Servicing Agreement may also be amended from time to time by the
transferor, the depositor, the originator, the servicer, the backup servicer,
the indenture trustee and the owner trustee, with
o [the consent of the insurer, if the insurer is the Controlling Party, but
without the consent of any noteholders or certificateholders,] or
o [if the insurer is no longer the Controlling Party,] with the consent of a
Note Majority and the consent of the holders of certificates evidencing
not less than a majority of the aggregate outstanding principal amount of
the certificates, for the purpose of adding any provisions to or 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 the
noteholders or the certificateholders.
However, this amendment may not:
o increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions that
are required to be made for the benefit of the noteholders or the
certificateholders or
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o reduce the percentage of the outstanding principal amount of the notes and
the certificates, the holders of which are required to consent to the
amendment, without the consent of the holders of all the outstanding notes
and the holders of all the outstanding certificates, of the class affected
by the amendment.
[In addition, if an Insurer Default has occurred and is continuing, the
action may not materially adversely affect the interest of the insurer.]
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Information regarding certain legal aspects of the receivables is set forth
under "Certain Legal Aspects of the Receivables" in the prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
Set forth below is a summary of certain United States federal income tax
considerations relevant to the beneficial owner of a note that holds the note as
a capital asset and, unless otherwise indicated below, is a U. S. Person. This
summary does not address special tax rules that may apply to certain types of
investors, such as banks, insurance companies and securities dealers, and
investors that hold notes as part of an integrated investment. This summary
supplements the discussion contained in the accompanying prospectus under the
heading "Federal Income Tax Considerations," and supersedes that discussion to
the extent that it is inconsistent therewith. The authorities on which this
discussion is based are subject to change or differing interpretations, and that
change or interpretation could apply retroactively. This discussion reflects the
applicable provisions of the Code, as well as regulations promulgated by the
U.S. Department of the Treasury. Investors should consult their own tax advisors
in determining the federal, state, local and any other tax considerations to
them of the purchase, ownership and disposition of the notes.
CLASSIFICATION OF INVESTMENT ARRANGEMENT
In the opinion of Cadwalader, Wickersham & Taft, special counsel to the
depositor, the issuer will not be treated as an association or a publicly traded
partnership taxable as a corporation or a taxable mortgage pool for federal
income tax purposes, but rather the issuer will be ignored and treated as a mere
security device when there is a single beneficial owner of the issuer, or will
be treated as a domestic partnership when there are two or more beneficial
owners of the issuer.
TAXATION OF HOLDERS
Characterization of the Notes. There are no regulations, published rulings or
judicial decisions addressing the characterization for federal income tax
purposes of securities with terms that are substantially the same as those of
the notes. A basic premise of United States federal income tax law is that the
economic substance of a transaction generally will determine the United States
federal income tax considerations of the transaction. The determination of
whether the economic substance of a loan secured by an interest in property is
instead a sale of a
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beneficial ownership interest in the property has been made by the Internal
Revenue Service and the courts on the basis of numerous factors designed to
determine whether the issuer has relinquished, and the investor has obtained,
substantial incidents of ownership in the property. Among those factors, the
primary factors examined are whether the investor has the opportunity to gain if
the property increases in value, and has the risk of loss if the property
decreases in value. Based on an assessment of these factors, in the opinion of
Cadwalader, Wickersham & Taft, special counsel to the depositor, the notes will
be treated as indebtedness for federal income tax purposes and not as an
ownership interest in the Receivables or an equity interest in the issuer.
Interest and Original Issue Discount. Interest on the notes will be treated
as income to beneficial owners as those amounts are paid or accrue in accordance
with the holder's method of accounting. It is anticipated that the notes will
[not] be issued with original issue discount for federal income tax purposes.
Any premium or de minimis original issue discount with respect to the notes will
be determined in the same manner as described under "Federal Income Tax
Considerations" in the accompanying prospectus. The prepayment assumption that
will be used for accruing original issue discount, for determining if original
issue discount is de minimis or for amortizing premium for federal income tax
purposes is 100% of the prepayment assumption, in the case of the Class A-1
notes and % CPR, in the case of the Class A-2 and Class A-3 Notes.
Sale, Exchange, Retirement or Other Disposition. Upon the sale, exchange,
retirement or other disposition of a note, a beneficial owner who holds the note
as a capital asset generally will recognize capital gain or loss equal to the
difference, if any, between the amount realized (adjusted for accrued stated
interest) on the sale or other disposition of the owner's note and the owner's
cost for that note, increased by any original issue discount or accrued market
discount reported as income or decreased by any amortized bond premium.
Long-term capital gains of non-corporate investors, generally, gains on notes
held for more than one year, would be subject to a lower maximum tax rate than
ordinary income or short-term capital gains of those holders. Corporations are
subject to the same tax rate on ordinary income and capital gains.
Taxation of Certain Foreign Investors. Interest, including original issue
discount, payable to beneficial owners of notes who are nonresident aliens,
foreign corporations, or other non-U.S. Persons, i.e., any person who is not a
U.S. Person, will be considered "portfolio interest" and, therefore, generally
will not be subject to 30% United States withholding tax, provided that this
non-U.S. Person: (1) is not a "10-percent shareholder" within the meaning of
Code Section 871(h)(3)(B) or a controlled foreign corporation described in Code
Section 881(c)(3)(C) with respect to the depositor or the issuer and (2)
provides the owner trustee, or the person who would otherwise be required to
withhold tax from those distributions under Code Section 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the note is a non-U.S. Person. If that statement, or any other required
statement, is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty or unless the interest on the
note is effectively connected with the conduct of a trade or business within the
United States by that non-U.S. Person. In the latter case, the non-U.S. Person
will be subject to United States federal income tax at regular rates. Investors
who are non-U.S. Persons should consult their own tax advisors regarding the
specific tax considerations to them of owning a note.
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The IRS recently issued final regulations which provide alternative methods
of satisfying the beneficial ownership certification requirement described
above. These new regulations will be effective January 1, 2001. Current
withholding certificates will remain valid until the earlier of December 31,
2000 or the date of expiration of the certificate under the rules as currently
in effect. These new regulations will require, in the case of notes held by a
foreign partnership, that:
(a) the certification described above be provided by the partners rather than
by the foreign partnership; and
(b) the partnership provide certain information, including a United States
taxpayer identification number.
A look-through rule would apply in the case of tiered partnerships. Non-U.S.
Persons should consult their own tax advisors concerning the application of the
certification requirements in these new regulations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments made on the notes and proceeds from the sale of notes to or through
certain brokers may be subject to a "backup" withholding tax of 31% of
"reportable payments," including interest accruals, original issue discount,
and, under certain circumstances, payments in respect of principal amount,
unless, in general, the beneficial owner complies with certain procedures or is
an exempt recipient. Any amounts so withheld from payments on the notes would be
refunded by the Internal Revenue Service or allowed as a credit against the
beneficial owner's federal income tax. The new regulations will change certain
of the rules relating to certain presumptions currently available relating to
information reporting and backup withholding. Non-U.S. Persons are urged to
contact their own tax advisors regarding the application to them of backup
withholding and information reporting.
Reports of interest, original issue discount and certain information needed
to compute accrued market discount will be made annually to the Internal Revenue
Service and to beneficial owners that are not excepted from the reporting
requirements.
See "Federal Income Tax Considerations--Trusts Treated as Partnerships--Tax
Characterization of the Trust as a Partnership" in the accompanying prospectus.
ERISA CONSIDERATIONS
The notes may be purchased by an employee benefit plan or an individual
retirement account subject to ERISA or Section 4975 of the Code. A fiduciary of
a Plan must determine that the purchase of a note is consistent with its
fiduciary duties under ERISA and does not result in the assets of the issuer
being deemed to constitute plan assets or in a nonexempt prohibited transaction
as defined in Section 406 of ERISA or Section 4975 of the Code.
Under Section 2510.3-101 of the regulations issued by the U.S. Department of
Labor, when a Plan invests in an "equity interest" in an entity, including for
these purposes interests that may be denominated as debt but that have
substantial equity features, the Plan's assets could be deemed,
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for purposes of ERISA and Section 4975 of the Code, to include both the equity
interest and an undivided interest in each of the underlying assets of the
entity. If the underlying assets of the entity are deemed to be Plan assets, the
obligations and other responsibilities of Plan sponsors, Plan fiduciaries, Plan
administrators, and parties in interest, under ERISA, and, disqualified persons
under the Code, under Parts 1 and 4 of Subtitle B of Title I of ERISA and
Section 4975 of the Code, as applicable, may be expanded. As a result, there may
be an increase in their liability under these and other provisions of ERISA and
the Code, except to the extent, if any, that a favorable statutory or
administrative exemption or exception applies. In addition, various providers of
fiduciary or other services to the issuer, and any other parties with authority
or control with respect to the issuer, could be deemed to be Plan fiduciaries or
otherwise parties in interest or disqualified persons by virtue of their
provision of such services. Although there is little guidance on the subject,
the transferor intends to take the position that, at the time of their issuance,
the notes should be treated as indebtedness without substantial equity features
for purposes of Section 2510.3-101. In analyzing these issues with their own
counsel, prospective purchasers of notes should consider, among other things,
that although special counsel has concluded that the notes are debt for federal
income tax purposes, it is not clear whether the notes would be treated as
issued by the issuer, the transferor or another person related to the
transferor.
Without regard to whether the notes are treated as an equity interest for
such purposes, the acquisition or holding of notes by or on behalf of a Plan
could be considered to give rise to a prohibited transaction if an affiliate,
the transferor, the issuer, the servicer, the indenture trustee or the owner
trustee is or becomes a party in interest, under ERISA, or disqualified person,
under the Code, with respect to such Plan. Certain exemptions from the
prohibited transaction rules could be applicable to the purchase and holding of
notes by a Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire the notes. The exemptions, even if applicable,
may not apply to all possible prohibited transactions and other violations of
ERISA and Section 4975 of the Code. By its acceptance of a note, each noteholder
will be deemed to have represented and warranted that its purchase and holding
of the note will not result in a nonexempt prohibited transaction under Section
406(a) of ERISA or Section 4975 of the Code.
PRIOR TO MAKING AN INVESTMENT IN NOTES, EMPLOYEE BENEFIT PLAN INVESTORS,
WHETHER OR NOT SUBJECT TO ERISA OR SECTION 4975 OF THE CODE, SHOULD CONSULT WITH
THEIR LEGAL AND OTHER ADVISORS CONCERNING THE IMPACT OF ERISA AND THE CODE, AND,
PARTICULARLY IN THE CASE OF NON-ERISA PLANS AND ARRANGEMENTS, ANY ADDITIONAL
STATE, LOCAL AND FOREIGN LAW CONSIDERATIONS, AS APPLICABLE, AND THE POTENTIAL
CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES OF AN INVESTMENT IN NOTES.
LEGAL INVESTMENT
The Class A-1 notes will be eligible securities for purchase by money market
funds under the Investment Company Act of 1940.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
the depositor has agreed to cause the issuer to sell to each of the underwriters
listed below, and each of the underwriters has agreed to purchase, the principal
amount of each class of the notes set forth opposite its name below. Under the
terms and conditions of the underwriting agreement, each of the underwriters is
obligated to take and pay for all of the notes if any are taken.
CLASS A-1 CLASS A-2 CLASS A-3
UNDERWRITERS NOTES NOTES NOTES
------------ --------- --------- ---------
PaineWebber Incorporated.............. $ $ $
[--------------------].................
Total..................................
The depositor has been advised by the underwriters that they propose
initially to offer the notes to the public at the prices set forth below, and to
selling group members at those prices less a selling concession not in excess of
the percentage set forth below for each class of notes. The underwriters may
allow, and the selling group members may also allow, a subsequent concession not
in excess of the percentage set forth below for each class of notes. After the
initial public offering, the public offering price and such concessions may be
changed.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT CONCESSION REALLOWANCE
-------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Class A-1 Notes % % % %
Class A-2 Notes
Class A-3 Notes
</TABLE>
The depositor does not intend to apply for listing of the notes on a national
securities exchange, but has been advised by the underwriters that they may make
a market in the notes. The underwriters are not obligated, however, to make a
market in the notes and may discontinue market making at any time without
notice. We cannot assure you as to the liquidity of the trading market for the
notes.
The depositor, the transferor and the servicer have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, each underwriter and
its affiliates have engaged and may in the future engage in commercial banking
and investment banking transactions with the depositor, the transferor and the
servicer.
After the initial distribution of the notes by the underwriters, this
prospectus supplement may be used by the underwriters or its successors, in
connection with offers and sales relating to market making transactions in the
notes. The underwriters may act as principal or agent in these
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transactions. The transactions will be at prices related to prevailing market
prices at the time of sale. Each underwriter is a member of the New York Stock
Exchange, Inc.
The underwriter is an affiliate of the depositor.
ADDITIONAL INFORMATION
PaineWebber Asset Acceptance Corporation has filed with the SEC a
registration statement (Registration No. 333-37164) under the Securities Act of
1933, as amended, with respect to the notes offered under this prospectus
supplement. This prospectus supplement and the accompanying prospectus, which
form a part of the registration statement, omit certain information contained in
the registration statement under the rules and regulations of the SEC. You may
read and copy the registration statement at the Public Reference Room at the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at the SEC's
regional offices at Seven World Trade Center, 13th Floor, New York, New York,
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Rooms. In addition, the SEC maintains a site
on the World Wide Web containing reports, proxy materials, information
statements and other items. The address is http://www.sec.gov.
EXPERTS
[The consolidated balance sheets of __________, the insurer, and subsidiaries
as of December 31, ____ and ____ and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for each of the three
years in the period ended December 31, ____, incorporated by reference in this
prospectus supplement. These statements have been so incorporated in reliance on
the report of __________, independent accountants, given on the authority of
that firm as experts in accounting and auditing.]
LEGAL MATTERS
The validity of the notes and certain federal income tax matters will be
passed upon for the depositor by Cadwalader, Wickersham & Taft, New York, New
York. [Certain legal matters will be passed upon for the insurer by __________,
__________ to the insurer.]
RATINGS
As a condition to the issuance of the Class A notes, the Class A-1 notes must
be rated "____" by __________________________________ and "___" by
_____________________________, and the Class A-2 notes and the Class A-3 notes
must be rated "___" by ___________________ and "___" by
__________________________.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time. The ratings assigned to
the offered notes address the likelihood of the receipt by noteholders of all
distributions to which such noteholders are entitled. The ratings assigned to
the offered notes do not represent any assessment of the
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likelihood that principal prepayments might differ from those originally
anticipated or address the possibility that noteholders might suffer a lower
than anticipated yield.
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GLOSSARY OF TERMS
"ABS" the prepayment model used in this prospectus supplement to measure
prepayments on Receivables.
"AMOUNT FINANCED" means, with respect to a Receivable, the amount advanced
under that Receivable toward the purchase price or refinancing of the
[automobile] [recreational vehicle] [motorcycle] [light duty truck] and any
related costs.
"APR" means annual percentage rate.
"AVAILABLE FUNDS" means, with respect to any Determination Date, the sum of:
(1) the Collected Funds for the related Collection Period,
(2) all Purchase Amounts deposited in the Collection Account during the
related Collection Period,
(3) the Monthly Capitalized Interest Amount with respect to the related
payment date,
(4) [the Yield Supplement Amount with respect to the related payment date,
and]
(5) following the acceleration of the notes pursuant to the indenture, the
amount of money or property collected by the indenture trustee with
respect to the assets of the issuer, from the sale of the assets or
otherwise since the preceding Determination Date.
"CAPITALIZED INTEREST ACCOUNT" is an account which is an asset of the trust
established with the indenture trustee, and will be pledged to the indenture
trustee for the benefit of the noteholders.
"CERTIFICATE DISTRIBUTION ACCOUNT" is a separate account maintained for the
purpose of making distributions to certificateholders.
"CERTIFICATEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with
respect to any payment date, the Certificateholders' Percentage of the Principal
Distributable Amount.
"CERTIFICATEHOLDERS' PERCENTAGE" means
(1) for each payment date prior to the payment date on which the Class A-3
notes are paid in full, _____%,
(2) on the payment date on which the Class A-3 notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the
excess, if any, of:
(a) the Principal Distributable Amount for the payment date over
(b) the outstanding principal amount of the Class A-3 notes immediately
prior to the payment date, and
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the denominator of which is the Principal Distributable Amount for
the payment date, and
(3) for each subsequent payment date to and including the payment date on
which the Certificate Balance is reduced to zero, 100%.
"CERTIFICATEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, with respect to
any payment date, the excess of the Certificateholders' Principal Distributable
Amount for the preceding payment date, over the amount in respect of principal
that was actually deposited in the Certificate Distribution Account on that
preceding payment date.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any payment date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for the payment date and the Certificateholders' Principal
Carryover Shortfall for the payment date. However, the Certificateholder's
Principal Distributable Amount may not exceed the Certificate Balance.
CLASS A-1 FINAL SCHEDULED PAYMENT DATE" is _______________, the date on which
the Class A-1 notes will be due.
"CLASS A-2 FINAL SCHEDULED PAYMENT DATE" is _______________, the date on
which the Class A-2 notes will be due.
"CLASS A-3 FINAL SCHEDULED PAYMENT DATE" is _______________, the date on
which the Class A-3 notes will be due.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTED FUNDS" means, with respect to any Determination Date, the amount
of funds in the Collection Account representing collections on the Receivables
during the related Collection Period, including all Net Liquidation Proceeds
collected during the related Collection Period.
"COLLECTION ACCOUNT" is an account established in the name of the indenture
trustee on behalf of the noteholders, the certificateholders and the insurer,
into which payments or other amounts received with respect to the Receivables
will be deposited.
"COLLECTION PERIOD" is any calendar month, or, in the case of the initial
Collection Period, the period from the Initial Cut-off Date to and including
_______________, 200_. References to the "Collection Period" in this prospectus
supplement shall mean the "remittance period" for purposes of the prospectus.
"CONTROLLING PARTY" means, [the insurer, so long as no Insurer Default
exists, and] the indenture trustee for the benefit of the noteholders, [for so
long as an Insurer Default exists]. However, the owner trustee for the benefit
of the certificateholders will be the Controlling Party after all unpaid
principal and interest on the notes [and all amounts owing to the insurer under
the insurance agreement] have been paid in full.
"CRAM DOWN LOSS" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding has issued an order
reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to:
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(1) the excess of the principal balance of the Receivable immediately prior
to the order over the principal balance of the Receivable as so reduced
and/or
(2) if the court has issued an order reducing the effective rate of interest
on the Receivable, the net present value of the scheduled payments with
respect to the Receivables as so modified or restructured. When
calculating this net present value, the discount rate will be the higher
of the annual percentage rate on that Receivable or the rate of interest,
if any, specified by the court in that order.
A Cram Down Loss will be deemed to have occurred on the date of issuance of
the order.
"CUT-OFF DATE" means, with respect to an Initial Receivable, the Initial
Cut-off Date, and, with respect to a Subsequent Receivable, the related
Subsequent Cut-off Date.
"DEFICIENCY CLAIM AMOUNT" on any Determination Date will equal the excess, if
any, of the sum of the amounts payable on the related payment date from the
Distribution Amount:
(1) to the servicer, any accrued and unpaid servicing fee for the related
calendar month to the extent not retained by the servicer;
(2) pro rata, all accrued and unpaid fees and expenses due and owing the
indenture trustee, the owner trustee, the backup servicer, the custodian
and the indenture collateral agent;
(3) to the Note Distribution Account, the Noteholders' Interest Distributable
Amount;
(4) to the Note Distribution Account, the Noteholders' Principal
Distributable Amount, to be distributed as described under "Description
of the Notes--Payments of Principal" in this prospectus supplement; and
(5) [to the Insurer, any amounts due and owing under the Insurance Agreement;
over the amount of Available Funds with respect to that Determination
Date].
"DETERMINATION DATE" is the ______ business day prior to each payment date.
"DISTRIBUTION AMOUNT" with respect to any payment date, the sum of:
(1) the Available Funds for the immediately preceding Determination Date,
plus
(2) [any amounts received with respect to the Deficiency Claim Amount, from
the Reserve Account, an Insurer Optional Deposit or otherwise other than
from draws under the Policy, by the indenture trustee, with respect to
the payment date].
"FINAL SCHEDULED PAYMENT DATES" are the Class A-1 Final Scheduled Payment
Date, the Class A-2 Final Scheduled Payment Date and the Class A-3 Final
Scheduled Payment Date referred to in this prospectus supplement.
"INITIAL CUT-OFF DATE" is __________, 200_.
"INITIAL PRE-FUNDED AMOUNT" a cash amount equal to approximately $ deposited
in the Pre-Funding Account on the closing date.
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"INITIAL RECEIVABLES" are [auto] [recreational vehicle] [motorcycle] [light
duty truck] [loans] [leases] assigned to the issuer on the closing date.
["INSURER DEFAULT" means the insurer is in continuing default on its
obligations under the Policy or where bankruptcy events have occurred with
respect to the insurer.]
["INSURER OPTIONAL DEPOSIT" means, with respect to any payment date, an
amount delivered by the insurer for deposit into the Collection Account for any
of the following purposes:
(1) to provide funds in respect of the payment of fees or expenses of any
provider of services to the issuer with respect to the payment date, or
(2) to include the funds to the extent that without those amounts a draw
would be required to be made on the Policy.]
"LIQUIDATED RECEIVABLE" means, with respect to any Determination Date, a
Receivable as to which, as of the last day of the related Collection Period,
(1) 60 days have elapsed since the servicer repossessed the asset underlying
the Receivable,
(2) the servicer has determined in good faith that all amounts it expects to
recover have been received,
(3) the asset underlying the Receivable has been sold and the proceeds
received or
(4) all or any portion of any scheduled payment by the obligor is 120 days or
more delinquent.
"NET LIQUIDATION PROCEEDS" means, with respect to any Liquidated Receivable,
all amounts, including insurance proceeds, realized with respect to the
Receivable, other than amounts withdrawn from the Reserve Account and drawings
under the Policy, net of
(1) reasonable expenses incurred by the servicer in connection with the
collection of the Receivable and the repossession and disposition of the
asset underlying the Receivable and
(2) amounts that are required to be refunded to the obligor on that
Receivable; provided that Net Liquidation Proceeds with respect to any
Receivable may not be less than zero.
"NON-U.S. PERSON" is a person who is not a U.S. Person.
"NOTE DISTRIBUTION ACCOUNT" is an account established and maintained by the
servicer, in the name of the indenture trustee, on behalf of the noteholders and
the insurer, in which amounts released from the Collection Account for
distribution to noteholders will be deposited and from which all distributions
to noteholders will be made.
"NOTE MAJORITY" means holders of 50% or more of the aggregate principal
balance of the notes.
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"NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any payment date,
the sum of the Noteholder's Principal Distributable Amount and the Noteholders'
Interest Distributable Amount.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to any
payment date,
o the excess of:
(1) the Noteholders' Interest Distributable Amount for the preceding
payment date, over
(2) the amount in respect of interest that was actually deposited in the
Note Distribution Account on the preceding payment date, plus
o interest on the amount of interest due but not paid to noteholders on the
preceding payment date, to the extent permitted by law, at the interest
rate borne by those notes from the preceding payment date to but excluding
the current payment date.
"NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
payment date, the sum of the Noteholders' Monthly Interest Distributable Amount
for the payment date and the Noteholders' Interest Carryover Shortfall for that
payment date.
"NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any payment date, the sum of the products for each class of Notes of:
(1) the product of the applicable interest rate for the class and 1/12 and
(2) the outstanding principal amount of the class of notes immediately
preceding the payment date.
"NOTEHOLDERS' PERCENTAGE" will be approximately %, for each payment date
until the Class A-3 notes have been paid in full, and then will be equal to
zero.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" for any payment date will equal
the sum of:
(1) the Noteholders' Percentage of the Principal Distributable Amount and
(2) any unpaid portion of the amount described in clause (1) with respect to
any prior payment date.
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, with respect to any
payment date:
o the excess of:
(1) the Noteholders' Principal Distributable Amount for the preceding
payment date, over
(2) the amount in respect of principal that was actually deposited in
the Note Distribution Account on the preceding payment date, plus
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o interest on the amount of principal due but not paid to noteholders on the
preceding payment date, to the extent permitted by law, at the interest
rate borne by those notes from such preceding payment date to but
excluding the current payment date.
"OWNER TRUST AGREEMENT" is the trust agreement under which the trust for the
transactions described in this prospectus supplement is formed.
"PLAN" is any:
(1) employee benefit plan as defined in Section 3(3) of ERISA,
(2) plan described in Section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans, or
(3) entity whose underlying assets include plan assets by reason of a plan's
investment in entities specified in clauses (1) and (2) above.
["POLICY" is a financial guaranty insurance policy issued by the insurer that
guarantees full and timely payment of the noteholders' distributable amount on
each payment date.]
["POLICY CLAIM AMOUNT" means, the amount by which (a) the portion of the
Distribution Amount available to make Scheduled Payments on the notes for any
payment date is less than (b) the amount necessary to make the Scheduled
Payments on the notes for that payment date.]
"POOL BALANCE" means, at any time, the sum of the Principal Balances of the
Receivables, excluding Purchased Receivables and Liquidated Receivables.
"PRE-FUNDED AMOUNT" is the Initial Pre-Funded Amount as reduced from time to
time during the Pre-Funding Period by the amount of the Initial Pre-Funded
Amount used to purchase Subsequent Receivables in accordance with the Sale and
Servicing Agreement.
"PRE-FUNDING ACCOUNT" is an account which will be established with the
indenture trustee which will be an asset of the trust and will be pledged to the
indenture trustee for the benefit the noteholders.
"PRE-FUNDING PERIOD" is the period from the closing date until the earliest
of:
(1) the date on which the amount on deposit in the Pre-Funding Account is
less than $__________,
(2) the occurrence of a servicer default under the Sale and Servicing
Agreement, or
(3) __________, 200_.
"PRINCIPAL BALANCE" for any Receivable, at any time, means the Amount
Financed minus:
(1) that portion of all amounts received on or prior to that date and
allocable to principal in accordance with the terms of the Receivable,
and
(2) any Cram Down Loss in respect of that Receivable.
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"PRINCIPAL DISTRIBUTABLE AMOUNT" with respect to any payment date will be an
amount equal to the sum of the following amounts:
(1) the principal portion, allocable on the basis of the simple interest
method, of all Collected Funds received during the immediately preceding
calendar month, other than Liquidated Receivables and Purchased
Receivables, including the principal portion of all prepayments;
(2) the Principal Balance of all Receivables that became Liquidated
Receivables during the related calendar month, other than Purchased
Receivables;
(3) the principal portion of the Purchase Amounts received with respect to
all Receivables that became Purchased Receivables during the related
calendar month;
(4) [at the option of the insurer,] the Principal Balance of the Receivables
that were required to be purchased by the transferor and the servicer
during the related calendar month but were not purchased; and
(5) the aggregate amount of Cram Down Losses that have occurred during the
related calendar month.
"PURCHASE AMOUNT" means, with respect to a Receivable, the Principal Balance
and accrued interest on the Receivable. This amount includes one month's
interest on the Receivable, in the month of payment, at the APR less the
servicing fee, after giving effect to the receipt of any moneys collected, from
whatever source, on such Receivable, if any.
"PURCHASED RECEIVABLE" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the servicer or repurchased
by the transferor or the originator pursuant to the Sale and Servicing
Agreement.
"RATING AGENCIES" are _______________ and _______________.
"RECEIVABLES" the Initial Receivables together with the Subsequent
Receivables.
"RECORD DATE" with respect to any payment date means the close of business on
the business day preceding that payment date.
"SALE AND SERVICING AGREEMENT" is the sale and servicing agreement dated as
of , 200_, between the originator, as seller and servicer, the transferor, the
depositor, the issuer and the indenture trustee, backup servicer and custodian.
["SCHEDULED PAYMENT" means payments which are scheduled to be made on the
notes during the term of the Policy in accordance with the original terms of the
notes when issued and without regard to any subsequent amendment or modification
of the notes or the indenture that has not been consented to by the Insurer,
which payments for each payment date are:
(1) the Noteholders' Interest Distributable Amount for such Payment Date and
(2) the Noteholders' Principal Distributable Amount.]
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"SERVICING FEE" is the fee to which the servicer is entitled under the Sale
and Servicing Agreement on each payment date for the related monthly period
equal to the sum of:
(1) the Servicing Fee Rate multiplied by the Pool Balance as of the first day
of the monthly period and
(2) the investment earnings, net of losses, on the Collection Account.
"SERVICING FEE RATE" is the rate, equal to ___%, at which the Servicing Fee
is paid.
"SUBSEQUENT CUT-OFF DATE" the dates designated by the transferor from time to
time as subsequent cut-off dates.
"SUBSEQUENT RECEIVABLES" are the [auto] [recreational vehicle]
[motorcycle] [light duty truck] [loans] [leases] assigned to the issuer from
time to time after the closing date and prior to .
"TRUST AGREEMENT" means any of the Sale and Servicing Agreement, the Owner
Trust Agreement, the indenture and any subsequent transfer agreement.
"U.S. PERSON" means:
(1) a citizen or resident of the United States;
(2) a corporation, partnership or other entity created or organized in or
under the laws of the United States, any state of the United States or
the District of Columbia, unless, in the case of a partnership, Treasury
regulations are adopted that provide otherwise, including an entity
treated as a corporation or partnership for U.S. federal income tax
purposes;
(3) an estate that is subject to U.S. federal income tax regardless of the
source of its income; or
(4) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more U.S.
Persons have the authority to control all substantial decisions of that
trust (or, to the extent provided in applicable Treasury regulations,
certain trusts in existence on August 20, 1996, which are eligible to
elect to be treated as U.S. Persons).
"WEIGHTED AVERAGE RATE" means, with respect to any date of determination, a
per annum rate equal to:
(1) the sum of:
(a) the product of (x) the outstanding principal amount of the Class A-1
Notes on that date and (y) the Class A-1 Interest Rate,
(b) the product of (x) the outstanding principal amount of the Class A-2
Notes on that date and (y) the Class A-2 Interest Rate, and
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(c) the product of (x) the outstanding principal amount of the Class A-3
Notes on that date and (y) the Class A-3 Interest Rate, divided by
(2) the outstanding principal amount of those notes on that date.
["YIELD SUPPLEMENT ACCOUNT" is an account that the transferor will establish
for the benefit of the noteholders and the insurer, which will initially be a
segregated trust account in the corporate trust department of the indenture
trustee.]
["YIELD SUPPLEMENT AMOUNT" with respect to any payment date will determined
by aggregating for all of the Receivables, one twelfth of the difference, if
positive, between
(1) the product of (a) the Principal Balance of the Receivable multiplied by
(b) a rate equal to the Weighted Average Rate plus approximately _____%,
which percentage represents the Servicing Fee Rate plus approximately
_____%, and
(2) the product of (a) the Principal Balance of the Receivable multiplied by
(b) the APR on that Receivable.]
S-65
<PAGE>
=========================================== ===================================
YOU SHOULD RELY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED
PROSPECTUS. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION.
WE ARE NOT OFFERING THESE NOTES IN ANY $___________ (APPROXIMATE)
STATE WHERE THE OFFER IS NOT PERMITTED.
------------------------------
TABLE OF CONTENTS __________________________
PROSPECTUS SUPPLEMENT OWNER TRUST 200__-____
Summary.................................S-1
Risk Factors............................S-8
Forward-Looking Statements.............S-12
Defined Terms..........................S-12 [LOGO OF _________]
The Trust..............................S-13
The Trust Fund.........................S-14
The Receivables Pool...................S-14
The Transferor.........................S-20 ________________________
The Depositor..........................S-20 ORIGINATOR AND SERVICER
THE ORIGINATOR And The Servicer........S-20
Weighted Average Life of the NOTES.....S-22
Description of the Notes...............S-26
Description of the Certificates........S-35 PAINEWEBBER ASSET
[The Insurer]..........................S-35 ACCEPTANCE CORPORATION
[The Policy]...........................S-37 DEPOSITOR
Description of the Trust Agreements....S-40
Certain Legal Aspects of the
Receivables..........................S-50
Federal Income Tax Considerations......S-50 ASSET-BACKED NOTES,
ERISA Considerations...................S-52 SERIES 200__-__
Legal Investment.......................S-53
Underwriting...........................S-54
Additional Information.................S-55
Experts................................S-55
Legal MATTERS..........................S-55 ----------------------------------
Ratings................................S-55 PROSPECTUS SUPPLEMENT
Glossary of Terms......................S-57 ----------------------------------
PROSPECTUS
[Summary of Terms......................
Risk Factors...........................
Defined Terms.......................... PAINEWEBBER INCORPORATED
The Trust Funds........................
The Issuers............................
The Receivables........................
Pool Factors...........................
Use of Proceeds........................ __________, 200__
The Depositor..........................
The Trustee............................
Description of the Securities.........
Description of the Trust Agreements....
Certain Legal Aspects of the
Receivables..........................
Federal Income Tax Considerations......
ERISA Considerations...................
Methods of Distribution ...............
Incorporation of Information by
Reference............................
Legal
Matters..............................
Financial
Information..........................
Additional Information
.....................................
Ratings................................
Glossary of Terms......................]
DEALERS WILL BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS OF THESE
SECURITIES AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN
ADDITION, ALL DEALERS SELLING THESE
SECURITIES WILL DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS UNTIL
____________, 200_.
=========================================== ===================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration and filing fees are estimated:
SEC Registration Fee...................... $ 79,200
Legal Fees and Expenses................... 300,000
Accounting Fees and Expenses.............. 80,000
Trustee's Fees and Expenses
(including counsel fees)............... 24,000
Printing Expenses......................... 50,000
Rating Agency Fees........................ 240,000
Insurer Fees and Expenses................. 200,000
Miscellaneous............................. 86,800
-----------
Total $ 1,060,000
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of 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 he is or was a director, 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, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he 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 his conduct was unlawful.
Subsection (b) of Section 145 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 or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter 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
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided by, or granted pursuant to,
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of 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 against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
The by-laws of the Depositor provide, in effect, that to the full
extent permitted by law, the Depositor shall indemnify and hold harmless each
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 and whether or not by or in the right
of the Depositor, by reason of the fact that he is or was a director or officer,
or his testator or intestate is or was a director or officer of the Depositor,
or by reason of the fact that such person is or was serving at the request of
the Depositor as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise of any type or kind,
domestic or foreign, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred as a
result of such action, suit or proceeding.
Pursuant to Section 145 of the General Corporation Law of Delaware,
liability insurance is maintained covering directors and principal officers of
the Depositor.
Section 6(b) of the proposed form of Underwriting Agreement provides
that each Underwriter severally will indemnify and hold harmless the Depositor,
each of its directors, each of its officers who signs the Registration
Statement, and each person, if any, who controls the Depositor within the
meaning of the Securities Act of 1933, as amended, against any losses, claims,
damages or liabilities to which any of them may become subject under the
Securities Act of 1933, the Securities Exchange Act of 1934 or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or an alleged untrue statement of a material
fact contained in the registration statement when it became effective, or in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made therein in reliance upon and in conformity with
certain written information furnished to the Depositor by such Underwriter,
specifically for use in the preparation thereof, and will reimburse the
Depositor for any legal or other expenses reasonably incurred by the Depositor
in connection with investigating or defending against such loss, claim, damage,
liability or action.
The Pooling and Servicing Agreement for each series of Certificates
and the Sale and Servicing Agreement for each series of Notes will provide that
no director, officer, employee or agent of the Depositor is liable to the Trust
Fund or the Certificateholders or the Issuer or the Noteholders, as applicable,
except for such person's own willful misfeasance, bad faith or gross negligence
in the performance of duties or reckless disregard of obligations and duties.
The Pooling and Servicing Agreement for each series of Certificates and the Sale
and Servicing Agreement for each series of Notes will further provide that, with
the exceptions stated above, a director, officer, employee or agent of the
Depositor is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such Pooling and Servicing
Agreement and related Certificates or such Sale and Servicing Agreement and
related Notes, as applicable, other than such expenses related to particular
Loans.
ITEM 16. EXHIBITS.
*1.1 Form of Underwriting Agreement for Notes.
*1.2 Form of Underwriting Agreement for Certificates.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 By-Laws of the Registrant.
*4.1 Form of Pooling and Servicing Agreement (including
form of Certificates).
*4.2 Form of Trust Agreement.
*4.3 Form of Indenture (including form of Notes).
*4.4 Form of Sale and Servicing Agreement (relating to
Notes).
*5.1 Opinion of Cadwalader, Wickersham & Taft with
respect to legality.
*8.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain tax
matters (included as part of Exhibit 5.1).
*10.1 Form of Receivables Sale Agreement.
*23.1 Consent of Cadwalader, Wickersham & Taft (included
as part of Exhibit 5.1).
*24.1 Power of Attorney.
------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
A. Undertakings pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(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 paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
The 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 (the "TIA") in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the TIA.
The Registrant hereby undertakes to provide to the underwriters at
the closing specified in the underwriting agreements certificates or notes, as
the case may be, in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
B. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, PaineWebber Asset Acceptance Corporation certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3, reasonably believes that the security rating requirement contained
in Transaction Requirement B.5 of Form S-3 will be met by the time of the sale
of the securities registered hereunder, and has duly caused this Pre-Effective
Amendment No. 1 to the 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 the 17th day of July, 2000.
PAINEWEBBER ASSET
ACCEPTANCE CORPORATION
By: /s/ Barbara Dawson
-------------------------------
Name: Barbara Dawson
Title: Managing Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph Piscina* President and Director July 17, 2000
--------------------------- (Principal Executive
Joseph Piscina Officer)
/s/ Daniel Leyden* Senior Vice President July 17, 2000
--------------------------- (Principal Accounting
Daniel Leyden Officer and Principal
Financial Officer)
/s/ Barbara Dawson Director July 17, 2000
---------------------------
Barbara Dawson
/s/ Michael T. Sullivan* Director July 17, 2000
---------------------------
Michael T. Sullivan
* Barbara Dawson, by signing her name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and previously filed with the Securities and Exchange
Commission.
By: /s/ Barbara Dawson
------------------------------
Barbara Dawson
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Number Description of Document
------ -----------------------
**1.1 Form of Underwriting Agreement for Notes.
**1.2 Form of Underwriting Agreement for Certificates.
**3.1 Certificate of Incorporation of the Registrant.
**3.2 By-Laws of the Registrant.
**4.1 Form of Pooling and Servicing Agreement (including form of
Certificates).
**4.2 Form of Trust Agreement.
**4.3 Form of Indenture (including form of Notes).
**4.4 Form of Sale and Servicing Agreement (relating to Notes).
**5.1 Opinion of Cadwalader, Wickersham & Taft with respect to
legality.
**8.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain
tax matters (included as part of Exhibit 5.1).
**10.1 Form of Receivables Sale Agreement.
**23.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibit 5.1).
**24.1 Power of Attorney (included on page II-6 of this Registration
Statement).
**Previously filed.
